As a business owner, you may have obligations under Australian Consumer Law to other businesses, not just consumers. Some laws prohibit unconscionable conduct and abuses of power in business-to-business (B2B) dealings, such as contracts with suppliers. This article will explain what constitutes unconscionable conduct, when the law will apply in a B2B context and what happens if you act unconscionably.
What is Unconscionable Conduct?
There is no set definition of unconscionable conduct under the law. Instead, the Courts will determine if the conduct is unconscionable on a case-by-case basis depending on what the community perceives as moral. Therefore, what is considered ‘unconscionable conduct’ is vast.
Typically, conduct will be unconscionable when it goes beyond being simply unfair and where you acted in bad faith. When making their decision, the courts will consider factors, such as:
- each party’s bargaining position;
- any undue influence, pressure, or unfair tactics; and
- a failure to disclose intended conduct or risks to the other party.
For example, a stronger bargaining position will not solely result in unconscionable conduct. However, if you know you have strong bargaining power over another party and use that position to demand additional fees or pressure the other party into entering the contract, this may be considered unconscionable conduct.
Does This Law Apply to Your Business?
To apply the laws prohibiting unconscionable conduct, you must prove that you are a ‘person in trade or commerce’. This means that you and the other party must have been contracting for business operation purposes. For example, a contract for purchasing basketballs between a supplier and a sporting goods retailer.
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Case Example: ACCC v Coles
The case between the ACCC and Coles Supermarket is an example of where the Courts found a company had acted unconscionably in a B2B dealing.
It was the first time the ACCC had commenced legal action against a company (in this case, Coles) for unconscionable conduct against other companies rather than a consumer. The ACCC alleged that Coles used unfair tactics and misrepresented information to ensure suppliers complied with its Active Retail Collaboration (ARC) program. Coles effectively abused its dominant bargaining position by demanding suppliers pay additional rebates outside the negotiated terms of the agreement. Accordingly, Coles’ unconscionable conduct inflicted significant detriment to small suppliers, thereby hindering the suppliers’ business and subsequently damaging consumer welfare and economic growth.
Ultimately, the parties reached a $10 million settlement provided Coles apologised and accepted full responsibility for its actions. It reaffirms that unconscionable conduct under consumer law can prevent prejudicial bargaining positions in a business context.
What Happens if Your Conduct is Unconscionable?
If the Courts decide that your actions were unconscionable, the following may occur:
- you may have to pay compensation;
- the contract may be deemed void or unenforceable;
- you may receive a fine; or
- the Court may order you to fix any problems caused by your behaviour.
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Key Takeaways
Under Australian Consumer Law, businesses must not engage in unconscionable conduct with consumers but also with other businesses. Therefore, if you have acted unconscionably in contractual dealings with another business, a court may hold that contract void. It is, therefore, important to ensure the terms in your contract do not infringe on any rights or abuse any bargaining power you may have in bad faith.
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Frequently Asked Questions
Any conduct that is taken in bad faith and is so harsh that it goes against community moral standards.
If the Courts decide that your actions were unconscionable, you may have to pay compensation, receive a fine, and be ordered to fix any problems your behaviour caused, and your contract may be void or unenforceable.
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