Unconscionable Conduct is prohibited under the Competition and Consumer Act 2010 (cth). The idea behind unconscionable conduct is to assist small businesses and consumers who become the unwitting targets of larger corporations. A small business solicitor should be consulted in the event that you feel like you have become the victim of unconscionable conduct.

What a court might consider

A court may take into account various circumstances of an allegation of unconscionable conduct, including:

  • The bargaining power of each party;
  • Any undue influence;
  • The extent to which ‘legitimate interests’ were protected, and whether the stronger party overstepped the mark;
  • Whether any information was miscommunicated to the party alleging misconduct;
  • Whether the treatment of other parties by the stronger party was comparable in other commercial transactions;
  • Whether the weaker party was able to supply the goods/services elsewhere;
  • Whether there was any lack of disclosure that may impact the interests of the weaker party;
  • Whether the negotiations between the parties were conducted ‘in good faith’;
  • The Franchising Code of Conduct;
  • Any applicable contracts that the parties have entered into; and
  • The conduct of both parties throughout their dealings.

The commercial strength of each party

A finding of unconscionable conduct will require the Court to assess the strengths and weaknesses of each party in the bargaining process. I.e. what is the relationship between the powerful franchisor and the franchisee?

Undue influence

Undue influence occurs when a stronger party uses their influential position to pressure a weaker party. Speak with a franchise solicitor if you feel like you have been the victim of undue influence.

This means that the weaker party, in certain circumstances, must show that the influence was such that its own conduct was forced or against its will.

If, however, a relationship of influence exists, the party benefiting from the agreement must prove that there was no undue influence imposed on the other party. Consult a franchise solicitor if this has happened to you.

The extent to which ‘legitimate interests’ were protected

Has a franchisor imposed conditions that were unnecessary to protect its ‘legitimate interest’? For example, penalty provisions that are excessive might constitute unconscionable conduct on the part of the franchisor. Consider speaking with a franchise solicitor if this has happened to you.

Whether any information was miscommunicated to the party alleging misconduct

Was there sufficient disclosure prior to entering the franchise agreement? Has the franchisor complied with the disclosure requirements? If a franchisee cannot understand English well, a translator should be sought so that the franchisor does not commit unconscionable conduct during negotiations.

To avoid this situation, advice should be sought from a franchise solicitor who can explain the importance of the disclosure documents being:

  • Clear and discernable, i.e. avoiding legalese; and
  • Accurate and concise.

It is also relevant whether or not the franchisee, in this case, was given advice to get independent legal advice to get a better understanding of the franchise agreement. The Franchising Code of Conduct requires franchisors to advise franchisees to seek legal advice or, alternatively, make an assurance in writing that they chose not to engage a lawyer.

Our advice: Always speak with a franchise solicitor before you enter into any franchise agreements.

Whether the weaker party was able to supply the goods/services elsewhere

The Court may also take into account whether the franchisee was made to sell its products or services for less than other franchisees, and whether there was some sort of justification for this requirement.

Whether the treatment of other parties by the stronger party was comparable to the treatment of the weaker party

Unconscionable conduct will not have been committed just because some parties negotiate better than other parties. If, however, there is no commercial basis for the discrepancy in what was paid between the two franchisees of the same system, there will most likely be a finding of unconscionable conduct.

Whether there was any lack of disclosure that may impact the interests of the weaker party

Any future event that the franchisor was aware of, yet failed to disclose, that may have negatively impacted the interests of the franchisee will become a consideration when the Court decides whether there is unconscionable conduct.

Whether the negotiations between the parties were conducted ‘in good faith’

Did the parties act in good faith? Or, did the stronger party (the franchisor) act unreasonably towards the franchisee during the negotiations phase?

Conclusion

For more information regarding unconscionable conduct and what constitutes unconscionable conduct, contact LegalVision to speak with an experienced franchise solicitor. We are ready and willing to assist you with any, and all, of your legal needs.

Lachlan McKnight

Next Steps

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