Full Federal Court ruling provides vital clarification of law on statutory unconscionable conduct

The Full Federal Court has upheld an appeal by the ACCC and declared that Quantum Housing Group Pty Ltd engaged in an unconscionable system of conduct in its dealings with investors regarding the National Rental Affordability Scheme (NRAS), in breach of the Australian Consumer Law.

“This is an extremely important decision for all Australian consumers and businesses,” ACCC Chair Rod Sims said.

“The Full Court has made clear that for conduct to be held to be ‘unconscionable’ under the Australian Consumer Law and other similar laws, it is not necessary to establish that the business engaging in the conduct has exploited some disadvantage or vulnerability on the part of the consumers or small businesses affected, although this may often be the case.”

“The Full Court has confirmed that the correct approach to assessing statutory unconscionability is to focus on the conduct, and assess whether it is a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience,” Mr Sims said.

“Because this decision makes it clear that it is not necessary to demonstrate exploitation of vulnerability, it extends the reach of the statutory unconscionable conduct prohibition so that it will protect more consumers and small businesses against egregious conduct by corporations.”

In its proceedings against Quantum, the ACCC alleged that Quantum made false or misleading representations and engaged in systemic unconscionable conduct by pressuring investors in the NRAS to terminate agreements with their existing property managers and engage a property manager approved by Quantum. Quantum failed to tell investors that it had commercial links with the property managers it recommended.

The ACCC also alleged that Quantum’s sole director, Ms Cheryl Howe, was knowingly concerned in this conduct. Quantum and Ms Howe subsequently admitted liability for both false or misleading representations and unconscionable conduct.

In June 2020, the Court declared that Quantum had made false or misleading representations, but was not satisfied that its conduct was within the statutory notion of unconscionable conduct because it had not been demonstrated that the investors were at a disadvantage or had some vulnerability which had been exploited by Quantum.

He ordered Quantum to pay $700,000 in penalties and Ms Howe to pay a penalty of $50,000 for being knowingly concerned in the false or misleading conduct. He also made an order banning her from managing a corporation for three years.

The ACCC appealed from the trial judge’s decision to clarify whether special disadvantage was necessary to establish unconscionable conduct under the Australian Consumer Law. The ACCC did not appeal the penalty amounts, and Quantum and Ms Howe elected not to participate in the appeal. A contradictor was appointed to assist the Court by arguing against the ACCC’s appeal.

Background

The ACCC instituted proceedings against Quantum Housing in April 2019.

The Federal Court handed down its ruling on 9 June 2020, a ruling the ACCC appealed in July 2020.

Quantum ceased trading in December 2019 and is in liquidation.

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