Review of the Hire-Purchase Act 1959

Chapter Two

DEVELOPMENT OF HIRE-PURCHASE LAW

2.1 A hire-purchase agreement, being an agreement to hire coupled with an option (not an obligation) to purchase, developed in the middle of the nineteenth century as a means of financing the retail acquisition of furniture, sewing machines and musical instruments.[1] It is said that this rental-purchase method covered the acquisition of pianos in the 1840's and Singer sewing machines in the 1860's.[2] Two English cases of the 1890's consolidated the development of hire-purchase as a finance product.[3] The prevalence of hire-purchase increased in the early decades of this century. In the depression years of the 1930's however, abuse of the agreements became more prolific.

2.2 A feature of the hire-purchase transaction has been that the financier retains ownership of the goods until the completion of the hire-purchase agreement and, being the owner of the goods, becomes liable for defects of the goods.[4] Sweeping exemption clauses were therefore included in the agreements giving no recourse to the hirer if the goods were defective. An additional factor which preceded statutory regulation of hire-purchase transactions was the snatch-back practice. This involved the seizure of goods owned by the financier for the hirer's default without regard to the value of the goods, the payments already made by the hirer or matters of compensation following repossession. Consequently, remedial legislation was introduced in both England and Australia.[5]

2.3 In Australia, inadequacies with the legislation and differences in the regulation of hire-purchase transactions between states, led the Commonwealth and State Ministers to introduce a scheme of uniform legislation. The Committee notes that this was the first national scheme of uniform legislation developed between the Commonwealth and the States. It has been reported that the success of the hire-purchase exercise led to the establishment of the Standing Committee of Attorney-Generals.[6]

2.4 The popularity of hire-purchase, particularly in Victoria, had began to decline in the 1960's as a result of the operation of stamp duties law and the imposition of a two per cent stamp duty on hire-purchase agreements.[7] This decline led directly to the development of alternative transactions. One alternative was the unregistrable chattel mortgage.[8] This type of transaction comprises a contract for the sale of goods between a dealer and customer with finance provided under contract by a third party credit provider.[9] The chattel mortgage did not attract stamp duty.

2.5 A further substitute for the hire-purchase transactions was a goods lease, known as the `residual value lease' or the `implied purchase lease' or the `nods and winks lease'.[10] The use of the goods lease increased in the commercial field for the acquisition of vehicles, plant and equipment. The advantages of the goods lease in regard to income tax is that the lease payments may be claimed as a tax deduction when the goods leased are used for earning assessable income.[11]

2.6 The Standing Committee of Attorney-Generals referred the review of consumer credit and moneylending laws to a Committee in 1969.[12] The recommendations of this review included the repeal of hire-purchase and moneylending legislation along with the introduction of uniform consumer credit laws. However, until only very recently, the hire-purchase legislation remained in force in the Northern Territory, Queensland, Tasmania, Victoria and Western Australia.[13]

PREVIOUS INQUIRES

Report to the Attorney-General for the State of Victoria on Fair Consumer Credit Laws (the Molomby Report) 1972

2.7 The Molomby Report of 1972 concluded and found the state of the law in the field of consumer credit transactions to be unsatisfactory. The Report aimed at describing a legislative scheme which governed consumer credit transactions. The scheme was to be `simple, workable in the world of commerce and fair to consumers and credit providers alike'.[14]

2.8 The Molomby Report said of hire purchase agreements and the Act--

although the Hire Purchase Act regulates the form and contents (sections 3 and 4) of hire purchase agreements, it has not changed the legal nature of the agreement which received the approval of the House of Lords at the end of the 19th century Hire purchase is cumbersome and artificial.[15]

2.9 The repeal of the Hire Purchase Act 1959 was recommended along with the introduction of a uniform Credit Act in all Australian jurisdictions. The Report stated that it was considered essential that the proposed Credit Act should completely cover the field of consumer credit transactions. In submissions that the Act should be retained it was argued that hire-purchase was widely used and understood in Australia and caused no major difficulties for the public. It was also said that the consumer is adequately protected under the provisions of the Act. However, the Report stated--

..these arguments do not meet the argument based upon the need for legal form to correspond with commercial reality. Further they do not offer any way of dealing with the proliferating forms of consumer credit outside the field of hire-purchase. If legislation were adopted to deal with these other forms of transaction, and the Hire Purchase Act were preserved, there would be two major pieces of legislation dealing with transactions with different legal forms but with the same commercial substance. Inevitably uniformity would be sought in the legislation so that the same protections would be conferred no matter what form of transaction was adopted. .... (T)he wide understanding of hire-purchase is in reality, an understanding of the commercial substance of a hire-purchase transaction and not an understanding of its legal form.[16]

2.10 The Credit Act 1984 (Vic) was enacted as a consequence of the Molomby Report. However, that Act did not repeal the HPA as the Report had recommended.

Law Reform Commission of Victoria Report No 4 of 1986

2.11 In 1985 the then Attorney-General gave to the Law Reform Commission of Victoria a reference to inquire into commercial sales and leases of goods. As part of that inquiry the Commission was asked to consider whether the HPA should be repealed.

2.12 In the report the Law Reform Commission of Victoria stated that the HPA is commonly referred to as being part of consumer protection law.[17] The Act regulates hire-purchase transactions in the following ways-- first, it specifies the information which must be given to prospective hirers and governs the form and content of agreements. Secondly, it implies into hire-purchase agreements a set of conditions and warranties relating to such matters as title, quality of goods and fitness for purpose. Thirdly, the Act deals with termination of agreements, spelling out the procedure for repossession and providing a formula for calculating the amount payable by the hirer on repossession[18].

2.13 With the introduction of the Credit Act 1984 ("CA") Victoria retained the HPA to protect a small number of transactions under the Act which did not fall within the Credit Act 1984. These transactions were principally the hire-purchase of motor vehicles worth more than $20,000 and small business purchases of commercial vehicles. Hire-Purchase Acts had been repealed in New South Wales, Australian Capital Territory and South Australia along with the introduction of consumer credit legislation.

2.14 The Commission recommended the repeal of the HPA and the extension of the CA to cover transactions otherwise unprotected by the repeal of the HPA. To retain the protection which the HPA gives to purchasers of motor vehicles worth more than $20,000 and small business which use hire-purchase agreements to finance the acquisition of vehicles and equipment, the Law Reform Commission of Victoria argued that the CA should be extended to protect all consumer hire-purchasers of motor vehicles. It argued this should be irrespective of the price of the vehicle and that small business should be afforded protections by narrowing the exclusion of hire-purchase transactions for business purposes.

2.15 The matter had been brought to the attention of the Attorney-General principally because contracts under the HPA did not allow variable interest rates. It was argued before the Commission that the retention of the HPA was anomalous. Its existence along with the CA bore no relation to classes of persons protected by the Acts, each protecting a mix of consumer and commercial debtors.[19] The HPA was therefore seen as confusing and its continuing operation unduly complicating commercial transactions in Victoria. The rigidity of the legislation was also said to be stifling for business activity in Victoria which in turn led to the entering of contracts in jurisdictions where hire-purchase legislation did not apply.

2.16 The HPA was not repealed.

2.17 The HPA however continues to offer protections for transactions which fall outside the CA. This being for consumer transactions of more than $20,000 and for the acquisition of vehicles and equipment for business purposes. It was argued that without the regulation of such transactions commercial financing would be unregulated and governed by common law principles based upon a theoretical equality of bargaining power between the parties.[20]

2.18 The repeal of the HPA and the deregulation of a wide range of hire purchase transactions was perceived as beneficial to both parties to commercial hiring agreements. However, it was noted by the Commission that limited protection may be necessary or desirable for some hirers.

2.19 The LRC Report stated, in regard to statutory implied terms, that repealing the HPA would reduce the number of overlapping and sometimes inconsistent statutes implying terms into consumer credit transactions ( which may in some cases be subject to terms implied by Part V of the TPA, Part IV of the Goods Act 1958 and the Motor Car Traders Act 1973, as well as the HPA.) Some contracts into which terms are implied by the HPA are, however, outside the scope of these other statutes. If the HPA was repealed, hirers under such agreements would not have the protection of statutory implied terms[21]. The Commission noted there may be a need to widen other legislation to fill the vacuum.

CURRENT RELEVANT INQUIRIES

Commonwealth Financial System Inquiry

2.20 At a Commonwealth level, the Treasurer is inquiring into the Australian financial system. The Terms of Reference of the inquiry, chaired by Mr Stan Wallis, are as follows--

MISSION

The Inquiry is charged with providing a stocktake of the results arising from the financial deregulation of the Australian financial system since the early 1980s. The forces driving further change will be analysed, in particular, technological development. Recommendations will be made on the nature of the regulatory arrangements that will best ensure an efficient, responsive, competitive and flexible financial system to underpin stronger economic performance, consistent with financial stability, prudence, integrity and fairness.

SPECIFICS

1. The Inquiry will report on the results arising from the financial deregulation flowing from the Inquiry into the Australian Financial System ("Campbell Report") published in 1981. This will involve examining and reporting the consequences for:

a. the choice, quality and cost of financial services available to consumers and other users;
b. the efficiency of the financial system including its international and domestic competitiveness;
c. the economic effects of deregulation on growth, employment and savings;
d. the evolution of financial institutions and products offered by them and the impact on the regulatory structure of the industry.

2. The Inquiry will identify the factors likely to drive further change including:

a. technological and marketing advances;
b. international competition and integration of financial markets;
c. domestic competition in all its forms;
d. consumer needs and demand.

3. The Inquiry will make recommendations on the regulatory arrangements and other matters affecting the operation of the financial system (including prudential and other regulations made by the Reserve Bank and other bodies) as will:

a. best promote the most efficient and cost effective service for users, consistent with financial market stability, prudence, integrity and fairness;
b. ensure that financial system providers are well placed to develop technology, services and markets and that the financial system regulatory regime is adaptable to such innovation;
c. provide the best means for funding the direct costs of regulation;
d. establish a consistent regulatory framework for similar financial functions, products or services which are offered by differing types of institutions.

4. The Inquiry in its consideration of financial system regulation may not make recommendations on, but will take account of:

a. the objectives or procedures of the Reserve Bank in its conduct of monetary policy;
b. retirement incomes policies;
c. the regulation of the general operation of companies through corporations law;
d. policies for the taxation of financial arrangements, products or institutions.

5. In carrying out its investigations, the Inquiry may invite submissions and seek information from any persons or bodies.

6. A final report is to be provided to the Treasurer no later than 31 March 1997.

2.21 In a submission to the Wallis Inquiry, the Consumer Federation of Australia commented on the existence of different regulations across States stating--

Australia is a national market and non-uniform forms of regulations are a relic of colonial days. Insofar as regulation is concerned it is difficult to accept that a fragmented approach contributes to efficiency.

Consumer protection is more than a matter of prescriptive laws. It involves laws, disclosure practices, education effective enforcement and an acceptable redress system. A high level of quality in the regulatory apparatus should be the aim. It should be as simple as possible, easily accessible and impose compliance costs as low as possible.

... a quality consumer protection regime is one that supports fair competition. As the TPA demonstrates, a proper consumer protection regime adds no burden to honest traders and, indeed, rewards them by penalising those who seek dishonestly to exploit consumers. A properly functioning consumer protection scheme therefore benefits not only consumers. The honest service providers benefit because they are able to participate equally and the market benefits because consumers are confident and competition is not impeded.

Consumers have a vested interested in the preservation of competition. The absence of a competitive market place increases the possibility of market abuse.

2.22 Commenting on a requirement of disclosure within transactions, NatWest Markets Australia Limited, submitted to the Wallis Inquiry that--

one area in which considerable progress can be made is the harmonisation of disclosure rules applying to products offered by various market participants.

2.23 The New South Wales Farmers Federation specifically drew the attention of the Inquiry to financial matters concerning the rural sector and recommended that--

... a review be conducted by government of the history of all rural related loans held by major banks over the last ten years to establish definitely the actual loss ratio and for this to be tabulated against each of the other lending categories

financial institutions structure loan facilities to accommodate the irregular nature of farming enterprise cash flows.

Further, the NSWFF commented that--

At present the services provided by financial institutions do not meet the rural sector's requirements. More flexible and competitive products and facilities are needed.

2.24 Commenting on the ABA Code of Banking Practice, the NSWFF submitted that--

(T)he Code does not adequately redress the imbalance of bargaining power between lenders and farmers.[22]

While deregulation of the Australian financial sector has made wholesale banking extremely competitive and resulted in a narrowing of margins, there has been little change in the competitive structure of retail banking upon which the rural sector relies.

The agriculture sector has several specific requirements and concerns that the Australian financial sector is not addressing. .. there is a an urgent need for financial institutions to provide full accurate and open disclosure of information to customers.

The success of banking relationships depends on the capacity of financial institutions to understand and respond to clients needs. The profitability competitiveness and sustainibility of Australian agriculture will be strongly influenced by the ability of financial institutions to understand the cyclical nature of agriculture provide appropriate and competitive products and develop long term relationships with their viable customers.[23]

2.25 The Wallis Inquiry is expected to report to the Commonwealth Treasurer in March 1997. The Committee is of the view that some aspects of the evidence to be considered under the Wallis Inquiry may have a bearing on the matters also under consideration in the review of the Hire Purchase Act 1959.

Fair Trading Act 1985 (Vic)

2.26 The Committee is aware that the Fair Trading Act 1985 ("FTA") is under review by the Minister within the Office of Fair Trading and Business Affairs with a view to introducing a new bill or substantial amendments to the existing Act.

LEGISLATIVE CONTEXT

2.27 Legislation regulating aspects of a hire-purchase transaction may include--

TABLE OF ACTS

The provisions of the Hire Purchase Act 1959 will be examined in the following chapter of this report.

Credit Act 1984 (Vic)

2.28 The traditional view is that leasing and hire-purchase (a lease with an option to purchase) is not regulated by the Credit Act ("CA") simply because it is not credit (so defined by the Act as is not financial accommodation[24]), but rather the payment for the use of goods on an instalment basis. However the scope of s 13 of the CA which deems certain contracts for the hiring of goods to be credit sale contracts therefore, determines the scope of the HPA.[25] If the CA applies it takes precedence over the hire purchase legislation which then no longer applies.

2.29 Importantly, the debtor under a credit sale contract governed by the CA, becomes the owner of goods upon delivery or upon entering into the contract. The debtor will be taken to have given a mortgage of the goods to the credit provider who can only seize the goods in accordance with regulations made under the CA.[26]

2.30 In summary, hire and hire-purchase contracts are treated as credit sale contracts under the CA if--

* the cash price of goods is under $20,000 (or more if the goods include a commercial vehicle[27] or farm machinery;[28]
* goods are priced over $20,000;
* the debtor is not a company;
* the debtor has an option to purchase those or similar goods (or believes on reasonable grounds that such an option exists);
* the goods were not to be used wholly or mainly for business purposes;
* the greater part of the payments are not tax deductible.[29]

2.31 However, under s. 13(4)(a)(ii) of the CA all hire-purchase transactions involving commercial vehicles or farm machinery are exempt from the operation of the CA. The business use exemption means the CA will not apply where goods are used wholly or mainly for business purposes and the greater part of payments are tax deductible. The purpose of this exception has been explained as ensuring that income tax advantages which may accrue to a hirer of goods are not lost because a transaction may be deemed a credit sale.[30] Consequently, a contract for the hire of a commercial vehicle or farm machinery would fall within the exception so that the extension under the CA to the transactions of such goods, irrespective of price, is effectively negated.[31]

2.32 It is noted therefore, that the `business use' exemption largely makes the provisions for commercial vehicles and farm machinery meaningless. The argument is that it seems impossible to have a commercial vehicle which is not to be used for business purposes. The purpose of treating hire and hire purchase contracts as credit sale contracts regulated under the CA was to protect some small business people, particularly truck drivers and farmers, and to prevent avoidance of the Act by formulating transactions as leases or hire-purchase transactions rather than regulated credit sale or loan contracts.[32]

Consumer Credit (Victoria) Act 1995 (Vic)

2.33 A new scheme of uniform consumer credit laws has been introduced in all Australian states and became effective from 1 November 1996.[33] The uniform Consumer Credit Code arose from the intergovernmental Uniform Credit Laws Agreement 1993. The objectives of the scheme are to provide laws which apply uniformly and equally to all forms of consumer lending and to all lenders throughout Australia and are based on the principle of truth-in-lending.

2.34 In the second reading speech the Attorney-General, the Honourable Jan Wade gave the following account--

In May 1993, the Ministerial Council on Consumer Affairs reached unanimous agreement on broad principles to be contained in uniform consumer credit legislation. Later in the same year, all states and territories formally entered into an agreement known as the 'Uniform Consumer Credit Laws Agreement 1993'.

Under that agreement, Queensland undertook to introduce into the Queensland Parliament consumer credit legislation once such legislation had been unanimously approved by all parties to the agreement. The agreement further provides that Queensland undertakes to amend its legislation in accordance with resolutions passed by a majority comprising at least two-thirds of the parties to the agreement. Any state or territory which has chosen not to pass application of laws legislation but rather to pass alternative consistent legislation is obliged by the agreement to mirror the amendments as well.[34]

2.35 The principal objective of the Bill was defined as being to put into place consumer credit legislation in terms suitable for today's needs under a legislative arrangement which delivers and maintains uniformity throughout Australia.[35] The Attorney-General stated--

A fundamental principle of the code is that there should be the least possible restrictions on the nature and amount of fees and charges which can be imposed provided that all such fees and charges are adequately disclosed. It is proposed to have regulations requiring the significant financial details to be set out in tabular form in the front section of a pre-disclosure statement which must be given to a debtor before a contract is entered into.

The objective is to ensure that before any contract is entered into, the prime financial information is presented in a simple form so that the borrower can assess the true cost of any proposed credit transaction and make meaningful comparisons with competing products on offer.

2.36 The Code will apply[36] if--

* credit[37] is provided under a contract;
* the debtor is a natural person ordinarily resident in the jurisdiction or a strata corporation formed in the jurisdiction; and
* the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes[38]; and
* a charge is made for providing the credit; and
* the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.

2.37 It has been argued that it should be assumed that the Code will apply to any credit provided under a contract unless an exception can be found under the Code or regulations made under the Code.[39] A very wide meaning of credit is to be taken but limited to being provided under a contract and, importantly, for purposes which are wholly or predominantly for personal, domestic or household purposes.[40]

Fair Trading Act 1985 (Vic)

2.38 Part II of the Fair Trading Act 1985 (FTA) regulates unfair practices with section 11A providing that a person must not, in connection with the supply of goods or services to another person (the customer), engage in conduct that is, in all the circumstances unconscionable. The section sets out the matters to which a court may have regard in determining whether conduct is unconscionable.[41] The Act defines `supply' in relation to goods, as including supply be way of hire-purchase.[42] The application of section 11A is limited by subsection (5) which provides that the supply of goods or services of a kind ordinarily acquired for personal, household or domestic use or consumption.

Goods Act 1958 (Vic)

2.39 Part IV of the Goods Act 1958 ("GA") sets out conditions and warranties to be implied in certain sales and leases. For the purposes of this Act, a hire-purchase agreement falls within the meaning of an agreement to sell.[43] The GA provides that where the transfer of property in goods is to take place at a future time or subject to some condition to be fulfilled, the contract is an agreement to sell.[44] The GA will apply to sales and leases of goods where the cash price is under $20,000 or if above that amount if the goods are acquired for personal, domestic or household purposes.[45]

2.40 Section 85(1) provides for the application of this Part of the Act as--

... a reference to a sale is a reference to a contract of sale of, or an agreement to sell, goods and services where the cash price of the goods and services --

(a) is not more than $20,000; or
(b) is more than $20,000 and the goods and services are of a kind ordinarily acquired for personal, domestic or household use or consumption.

2.41 Section 86 of the GA provides for the terms to be implied in the sale of goods as to title and other matters as follows--

(1) In a sale of goods there is --

(a) an implied condition that in the case of a sale, not being an agreement to sell, the seller has a right to sell the goods and, in the case of an agreement to sell, the seller will have a right to sell the goods at the time when the property is to pass;
(b) an implied condition that at the time the property in the goods is to pass, the goods will be free from any charge or encumbrance other than a charge or encumbrance of which the buyer is aware when the sale is made and subject to which the buyer has agreed to accept the goods, and
(c) an implied warranty that the buyer will enjoy quiet possession of the goods except insofar as it may be disturbed by a person entitled to the benefit of a charge or encumbrance of which the buyer is aware when the sale is made and subject to which the buyer has agreed to accept the goods.

2.42 Chief Parliamentary Counsel identified sections 86, 89 and 90 as providing similar implied conditions and warranties in relation to title, merchantable quality and fitness for purpose as section 5 of the HPA. However, it was noted and the Committee advised that the GA does not exclude second-hand goods from the application of these provisions as it makes no distinction between new and second-hand goods. Further the GA stipulates that a term of sale which purports to exclude, restrict or modify the application of any provisions of Part IV; the exercises of a right conferred by such a provision or any liability of the seller for breach of an implied condition or warranty is void.[46]

2.43 The Committee was advised that section 102 of the GA includes similar rights against sellers, dealers and their agents as section 6 of the HPA.[47] Part IV also contains provisions dealing with innocent misrepresentation, antecedent negotiations and remedies.

Trade Practice Act 1974 (Cth)

Implied conditions and warranties

2.44 Division 2 of Part V of the Trade Practices Act 1974 (`TPA") sets out conditions and warranties to be implied into all consumer transactions. This division applies in relation to goods purchased by a consumer from a corporation.[48] For the purposes of this Act `acquire' includes, in relation to goods, goods acquired on lease, hire or hire-purchase.[49] A consumer is defined as a person who acquires goods where the price of those goods is $40,000 or less or, if the price is in excess of $40,000, the goods are ordinarily of a kind used for personal, domestic or household use or consumption or the goods are a commercial road vehicle (that is, a vehicle acquired for use principally in the transport of goods on public roads).[50]

2.45 Chief Parliamentary Counsel advised the Committee that Division 2 of Part V sets out implied conditions and warranties similar to those in Part IV of the GA, in sections 69 - 72. Section 68 provides that any term of a contract that purports to exclude, restrict or modify the application of division 2 Part V is void. Chief Parliamentary Counsel noted that the conditions and warranties in that division would apply to a hire-purchase (or lease or hiring) agreement for a commercial vehicle purchased from a corporation.[51]

2.46 Section 68A provides a limitation of liability for breach of certain conditions or warranties as follows--

68A. (1) Subject to this section, a term of a contract for the supply by a corporation of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 68 by reason only that the term limits the liability of the corporation for a breach of a condition or warranty (other than a condition or warranty implied by section 69) to:

(a) in the case of goods, any one or more of the following:

(i) the replacement of the goods or the supply of equivalent goods;
(ii) the repair of the goods;
(iii) the payment of the cost of replacing the goods or of acquiring equivalent goods;
(iv) the payment of the cost of having the goods repaired; or

(b) in the case of services:

(i) the supplying of the services again; or
(ii) the payment of the cost of having the services supplied again.

(2) Subsection (1) does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the corporation to rely on that term of the contract.

(3) In determining for the purposes of subsection (2) whether or not reliance on a term of a contract is fair or reasonable, a court shall have regard to all the circumstances of the case and in particular to the following matters:

(a) the strength of the bargaining positions of the corporation and the person to whom the goods or services were supplied (in this subsection referred to as "the buyer") relative to each other, taking into account, among other things, the availability of equivalent goods or services and suitable alternative sources of supply;
(b) whether the buyer received an inducement to agree to the term or, in agreeing to the term, had an opportunity of acquiring the goods or services or equivalent goods or services from any source of supply under a contract that did not include that term;
(c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); and
(d) in the case of the supply of goods, whether the goods were manufactured, processed or adapted to the special order of the buyer.

2.47 Chief Parliamentary Counsel advised the Committee that--

The TPA provides for liability of a corporation and a linked credit provider in respect of the simply of goods by way of leases, hire or hire-purchase for loss or damage suffered by a consumer as a result of misrepresentation, breach of contract, failure of consideration or breach of consideration or warranty.[52] This provision is comparable with section 6 of the HPA although the remedy is couched in different terms. Also the provisions relating to misleading or deceptive conduct[53] apply to hire-purchase transactions and, by virtue of section 6 of the Act, apply to individuals as well as corporations.[54]

Unconscionable conduct

2.48 Part IVA of the Act prohibits a corporation from engaging in unconscionable conduct. In particular, section 51AB provides that a corporation must not, in connection with the supply of goods or services to another person (the consumer) engage in conduct that is, in all the circumstances, unconscionable. The section sets out the matters to which the court may have regard in determining whether conduct is unconscionable.[55]

2.49 Section 51AA provides for unconscionable conduct within the meaning of the unwritten law of the States and Territories as follows--

51AA. (1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

(2) This section does not apply to conduct that is prohibited by section 51AB

2.50 Section 51AB provides--

(1) A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.

(2) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has contravened subsection (1) in connection with the supply or possible supply of goods or services to a person (in this subsection referred to as the "consumer"), the Court may have regard to:

(a) the relative strengths of the bargaining positions of the corporation and the consumer;
(b) whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation;
(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the corporation or a person acting on behalf of the corporation in relation to the supply or possible supply of the goods or services; and
(e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the corporation.

(3) A corporation shall not be taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of goods or services to a person by reason only that the corporation institutes legal proceedings in relation to that supply or possible supply or refers a dispute or claim in relation to that supply or possible supply to arbitration.

(4) For the purpose of determining whether a corporation has contravened subsection (1) in connection with the supply or possible supply of goods or services to a person:

(a) the Court shall not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the Court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

(5) A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.

(6) A reference in this section to the supply or possible supply of goods does not include a reference to the supply or possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade or commerce.

(7) Section 51A applies for the purposes of this section in the same way as it applies for the purposes of Division 1 of Part V.

2.51 The Committee is advised that, as in section 11A of the FTA, the operation of section 51AB is limited to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.[56]

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