COMMERCIAL, LITIGATION, AND DISPUTE RESOLUTION LAWYERS AND SOLICITORS FOR BRISBANE, THE GOLD COAST, AND THE SUNSHINE COAST QLD
Sections 12CA-12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) set out the protections that are afforded to consumers in relation to the supply of financial services. Sections 20-22 of the Australian Consumer Law grant equivalent consumer protections relating to the supply of all other goods and services.
The protections granted under the ASIC Act extend to conduct engaged in outside Australia:
Section 12CB of the ASIC Act states that ‘a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person or the acquisition or possible acquisition of financial services from a person engage in conduct that is, in all the circumstances, unconscionable.’
The term ‘unconscionable’ is not defined in the ASIC Act; according to its ordinary meaning, unconscionable conduct is conduct which is so far outside norms of acceptable behaviour that it is offensive to conscience. Unconscionable conduct is different from conduct which is merely unfair or unjust, and usually requires an element of dishonesty or moral fault.
In determining whether there has been unconscionable conduct under s 12CB, the court will have regard to the factors set out in s 12CC of the ASIC Act. These factors may include:
If the court finds that the conduct is not caught under the s 12CB prohibitions, it will look to apply s12CA, which encompasses unconscionable conduct at common law.
The common law test of unconscionable conduct was developed in the case of Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. This test sets out two circumstances whereby conduct will be deemed unconscionable:
In a recent Federal Court case, Westpac was ordered to pay a $1.8 million penalty for engaging in unconscionable conduct in the supply of financial services. The case concerned Westpac’s execution of a $12 billion interest rate swap transaction, the largest in Australian financial market history.
During negotiations, Westpac became aware of its client’s concern that pre-hedging – trading prior to the swap transaction – would affect the price of the transaction to the client’s detriment. Despite this awareness, Westpac acted on an internal plan to pre-hedge up to 50% of the interest rate risk that it expected to acquire when the transaction was completed. As a result, the client was exposed to significant financial risk.
In determining that Westpac’s conduct had been unconscionable under s 12CB of the ASIC Act, the Court took into consideration Westpac’s unreasonable failure to disclose the extent of its pre-hedging plan or to obtain its client’s consent; this meant that the client was prevented from making considered and informed decisions about the swap transaction.
A recent High Court case concerned unconscionable conduct by a lender engaged in asset-based lending – entering in loans secured by tangible property which can be seized if the loan is unpaid, with no consideration of the borrower’s ability to repay the loan through income or other assets. Through a law firm acting as a broker, the Lender entered in an asset-based loan secured by mortgages over three properties owned by the Borrower. Soon after entering into the loan, the Borrower defaulted on repayments and sold two of his properties.
The High Court held that there was nothing inherently unconscionable about the Lender’s practice of asset-based lending; however, the Broker’s attempts to enforce the Lender’s rights under the loan agreement were unconscionable both at common law and under the ASIC Act. The Court applied the Amadio test and determined that the Borrower had been at a special disadvantage due to his unemployment, lack of regular income and poor commercial literacy. The Lender, through the broker, was aware of this special disadvantage and exploited it by entered into a loan which the Borrower would inevitably fail to repay.
In February 2020, three companies were ordered to pay a total of $75 million in pecuniary penalties for engaging in unconscionable conduct in the supply of financial services.
The three companies operated separate businesses which provided over-the-counter derivative products to retail investors in Australia. Account managers were engaged to provide financial product advice on the companies’ behalf.
The court found that account managers engaged by the companies:
Many of the affected investors were at a disadvantage due to relatively low income and a lack of experience or understanding of the derivative products offered by the companies.
The High Court held that the pattern of behaviour of each of the companies formed a system of conduct that was unconscionable under s 12CB of the ASIC Act.
The protections granted by the ASIC Act operate to safeguard recipients of financial services from being taken advantage of by stronger parties so that they can make informed judgments as to their best interest.
If you feel that you have fallen victim to unconscionable conduct in the supply of financial services, contact us for advice on your situation and any options you may have.
Aitken Whyte Lawyers are focused on results.
Our commercial litigation lawyers have significant experience in dealing with unconscionable conduct in commercial and financial transactions.
If you believe you have been a victim of unconscionable conduct, we can help. We will work to ensure that justness and equity are upheld.
We can also assist if a claim for unconscionable conduct has been brought against you or your company.
We offer expert representation in and out of Court. Our knowledge and experience mean we can achieve the best results for our clients.
Contact us to speak to a commercial litigation lawyer about how we can assist you.
Brisbane
Aitken Whyte Lawyers Brisbane
2/414 Upper Roma Street
Brisbane QLD 4000
