The Impact of Section 51AC of the Trade Practices Act 1974 (Cth) on Commercial Certainty

By Brown, Liam | Melbourne University Law Review, December 2004 | Go to article overview

The Impact of Section 51AC of the Trade Practices Act 1974 (Cth) on Commercial Certainty


Brown, Liam, Melbourne University Law Review


[Section 51AC of the Trade Practices Act 1974 (Cth) was introduced in 1998 to protect small business from unconscionable conduct. This initiative was taken following a number of government reports that highlighted the exploitation some small businesses suffer at the hands of larger businesses. This article argues that legislative intervention in this context is justified and that the mechanism adopted by s 51AC is appropriate. Indeed, the provision is neither likely to undermine commercial certainty nor have a significant impact on business activity. The Australian judiciary has thus far been cautious in its approach to the interpretation of obligations contained in the provision, limiting its use to cases that satisfy a threshold test of demonstrated 'serious misconduct' during contractual formation or performance, or 'bad faith' in the exercise of contractual rights. This balanced approach accords with nearly 50 years of experience with a comparable statutory commercial unconscionability provision in the United States.]

CONTENTS

I   Introduction
II  Classical Contract Theory and General Law Unconscionability
        A Classical Contract Theory and Economic Background
        B General Law Unconscionability
III The Protection of Small Business and Statutory Unconscionability
IV  The Legislative Provisions--Expanding Unconscionability
        A The Protection Offered by Section 51AA
        B The Protection Offered by Section 51AC
V   Good Faith and Its Impact on Certainty
VI  The United States Experience
        A Comparing Contract Law in Australia and the United States
        B Unconscionability under the Uniform Commercial Code
        C Good Faith and Unconscionability in the United States
        D Parallels between Unconscionability in Australia and the
          United States
VII Judicial Caution with Section 51AC
        A Trickle or Flood?
        B The Scope of Section 51AC
              1 Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty
                Ltd
              2 Hurley v McDonald's Australia Ltd
              3 Australian Competition and Consumer Commission v Simply
                No-Knead (Franchising) Pty Ltd
              4 Summary of the Case Law
        C Good Faith?
              1 Automasters Australia Pty Ltd v Bruness Pty Ltd
              2 Boral Formwork & Scaffolding Pty Ltd v Action Makers'
                Ltd
        D The Direction of Australian Case Law
VIII Conclusion

I INTRODUCTION

Part IVA of the Trade Practices Act 1974 (Cth) ('TPA') contains three sections that prohibit corporations from engaging in unconscionable conduct: ss 51AA, 51AB and 51AC. Section 51AC was added to the TPA in 1998 following concerns that existing statutory and common law causes of action did not adequately protect small businesses against unfair or exploitative conduct. To achieve this protection, s 51AC proscribes 'conduct that is, in all the circumstances, unconscionable' (1) in connection with dealings with small businesses. Some commentators view this legislatively-imposed standard of business behaviour as an affront to the fundamental legal and economic need for commercial certainty. (2) Uncertainty is said to arise because s 51AC empowers courts to review contractual dealings not according to rational rules of coherent application, but against nebulous behavioural standards based on fairness. This article will show, however, that the extent of commercial uncertainty is well controlled by the provisions of s 51AC, where the content of business conduct proscribed can be ascertained with adequate clarity. This has been evinced by a developing jurisprudence that requires satisfaction of a threshold before the section will apply. This threshold has been articulated as the existence of 'serious misconduct or something clearly unfair or unreasonable' (3) on the part of the defendant. Serious misconduct involves pre-contractual misbehaviour or an absence of good faith or other abuses during contractual performance. …

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