Australian Competition & Consumer Commission v C G Berbatis Holdings Pty Ltd

The Questions 4 In raising the question as to the validity of s 51AA the Court referred to the decision of the High Court in State of Western Australia v Commonwealth (1995) 183 CLR 373 ("the Native Title Act case") which held invalid s 12 of the Native Title Act 1993 (Cth). That section provided: "Subject to this Act, the common law of Australia in respect of native title has, after 30 June 1993, the force of a law of the Commonwealth." Section 51AA(1) of the Trade Practices Act provides: "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." While accepting that the language of s 51AA differs from that of s 12, the Court was of the opinion that it was seriously arguable that the section suffers from the same vice as s 12 of the Native Title Act. The High Court in striking down s 12 of the Native Title Act said at 485: "If the "common law" in s 12 is understood to be the body of law which the courts create and define, s 12 attempts to confer legislative power upon the judicial branch of government. That attempt must fail either because the Parliament cannot exercise the powers of the Courts or because the Courts cannot exercise the powers of the Parliament." The preliminary questions raise the issue whether the reasoning of the High Court in relation to s 12 of the Native Title Act also applies to impugn the validity of s 51AA by reason of its apparent adoption of the unwritten law with respect to unconscionable conduct. Unconscionability in the Trade Practices Act 5 The question whether the Trade Practices Act should make provision for the prohibition of unconscionable conduct was raised in the August 1976 Report of the Trade Practices Act Review Committee to the Minister for Business and Consumer Affairs, (AGPS Canberra 1976), otherwise known as the Swanson Committee Report. The Committee rejected suggestions for a general prohibition of "unfair" conduct as contained in the US Federal Trade Commission Act on the grounds of the uncertainty it would introduce into commercial transactions. It did, however, see advantages in prohibiting unconscionable conduct or practices in trade or commerce "but as a civil matter only". The Committee so recommended principally to give the Act a greater ability to deal with the problem of general disparity of bargaining power between buyers and sellers (par 9.59). Unconscionability was seen by the Committee "as a standard quite apart from, and usually not encompassed by, the standards of misleading or deceptive conduct". The Committee equated it to the "standard which historically developed under the equitable jurisdiction of the courts" and which had been adopted in various State and Territory statutes (par 9.60). 6 There was no immediate legislative response to the Swanson Committee's recommendation. However, in 1984 a Green Paper containing a draft provision dealing with unconscionable conduct was published by Government - The Trade Practices Act: Proposals for Change (AGPS, Canberra 1984). The draft provision in the Green Paper did not offer any definition of unconscionable conduct, although it set out factors the Court could consider in making a finding of such conduct. In the event it did not pass into law. In 1986, however, the Trade Practices Revision Act 1986 (No 17 of 1986) introduced s 52A into the Act, the primary provision of which was thus: "52A(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." The supply of goods or services covered by the section was limited by s 52A(5) to "goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption". Unconscionable conduct was not defined but there were facts specified to which the Court might have regard in deciding whether there had been a contravention. These were, relative strength of bargaining position, what conditions imposed on the consumer were reasonably necessary for the protection of the legitimate interests of the corporation, the consumer's understanding of relevant documents, whether undue influence or pressure was exerted or unfair tactics used against a consumer and the amount for which and circumstances under which the consumer could have acquired identical goods or services from a person other than the corporation. 7 In 1990, the Beddall Report, a Report by the House of Representatives Standing Committee on Industry, Science and Technology entitled "Small Business in Australia: Challenges, Problems and Opportunities", January 1990 (AGPS, Canberra, 1990), recommended that s 52A be extended to include small business transactions including retail/commercial tenancy agreements where a small business is disadvantaged in the same way as a consumer in its dealings with other parties. The subsequent Cooney Report, however, by the Senate Standing Committee on Legal and Constitutional Affairs, "Mergers, Monopolies and Acquisitions: Adequacy of Existing Legislative Controls", December 1991 (AGPS, Canberra, 1991), recommended against extending the statutory concept of unconscionability to commercial transactions. Indeed the Committee recommended the repeal of s 52A. In 1991 the former Trade Practices Commission recommended that broad notions of unconscionability should not be extended to commercial transactions which should continue to be governed by the principles underlying the equitable doctrine of unconscionability. However the Commission did recommend that the principles be embodied in a new part of the Trade Practices Act to allow access to the remedies found under the Act - Report of the Trade Practices Commission to the Attorney General and Minister for Small Business and Customs - "Unconscionable Conduct and the Trade Practices Act: Possible Extension to Cover Commercial Transactions", July 1991 (AGPS, Canberra, 1991). The Report of the Franchising Taskforce to the Minister for Small Business and Customs (December 1991) again recommended against extending statutory principles of unconscionability to a commercial setting, namely franchising arrangements. 8 In 1992, the Government accepted the recommendation of the Trade Practices Commission and enacted Part IVA which introduced ss 51AA and 51AB (the old s 52A) into the new Act. This amendment was effected by the Trade Practices Legislation Amendment Act 1992 (Cth). The Explanatory Memorandum explained the introduction of Part IVA as follows: "A new Part IVA is to be inserted into the Act, dealing with unconscionable conduct. The existing section 52A is to be moved to Part IVA, and a new provision will be created dealing with unconscionable conduct in circumstances not already dealt with by section 52A. The new provision will not extend the existing equitable principles of unconscionability, but will make available remedies under the Trade Practices Act and make possible the involvement of the Trade Practices Commission." The new provision was s 51AA of which the Explanatory Memorandum said specifically, inter alia: "The provision embodies the equitable concept of unconscionable conduct as recognised by the High Court in Blomley v Ryan (1956) 99 CLR 362 and Commercial Bank of Australia v Amadio (1983) 151 CLR 447." (par 41) This, may turn out to have been an unduly narrow selection of case law given the range of equitable doctrines involving the application of the concept of unconscionable conduct. But it conveys at least that the section was not intended to extend its application beyond the cases recognised at equity from time to time. The Explanatory Memorandum went on: "The advantages of providing a statutory prohibition for conduct which is already dealt with by equity lie in the availability of remedies under the Principal Act, the potential involvement of the Commission including the possibility of representative actions, and the educative and deterrent effect of a legislative prohibition in the Principal Act." (par 44) The reference to "the unwritten law, from time to time, of the States and Territories" was explained as denoting the non-statutory law as developed by the Courts of common law and equity. It was accepted as one body of law: "Because of the position of the High Court of Australia as the ultimate appellate court for all States and Territories, the "unwritten law" of the States and Territories is the same. If a court in a State or Territory were thought to deviate from the principles recognised by the High Court, another court exercising its jurisdiction in relation to section 51AA would not be bound to follow that deviation, unless it was satisfied that to do so was consistent (or at least not inconsistent) with the law as recognised by the High Court from time to time." (par 45) For completeness it should be observed that in 1998 Part IVA was further amended by the introduction of s 51AC which provides in s 51AC(1): "A corporation must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable." The same wording is repeated in subs 51AC(2) using the word "person" instead of "corporation". The concept of unconscionable conduct is not defined but in subs 51AC(3) various factors are set out to which the Court may have regard when considering whether there has been a contravention. The introduction of s 51AC into Part IVA follows the recommendations of the Report by the House of Representatives Standing Committee on Industry, Science and Technology, 1997, Finding a Balance - Towards Fair Trading in Australia (the Reid Report).

The Unwritten Law of the States and Territories 9 The Explanatory Memorandum to the Trade Practices Legislation Amendment Act made clear that the "unwritten law of the States and Territories" in s 51AA refers to the law developed by the courts of common law and equity. The section also uses the term distributively referring to one body of unwritten law. The reference to States and Territories is an acknowledgment of their courts as a primary source of the unwritten law. Differences in that law will be resolved by the High Court as the ultimate appellate court for each of them. 10 The proposition that the unwritten law of the States and Territories is one body of unwritten law for the whole of Australia is now well established although it was the subject of controversy in the past. It was accepted early by Quick and Garran: "Throughout the Commonwealth of Australia, the unlimited appellate jurisdiction of the High Court will make it - subject to review by the Privy Council - the final arbiter of the common law in all the States. The decisions of the High Court will be binding on the courts of the States; and thus the rules of common law will be - as they always have been - the same in all the States. In this sense, that the common law in all the States is the same, it may certainly be said that there is a common law of the Commonwealth." Annoted Constitution of the Australia Commonwealth (1901 - Reprinted by Legal Books, Sydney, 1976) p 785. Inglis Clark took a different view. The High Court would have jurisdiction "to decide questions arising under whatever portion of the common law will from time to time constitute a portion of the law of any State" - Studies in Australian Constitutional Law (1901 - Reprinted by Legal Books, Sydney, 1997) p 192. This did not extend to identification of a mechanism for establishing a common law of Australia. Except in relation to the executive powers of the Crown there could not be any federal common law in Australia. Moreover the federal courts of the Commonwealth could not possess any jurisdiction under the common law. The latter proposition was falsified in practice by the development of doctrine relating to the accrued jurisdiction of federal courts to deal with claims arising under the Commonwealth law and non-federal statutes. That accrued jurisdiction derives from the language in which Chapter III of the Constitution defines the heads of federal jurisdiction - Fencott v Muller (1983) 152 CLR 570; Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261. Priestley J, in a helpful article in the Public Law Review, compared the Australian and United States positions on this topic, pointing out that at one time the High Court's position, at least with respect to the concept of federal common law, was similar to that of Inglis Clark - R v Kidman (1915) 20 CLR 425, see Priestley, A Federal Common Law in Australia (1995) 6 PLR 221 at 229-230. 11 The High Court has recently, since argument in this case, delivered judgment in Lipohar v R [1999] HCA 65. That case concerned persons charged in South Australia with the offence of conspiracy at common law. The conspiracy was formed and performed outside South Australia but had as its target a South Australian company. The High Court held that the Supreme Court of South Australia had jurisdiction to entertain the charges. In so holding, it affirmed the existence of a single common law of Australia, rather than a mosaic of bodies of State and Territory common law. This had been foreshadowed in a number of decisions in recent years - see Mabo v Queensland (No 2) (1992) 175 CLR 1 at 15; Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 at 556; Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 557 and Wik Peoples v Queensland (1996) 187 CLR 1 at 176. In Lange v Australian Broadcasting Corporation (1997) 189 CLR 520, at 564 it was said: "The Constitution, the federal, State and territorial laws, and the common law in Australia together constitute the law of this country and form "one system of jurisprudence"." In Kable v Director of Public Prosecutions (NSW) (1996) 189 CLR 51, at 112, McHugh J said: "Unlike the United States of America where there is a common law of each State, Australia has a unified common law which applies in each State but is not itself the creature of any State." That observation was adopted in the joint judgment of Gaudron, Gummow and Hayne JJ in Lipohar at par 43. Their Honours rejected the proposition that there is more than one common law in Australia or that there is a common law of individual states, as ignoring the central place which precedent has in both understanding the common law and explaining its basis (at par 44). The unity of the common law in Australia depends upon the position of the High Court "placed by s 73 of the Constitution at the apex of a judicial hierarchy to give decisions upon the common law which are binding on all courts, federal, state and territorial." Where the High Court has not ruled on a matter, the rules for decision in the court below it in the hierarchy are defined by doctrines of precedent. Accepting that there will be times when the intermediate appellate court does not speak with one voice, it would not follow that a common law rule enunciated by the appellate court of one State would or should remain peculiar to that State (par 50). 12 The statutory formula in s 51AA, referring to the unwritten law of the State and Territories from time to time, must be taken to be the common law of Australia. This is consistent with the legislative intent disclosed in the Explanatory Memorandum and with the law as most recently restated in Lipohar. Jurisdiction in matters coming under Part IVA is conferred on both the Federal Court and the civil courts of the States within the limits of their several jurisdictions (s 86).

The Scope of Unconscionable Conduct 13 The word "unconscionable" which describes the conduct prohibited by s 51AA has as its ordinary meaning "showing no regard for conscience; irreconcilable with what is right or reasonable" - Shorter Oxford English Dictionary. So defined, its links to the origins of equity are clear:

"The object of the Court of Chancery was, in the first instance, the purification of the defendant's conscience. It was a cathartic jurisdiction. If a person is allowed to remain in possession of property which it is against conscience for him to retain, his conscience will be oppressed; and the court, out of tenderness for his conscience, will deprive him, notwithstanding his resistance, of what is so heavy a burden upon it.

This principle is at the bottom of the leading doctrines of the court." - Browne, Ashburner's Principles of Equity, 2nd Edition, Butterworths, London 1933 at 38-39 14 The fundamental principle according to which equity acts is that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct - Legione v Hateley (1983) 152 CLR 406 at 444 (Mason and Deane JJ). So it can be said that the overriding aim of all equitable principle is the prevention of unconscionable behaviour - a term which can be seen to encompass duress, undue influence and "unconscionable dealing as such" - Hardingham, Unconscionable Dealing in Finn (ed) Essays on Equity (LBC, 1985, p 1). This is not to say that unconscionable conduct within the meaning of the unwritten law, as it presently stands, is any conduct which attracts the intervention of equity. Too broadly defined it may become, in the words of Professor Julius Stone, a "category of meaningless reference" - see Stone, Legal System and Lawyers' Reasonings (Sydney: Maitland Publications Pty Ltd, 1968) pp 241-246 and pp 339-341. In Parkinson, The Notion of Unconscionability Laws of Australia 35.5 at p 8, four categories of doctrine are identified which the application of the concept of unconscionability: (i) Exploitation of vulnerability or weakness. (ii) Abuse of position of trust or confidence. (iii) Insistence upon rights in circumstances which make that harsh or oppressive. (iv) Inequitable denial of legal obligations. There are, it is suggested by Parkinson, three broad standards underlying the doctrines: (i) That those in positions of strength or influence should not take advantage of another's relative weakness. (ii) That people should not by appeal to strict legal rights cause hardship to others by violating their reasonable expectations. (iii) That those in fiduciary positions should act only in the interests of those to whom those fiduciary duties are owed. The desirability of a meaningful taxonomy has been supported by reference to the contrast between the concepts of unconscionability and unjust enrichment: "Whereas unconscionable conduct is the concern of equitable doctrines such as promissory estoppel, "unjust" qualifies the concept of enrichment, which does not refer to conduct but to a particular outcome. Further, though unconscionability remains an open-textured notion, which seeks to test the standards of the defendant's conduct against some bench-mark, the notion only comes into play after reference to the operative criteria of, say, promissory estoppel, have filtered out most fact situations. In other words, the question of whether someone has acted unconscionably does not roam at large. Randomly asking whether people have behaved "unconscionably" would be quite a meaningless exercise. Instead, such a question is asked only after certain specific requirements have been met." - Dietrich, Restitution: A New Perspective (Federation Press, 1998) p 48. 15 Australian case law has been concerned about unconscionable conduct within the framework of specific doctrines identifying particular classes of conduct albeit their boundaries tend to be blurred by the generality of the notion of unconscionability in equitable doctrine. One such class of conduct is the unconscientious exploitation by one person of the serious disadvantage of another to secure the disposition of property or the assumption of contractual or other obligations by the weaker party. The kind of disadvantage which will attract equity's intervention in such cases may have many faces. Their variety is so great that they elude satisfactory classification - Blomley v Ryan (1956) 99 CLR 362 at 405 (Fullagar J). A distinction has been drawn between unconscionable dealing in this context and undue influence on the basis that the former looks to the conduct of the stronger party in attempting to enforce or retain the benefit of a dealing while the latter looks to the quality of consent or assent of the weaker party - Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474 (Deane J). It is, however, only a small step to classify both under the rubric of unconscionable conduct. Mason J, at 461, referred to the historic jurisdiction of the court to set aside contracts and other dealings on a variety of equitable grounds including fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct, saying: "In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage…". In Louth v Diprose (1992) 175 CLR 621, Brennan J accepted the distinction between the jurisdictions, to set aside gifts obtained by undue influence and those obtained by unconscionable conduct, but nevertheless saw them as being set aside by equity on substantially the same basis. He cited with evident approval the statement in White and Tudor's Leading Cases in Equity 9th Edition (1928) Vol 1 p 203 ff, that the principle applied in cases of unconscionable conduct is an extension of the principle applied in cases of undue influence (627). The distinction between the doctrines was restated in Bridgewater v Leahy (1998) 194 CLR 457, a case involving disposition of land by an elderly man to his nephew for whom he had an emotional attachment. Each doctrine was said, in the majority judgment, to be "a species of that genus of equitable intervention to refuse enforcement of or to set aside transactions which, if allowed to stand, would offend equity and good conscience." (478). The distinction as in Amadio was between consideration of the quality of the assent of the weaker party in the case of undue influence and the attempted enforcement or retention of the benefits of a dealing with a person under a special disability in the case of unconscionable dealing. In Garcia v National Australia Bank Ltd (1998) 194 CLR 395 the concept of unconscionable conduct was applied as against a creditor to the case of a married woman who had entered into a mortgage over her matrimonial home and signed guarantees to secure loans for her husband's business. It was held that the enforcement of the relevant guarantee would be unconscionable notwithstanding no actual undue influence by the husband. The transaction was voluntary, the wife did not understand its purport and effect, and the creditor was taken to have understood that the wife might repose trust and confidence in her husband in matters of business and that the husband may not have fully and accurately explained the transaction to his wife. The creditor did not take steps to explain the transaction to his wife or find out that she had had some independent advice. Yerkey v Jones (1940) 63 CLR 649 was followed. The word "unconscionable" had not appeared in any of the judgments in that case. Nevertheless it was supported in Garcia under that rubric. 16 Unconscionable conduct underpins the doctrine of equitable estoppel and in particular promissory estoppel as a species of estoppel by conduct. The case law reviewed by Mason CJ and Wilson J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 disclosed a common thread linking them together. That was the principle that equity will come to the relief of the plaintiff who has acted to his detriment on a basic assumption in relation to which the other party to the transaction has played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it - citing Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 675 (Dixon J) and Thompson v Palmer (1933) 49 CLR 507 at 547. Their Honours said, at 404: "Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption." 17 Brennan J expressed it thus, at 423: "The unconscionable conduct which it is the object of equity to prevent is the failure of a party, who has induced the adoption of the assumption or expectation and who knew or intended that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion. The object of the equity is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon." Deane J, who extended the doctrine to representations or assumptions about future actions or inaction, also related that application to the preclusion of unconscionable conduct (at 450). 18 The proposition that equity will relieve against unconscionable conduct supported the concept of promissory estoppel as an emanation of estoppel by conduct discussed in Commonwealth of Australia v Verwayen (1990) 170 CLR 394. In developing that proposition Deane J, citing Mahoney JA in Antonovic v Volker (1986) 7 NSWLR 151 at 165, observed that "the role of unconscionability is better described than defined" (at 440). The most that could be said was that "unconscionable" should be understood in the sense of referring to what one party ought not in conscience, as between the parties, be allowed to do. The linkage to wider fields of equity was made thus: "In this as in other areas of equity-related doctrine, conduct which is "unconscionable" will commonly involve the use of or insistence upon legal entitlement to take advantage of another's special vulnerability or misadventure in a way that is unreasonable and oppressive to an extent that affronts ordinary minimum standards of fair dealing." (at 441) Speaking generally of the doctrine of estoppel by conduct, his Honour identified as its central principle: "…that the law will not permit an unconscionable - or, more accurately, unconscientious - departure by one party from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation." (at 444) He expressed a preference for the word "unconscientious" over "unconscionable" in this and other areas where equity has traditionally intervened to vindicate the requirements of good conscience. But in deference to the generally accepted usage of "unconscionable" and "unconscionability" in this area, he thought it preferable to use those words in his judgment. 19 The concept of unconscionable conduct is applied in equity to support relief from forfeiture and penalties. In Legione v Hateley it was held that in exceptional circumstances orders could be made for relief against forfeiture at the instance of a purchaser in breach of an essential term. Relief will be granted where the conduct of the vendor in seeking to rely upon his rights is unconscionable. In Stern v McArthur (1988) 165 CLR 489, Deane and Dawson JJ said: "The general underlying notion is that which has long been identified as underlying much of equity's traditional jurisdiction to grant relief against unconscientious conduct, namely, that a person should not be permitted to use or insist upon his legal rights to take advantage of another's special vulnerability or misadventure for the unjust enrichment of himself:" (526-527) See also Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 654. In connection with contracts entered into under the influence of unilateral mistake, equity's remedy of rescission relies upon characterisation of the conduct of the informed party seeking to enforce the contract as unconscionable - Taylor v Johnson (1983) 151 CLR 422 at 430-433. 20 It may be seen from the preceding that the concept of unconscionable conduct "within the meaning of the unwritten law" is presently confined in its operation by reference to specific doctrines. Nevertheless the cases indicate that its use is a matter of taxonomy which may be subject to substantial change. As Hardingham has suggested: "…the boundaries between traditional heads of intervention against unconscionable behaviour - specifically between common law duress and actual undue influence or pressure, between presumed undue influence and unconscionable dealing as such - are shifting. Lines of demarcation are not now as clearly defined as they may have been in the past. As a consequence, the traditional heads themselves may be ready for some redefinition or rationalise." - Hardingham, op cit at p 2 21 In considering the contention that "unconscionable conduct within the meaning of the unwritten law" in s 51AA refers to some kind of legal dictionary, it is important to observe that it has no settled technical meaning. It is, as Mahoney JA said, "better described than defined". It offers a standard determined by judicial decision-making rather than a rule, albeit it may for the present be subject to limitation in its factual field of operation by the existence of specific doctrines.

The Operation of Section 51AA 22 Section 51AA prohibits corporations from engaging in conduct where such conduct: "(i) is engaged in in trade or commerce; (ii) is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories." The concept of "engaging in conduct" is elaborated in s 4(2)(a) as doing or refusing to do any act which includes making or giving effect to a provision of a contract or arrangement or arriving at or giving effect to a provision of an understanding or requiring the giving of, or giving a covenant. The description of the conduct prohibited is "unconscionable". That adjective is qualified by the phrase "within the meaning of the unwritten law, from time to time, of the States and Territories". In the light of Lipohar and the authorities to which it refers, this can only be taken as a reference to the common law of Australia, a single body of judge-made law. This was also the legislative intent as can be seen from the Explanatory Memorandum. 23 The concept of unconscionability is arguably to be found at two levels in the unwritten law. There is a generic level which informs the fundamental principle according to which equity acts. There is the specific level at which the usage of "unconscionability" is limited to particular categories of case. The Explanatory Memorandum suggests that it is the latter sense that was intended - defined by reference to Blomley v Ryan and Commercial Bank of Australia v Amadio. The reference to these two cases, however, does not map out the full extent of the second "limited" application of unconscionability. For even in that "limited" sense it may be applied not only to the disposition of property and the assumption of contractual obligations but also to equitable estoppel and the harsh and oppressive exercise of rights attracting relief from penalties and forfeitures. Moreover the boundary defined by the union of these classes of case is potentially unstable as the taxonomy of applications of unconscionable conduct may shift under the unwritten law to the level of a general unifying concept or be subsumed in the more accurate idea of "unconscientious" conduct. Finn J has written extra curially of the pervasiveness of the unconscionability notion in Australianequity today and has raised the question "how much of equity in consequence has been swept into the Trade Practices Act regime by our new section 51AA?" - Finn, Unconscionable Conduct (1994) 8 JCL 37 at 39. See also Mason: Contract, Good Faith and Equitable Standards in Fair Dealing (2000) 116 LQR 66. The possible width of the concept as used in s 51AA is illustrated by the decision of the Full Court in Pritchard v Racecage Pty Ltd (1997) 142 ALR 527. There the Court declined to strike out a pleading which raised an allegation of unconscionable conduct based on the failure of the promoters of a road race to make provision for the safety of the applicant. That, of course, was a pleadings decision and says nothing conclusive about the scope of the section. The case law on s 51AA is still comparatively sparse. In Gregg v Tasmanian Trustees Ltd (1997) 143 ALR 328, Merkel J saw it as importing into the Trade Practices Act " the doctrine of unconscionability enunciated in Amadio". Mulcahy v Hydo-Electric Commission (1998) ATPR (Digest) 46-186 at 50,353 (Heerey J) was to similar effect, although it was pointed out in that case that for conduct to fall within s 51AA it must be "in trade or commerce". An attempt by a large banking corporation to invoke the section against a small private company was rebuffed in Tanzone Pty Ltd v Westpac Banking Corporation (1999) ATPR (Digest) 46-195 by application of existing equitable doctrines. Windeyer J, in the Supreme Court of New South Wales said: "…s 51AA must be directed to conduct which would, under State law, give rise to a right to relief. In some respects it may do little more than extend the range of remedies under State law." In HECEC Australia Pty Ltd v Hydro-Electric Corp (1999) ATPR 46-196, Einfeld J held the section to embrace, inter alia, "the concept of unconscionable conduct addressed by the High Court in Blomley v Ryan (1956) 99 CLR 362 and Commercial Bank of Australia v Amadio (1983) 151 CLR 447". Interestingly, his Honour found nothing to prevent the application of the relevant equitable doctrines in favour of small corporations, vis a vis, governments and large and powerful government monopolies. It was at least arguable, in his Honour's view, that the principle would be available where a disadvantaged party, including a company, declines to enter an apparently beneficial contract due to the unconscionable conduct of a government or a government enterprise or agency. 24 There is no reason to suppose that the unconscionable conduct prohibited by s 51AB and s 51AC is limited by reference to specific equitable doctrines. The factors to which the Court may have regard for the purpose of determining whether there has been a contravention of those sections include undue influence and duress and other issues falling outside the equitable doctrines to which reference has been made. And even then, the listed factors in those sections do not limit the matters to which the Court may have regard. In Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703, Finkelstein J considered the operation of s 51AC in connection with an application for interlocutory relief against the termination of a motor vehicle dealership said to be contrary to the Franchising Code. In the course of his reasons for judgment, his Honour said: "I take as the measure of unconscionability, conduct that might be described as unfair." 25 Ultimately, each of s 51AB and s 51AC prescribes a standard rather than a rule. The boundaries of its application are normative rather than logical. There is a qualitative difference between their operation and that of the prohibition on misleading or deceptive conduct imposed by s 52 of the Act even allowing for normative controls on the application of that section within its logical boundary. The categories of unconscionable conduct for the purposes of ss 51AB and 51AC will never be closed albeit the circumstances of the application of the standard prescribed in each of them is confined by the language of each section. 26 Section 51AA prohibits corporations from engaging in conduct which is unconscionable within the meaning of the common law of Australia. The meaning of the term is found in the dictionary. Its meaning is not altered by the unwritten law. What the unwritten law does presently is to confine its operation to certain classes of case. The reference in s 51AA to the "meaning of the unwritten law" is a reference to the classes of case in which the unwritten law will award remedies for unconscionable conduct assessed by a court. There is no distinct rule which defines such conduct. The description embodied in the word "unconscionable" ultimately refers to the normative characterisation of conduct by a judge having jurisdiction in the relevant class of case. On this basis therefore, and in the sense described, the rules governing the relevant application of the term "unconscionable conduct" and therefore the application of s 51AA are judge-made rules that can change from time to time. The development of doctrine which may alter that application may occur in the judgments of the courts of the States and Territories and of the High Court and of the Federal Court in the exercise of its accrued jurisdiction. This may also occur through the exercise of jurisdiction under s 51AA which itself if valid, will become a significant source of the unwritten law. 27 For completeness it should be noted that remedies for contraventions of s 51AA are to be found in Part VI of the Act. Injunctive relief may be granted under s 80 and other orders under s 87. Section 82 does not allow a claim for damages in respect of such a contravention pursuant to that section, but it appears that payment of amounts of loss or damage by the contravenor or its accessories may be ordered pursuant to s 87(2)(d). The statutory mareva injunction for which s 87A provides is also applicable to contraventions of Part IVA. Pecuniary penalties are not recoverable. 28 It is to be observed that s 51AA does not purport to adopt the unwritten law relating to unconscionable conduct and give to it the force of statute. In form it uses the unwritten law to the extent that it provides for the characterisation of conduct as unconscionable and then prohibits such conduct. In this respect, s 51AA differs from s 12 of the Native Title Act which, exceeding the legislative power of the Commonwealth, took the whole of the common law in respect of native title and purported to confer upon it the force of a law of the Commonwealth. The question for this case is whether or not that difference is crucial on the issue of validity. The validity of s 51AA has not previously been raised in judicial proceedings although there has been some commentary relating to it - Zumbo, Unconscionability Within a Commercial Setting: An Australian Perspective (1995) 3 TPLJ 183 at 186-187.

The Constitutional Validity of Section 51AA 29 The question for determination is whether s 51AA is a valid law of the Commonwealth or whether it offends against the separation of legislative and judicial powers for which the Constitution provides. A similar question arose in the Native Title Act case. Section 12 of the Native Title Act provided: "Subject to this Act, the common law of Australia in respect of native title has, after 30 June 1993, the force of a law of the Commonwealth." In the joint judgment in that case of Mason CJ, Brennan, Deane, Toohey, Gaudron and McHugh JJ, s 12 was characterised as a provision which did not in terms make a law in the sense of creating rights or imposing obligations. Rather, it took the common law as a whole and purported to invest it with the force of a law of the Commonwealth. There was no objection to the Commonwealth making a law by adopting a text emanating from some extra parliamentary source. Such a case would, no doubt, include a case where some text other than the statute is adopted as a dictionary from which the meaning of a term or terms used in the statute can be derived. That is what counsel for the Attorney General says has been done with s 51AA in the present case. The common law, it is said, is employed in s 51AA as a dictionary. 30 In the Native Title Act case, however, the Court, having acknowledged the propriety of adopting an extra parliamentary text as a law of the Commonwealth, observed that: "…the common law is not found in a text; its content is evidenced by judicial reasons for decision." (485) The Court referred to the evolutionary character of the common law: "…the "common law" must be understood either as a body of law created and defined by the courts or as a body of law which, having been declared by the courts at a particular time, may in truth be - and be subsequently declared to be - different." (485) Whether understood by reference to its source in judicial reasons for a decision or by reference to its content as developing from time to time, the joint judgment saw objections to the common law being treated as a law of the Commonwealth. The principal objection identified in the joint judgment was thus: "If the "common law" in s 12 is understood to be the body of law which the courts create and define, s 12 attempts to confer legislative power upon the judicial branch of government. That attempt must fail either because the Parliament cannot exercise the powers of the Courts or because the Courts cannot exercise the powers of the Parliament." (485) R v Kirby; Ex parte Boilermakers' Society of Australia (the Boilermakers' Case)(1956) 94 CLR 254 at 281 was cited. The joint judgment continued: "Under the Constitution, the Parliament cannot delegate to the Courts the power to make law involving, as that power does, a discretion or, at least, a choice as to what that law should be." (486) Footnoted reference was made to the distinction between legislative and executive power drawn by Dixon J in Victorian Stevedoring & General Contracting Co Pty Ltd and Meakes v Dignan (1931) 46 CLR 73 at 93 and in particular his quotation from the judgment of Taft CJ in Hampton & Co v United States (1928) 276 US 394 at 406-407: "The true distinction, therefore, is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be made." Commonwealth v Grunseit (1943) 67 CLR 58 at 82-83, was also cited. Those cases refer to the distinction between legislative and executive functions, a separation which, in Australia, is of considerably less significance than that between legislature and executive on the one hand and judiciary on the other. Under the system of responsible government, ministers of the Crown are members of Parliament and answerable to it. Parliament has been allowed considerable latitude in delegating law-making power to the executive - Gibbs, The Separation of Power - A Comparison (1987) 17 Fed. Law Rev. 151 at 154-156 and Winterton, Parliament, the Executive and the Governor-General (MUP (1983)) 85-92. 31 The permeability of functional boundaries between legislature and executive is illustrated in Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 365. Section 99A of the Income Tax Assessment Act 1936 (Cth) conferred upon the Commissioner of Taxation an essentially legislative discretion to determine whether it was "unreasonable" that that section should apply to impose tax at a particular rate on trust income. If the Commissioner so found the tax would be applied at a different rate set out in s 99. Barwick CJ characterised the discretion conferred on the Commissioner as "legislative": "What he is required to decide, in my opinion, is in truth a function of the legislature, rarely delegated to an official." (372) Nevertheless, the provision did not offend against the separation of powers for: "…there is in the Australian Constitution no such separation of powers as would deny the Parliament the power to give an officer of the executive government such a legislative discretion as I have described." (373) The legislature in that case had done no more than delegate a legislative function (329). Windeyer J considered s 99A not beyond the bounds of constitutional validity but "very close to the boundary" (385). See also at 379 (Kitto J) and 381 (Menzies J). By way of contrast, the separation of powers between the judiciary on the one hand and the legislature and executive on the other, is sharp and anchored by the provisions of Chapter III of the Constitution - see Grollo v Palmer (1995) 184 CLR 348; Wilson v Minister for Aboriginal and Torres Strait Islander Affairs (1996) 189 CLR 1; Kable v The Director of Public Prosecutions (NSW). 32 Most reported cases on separation of powers involving the judiciary are concerned with the impermissible mixing of judicial and executive functions. The Native Title Act case appears to be the only reported case in which there was found to be an impermissible mixing of the legislative and judicial function. The joint judgment recognised that the Commonwealth Parliament, acting within its legislative power, can pass laws excluding or modifying or assuming the continued operation of the common law. See also Crimmins v Stevedoring Industry Finance Committee (1999) 167 ALR 1 at 39 (Gummow J). It can pass a law referring to provisions of State laws, whether statutory or not, as a dictionary for ascertaining rights and duties under Commonwealth law within Commonwealth places at a particular time. This was a reference to s 4(1) of the Commonwealth Places (Application of Laws) Act 1970 which provides: "The provisions of the laws of a State as in force at a time (whether before or after the commencement of this Act) apply, or shall be deemed to have applied, in accordance with their tenor, at that time in and in relation to each place in that State that is or was a Commonwealth place at that time." Section 12 of the Native Title Act was distinguished on the basis that it did not in terms enact the common law as a law of the Commonwealth. Rather it purported to give the common law the "force" of a law of the Commonwealth. 33 The issue of the relationship between the statute law of the Commonwealth and the common law of Australia was revisited, albeit obiter, in the judgment of McHugh J in Re Colina; Ex parte Torney (1999) 166 ALR 545. His Honour discussed the possible application of the reasoning in the Native Title Act case to s 35 of the Family Law Act 1975 (Cth) which confers upon the Family Court the same power to punish contempts as the High Court has. That power, derived from s 24 of the Judiciary Act, is defined by reference to the power of the Supreme Court of Judicature in England at the commencement of the Judiciary Act. Section 35 therefore confers a power defined by reference to the common law, but it would appear to be the common law frozen at a particular time. McHugh J referred to the "considerable constitutional difficulties in the way of parliament legislating by reference to the common law". He hypothesised that if, by enacting s 35 of the Family Law Act, the Parliament had sought to give the Family Court jurisdiction to apply the common law of contempt as common law, that attempt would be invalid because the court could only determine rights and liabilities pursuant to a law made by the Parliament. Federal Courts cannot enforce the common law as such, albeit that in exercising accrued jurisdiction they may apply common law as an exercise of federal jurisdiction. Moreover, if s 35 purported "to define the content of a law of the Parliament by reference to the doctrines of judge-made common law", arguably it could not do so. His Honour's remarks were obiter and he expressed no concluded view beyond identifying a possible constitutional difficulty similar to that with which the Court is concerned in this case. 34 The argument in this case does not involve resolution of any proposition about the heads of constitutional power which support s 51AA. As counsel for the Attorney-General submitted, it finds support under various heads including s 51(xx), s 51(i) and s 122 of the Constitution. To that extent there is a distinction to be drawn immediately with the Native Title Act case. Section 12, importing a judicially developed and developing body of common law, did not answer the requirement of the race power that laws made under it be special laws which Parliament has deemed necessary for the people of a race (s 51(xxvi)). That point of distinction, however, does not go to the heart of this case which is concerned with the question whether s 51AA violates the separation of legislative and judicial powers for which the Constitution provides. That separation, as with the separation between executive and judicial power, is sharp. It was described in Wilson v Minister for Aboriginal and Torres Strait Islander Affairs, at p 11, by reference to the words of Harrison-Moore, as "a great cleavage". But the separation is not absolute. Courts, particularly the High Court and ultimate appeal courts in the common law world, exercise a law making function in the development of the common law and through processes of statutory construction. The myth that courts merely find and declare the law and that the judges are, to use the words of Blackstone, "living oracles", is long exploded. There is no clear definition of the limits of judicial law making. For the most part it is incremental subject to self imposed restraints which themselves derive from recognition of the overriding principle that laws are made by parliaments. Neither is there, nor has there ever been, an impermeable boundary between statute law and judge-made law. So Hale said: "And doubtless, many of those things that now obtain as common law, had their original by parliamentary acts or constitutions…those acts are now either not extant, or if extant, were made before the time of memory…Were the rest of those laws extant, probably the footsteps of the original institution of many more laws that now obtain merely as common law, or customary laws, by immemorial usage, would appear to have been at first statute laws, or acts of parliament." -The History of the Common Law by Sir Mathew Hale (5th ed, G G and J Robinson, London, 1794) 3-4 This observation was recently echoed in the joint judgment of Gleeson CJ, Gaudron and Gummow JJ in Esso Australia Resources Ltd v Commissioner of Taxation [1999] HCA 67 where it was said: "Significant elements of what now is regarded as "common law" had their origin in statute or as glosses on statute or as responses to statute. For example, in Peters v The Queen (1998) 192 CLR 493, McHugh J explained the derivation of the criminal law of conspiracy from statutes enacted in the thirteenth century. The doctrine of part performance is expressed in three centuries of case law which has the effect of allowing specific performance of a contract which on its face the Statute of Frauds renders unenforceable. The Statute of Limitations in its terms does not operate directly upon equitable remedies, but, as Dixon J put it in Cohen v Cohen (1929) 42 CLR 91 at 100, "such remedies are barred in Courts of equity by analogy to the statute"." Par 19 35 Reasoning by analogy from statute has generated common law rules in both the United Kingdom and the United States. Examples include the sufficiency of twenty years of land use to support a fictional lost grant, the presumption of death after seven years absence, the development of conspiracy to commit a crime as a criminal conspiracy and the recognition of married women as having legal personalities distinct from their husband's which are all derived from statutory analogies - Traynor, Statutes Revolving in Common Law Orbits (1968) 17 Cath. U. Am. L. Rev. 401. As was said in the Native Title Act case at 487: "…the laws of the Commonwealth operate in the milieu of the common law." See also Crimmins at 7 per Gaudron J. 36 Judge-made rules of construction require statutes to be construed consistently with common law doctrines unless there is disclosed a legislative intent to the contrary - Potter v Minahan (1908) 7 CLR 277 at 304; Bropho v State of Western Australia (1990) 171 CLR 1; Coco v The Queen (1994) 179 CLR 427. Finn, Statutes and the Common Law (1992) 22 UWALR 7 at 28; Pearce and Geddes, Statutory Interpretation in Australia 4th Ed (Butterworths, 1996) par 5.16-5.18. 37 It is not unusual for the courts to resort to common law in aid of the construction of words in a statute. This is not a universally accepted approach, with some authorities cautioning against the encrustation of ordinary words with legal doctrines. At the very least, however, it can be said that such an approach to construction is open and availed of from time to time - Gamer's Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 at 244-245 (Mason CJ). And generally Pearce and Geddes (supra) at par 4.10. 38 There is a number of long standing Commonwealth statutes which have incorporated by reference elements of the common law. They include ss 79 and 80 of the Judiciary Act, s 4 of the Crimes Act 1914 and s 6 of the Australian Antarctic Territory Act 1954. Section 79 picks up State and Territory laws, including the common law, with their meaning unchanged. But by its operation it applies those laws in cases to which they might otherwise be inapplicable. It requires the assumption to be made that courts exercising federal jurisdiction are bound to apply the rules of State law adopted by it - see Pedersen v Young (1964) 110 CLR 162 at 165; John Robertson & Co Ltd (In Liq) v Ferguson Transformers Pty Ltd (1973) 129 CLR 65 at 80, 83 and 88 and the cases reviewed in Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285. 39 Section 80 of the Judiciary Act provides: "So far as the laws of the Commonwealth are not applicable or so far as their provisions are insufficient to carry them into effect, or to provide adequate remedies or punishment, the common law in Australia as modified by the Constitution and by the statute law in force in the State or Territory in which the Court in which the jurisdiction is exercised is held shall, so far as it is applicable and not inconsistent with the Constitution and the laws of the Commonwealth, govern all Courts exercising federal jurisdiction in the exercise of their jurisdiction in civil and criminal matters." The reference to the "common law in Australia" was substituted for the words "common law of England" by the Law and Justice Legislation Amendment Act 1988 (Cth) which came into operation on 14 December 1988. 40 The existence of provisions of Commonwealth law with ambulatory operation "picking up" State and Territory statutes and the common law, all of which are subject to change from time to time, does not of itself conclude the constitutional issue. However the long standing of such provisions requires close attention to the question whether there is any relevant point of distinction in the section now under consideration. 41 In my opinion it is too simplistic to say of s 51AA that its reference to "unconscionable conduct within the meaning of the unwritten law of the States and Territories from time to time" merely provides a dictionary to give content to the term "unconscionable conduct". Unconscionable conduct is better described than defined. It is no more definable than equitable fraud of which it is an ancient emanation - Finn, Unconscionable Conduct op cit at 37. It is a characterisation arrived at by judges albeit, for the present, in certain specified classes of case. The "meaning of the unwritten law" is in this respect functional rather than definitional. The unwritten law sets out the categories of case in which a judge may decide that conduct is unconscionable and award relief in equity on that basis. There is no definition beyond the ordinary meaning of the word that is to be found in the unwritten law. In Qantas Airways Ltd v Cameron (1996) 145 ALR 294 at 309, Davies J observed that the term as used in s 51AA and s 51AB conveyed the meaning given to it by the Shorter Oxford English Dictionary, cited earlier in these reasons. Lindgren J, disagreeing on some other issues, agreed with Davies J in relation to his observations about s 51AA (at 329). 42 There is no rule of equity which prohibits unconscionable conduct. Rather there are remedies available to relieve against or prevent such conduct in certain classes of case. The Act, however, creates a prohibition. What then does it prohibit? It prohibits conduct in respect of which a judge in equity would have been prepared to grant relief. The imposition of the prohibition precedes any actual or notional judicial decision. The judge deciding a case under s 51AA will be asking himself or herself whether he or she would have been prepared to grant relief at equity on the basis of an assessment of the conduct in question as unconscionable. 43 The function of the judge in applying s 51AA will differ little from that of judges deciding cases under s 51AB or s 51AC, albeit they do not have to consider the contemporary limits imposed on the application of unconscionable conduct by equitable doctrines. Judges applying s 51AB or s 51AC will be making a primary judgment of unconscionable conduct, whereas the assessment of the judge under s 51AA will be at least notionally a second order or derivative assessment. It can be assumed however, and I think safely, that the functions conferred on the judges deciding cases under s 51AB and s 51AC are validly conferred and consistent with the Constitution. The actual process of decision making under s 51AA will be qualitatively so close to those under s 51AB and s 51AC and similar kinds of statutes reposing evaluative decision making powers in the courts, that there is, in no real sense, any offence against the separation of powers principle. The judge deciding a case under s 51AA will perforce have regard to the case law on unconscionable conduct generally, but in the end will make an assessment within the relevant class of case at equity. The possibility that those classes may expand incrementally or by some sudden rationalisation of the concept of unconscionability at the level of the High Court does not put the judge in any more difficult a position than the judge applying unconscionability assessments of s 51AB or s 51AC in the light of the common law or otherwise in accordance with established approaches to statutory construction. It cannot be said that there is an express line of logic to be found in the reasoning in the Native Title Act case which draws a clear distinction between the considerations which led to the invalidation of s 12 and the position in cases such as the present. But the form of s 12 and the direct operation of external judicial decisions on the content of the law, which is transmuted directly into Commonwealth law, was significantly closer as a matter of degree to authorising judicial legislation than s 51AA. 44 In my opinion s 51AA is a valid exercise of the constitutional power of the Commonwealth and I will answer the preliminary questions accordingly. I should add, that having regard to the fact that the constitutional issue was raised by the Court, there should be no order as to costs on this issue which stands for resolution in the public interest. I certify that the preceding forty four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Counsel for the Applicant: Mr M Duncan

Solicitor for the Applicant: Australian Government Solicitor Counsel for the Commonwealth Attorney General intervening: Mr R Orr and Mr M Duncan Solicitor for the Commonwealth Attorney General intervening: Australian Government Solicitor Counsel for the First to Sixth Respondents: Mr P G Clifford and Mr H R Robinson

Solicitor for the First to Sixth Respondents: Haydn Robinson Counsel for the Seventh and Eighth Respondents: Solicitor for the Seventh and Eighth Respondents: Mr P W Johnston and Ms A J Crichton-Browne

Date of Hearing: 22 November 1999

Date of Judgment: 14 January 2000