For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable , must be demonstrated - Cameron v Qantas Airways Ltd (1994) 55 FCR 147 at 179. Whatever "unconscionable" means in s51AB and s51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience , or that are irreconcilable with what is right or reasonable - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term "unconscionable" import a pejorative moral judgment - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 283-284 and 298."
41 In Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557, Spigelman CJ (at [119], 583) said, concerning a different statutory provision,
"Over recent decades legislatures have authorised courts to rearrange the legal rights of persons on the basis of vague general standards which are clearly capable of misuse unless their application is carefully confined. Unconscionability is such a standard."
42 He continued (at [121], 583):
"Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what is "fair" or "just" , it could transform commercial relationships …"
43 Those remarks can equally, in my view, be applied to the notion of "unconscionable conduct" in section 51AC.
44 In Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226; (2005) 56 ACSR 131 the Full Federal Court (Tamberlin, Finn and Conti JJ) construed section 12CC of the Australian Securities and Investments Commission Act 2001 (Cth). That section prohibits unconscionable conduct in trade or commerce in connection with the supply of financial services. The prohibition is in terms not materially different to section 51AC Trade Practices Act. Their Honours said (at 140; [30]) that section 12CC "was intended to operate as a 'mirror' provision to s 51AC of the Trade Practices Act …". Their Honours continued:
"30 … Authority on s 51AC supports the proposition that the prohibition in s 12CC is not to be read down by limiting its operation only to circumstances where the common law would grant relief in respect of unconscionable conduct: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 at 502 per French J; Australian Competition and Consumer Commission v Keshow [2005] ATPR (Digest) 46-265 at [97] per Mansfield J and the cases and authorities there cited. It is equally clear both from the actual language of s 51AC and of s 12CC and from the extrinsic materials relating to s 51AC that these provisions were intended to build on and not to be constrained by common law case law: see Australian Competition and Consumer Commission v Radio Rentals Ltd [2005] FCA 1133 at [24]; and Debates . The language must be given its ordinary meaning and must not qualified by pre-existing constraints on liability: see Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 at [30]-[37]; Pearson G, "The ambit of unconscionable conduct in relation to financial services" (2005) 23 (2) C&SLJ 105 at 123; Bigwood R, "Curbing Unconscionability: Berbatis in the High Court of Australia" (2004) 28(1) MULR 203."
45 Their Honours also said (at 142; [40]), concerning the list of factors the court was empowered to have regard to in deciding whether a contravention of section 12CC had occurred.
"… These factors should be considered and weighed as a whole. Some may weigh in favour of a characterisation of the conduct as unconscionable and others may not. It is not appropriate to approach this list as exhaustive. This list is indicative of some of "the relevant circumstances"."
46 Consistently with Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 (at 492) the principles of construction propounded in the Full Federal Court in Hurley and National Exchange should also be applied in this court.
Unconscionable Conduct - Application to the Facts
47 The learned primary judge relied upon several different elements in reaching the conclusion that the Appellant had engaged in unconscionable conduct. I will examine these in turn.
Failure to Supply HP Parts
48 An important part of the allegation of unconscionability that Mr and Mrs Patton make is that the failure to supply the Hewlett-Packard parts that were ordered has seriously affected the cash flow, and hence the viability, of James Aston, and has rendered at least a significant part of its existing stock in trade, for all practical purposes, unsaleable.
49 The primary judge regarded the relevant failure to supply HP-only parts as being the failure that occurred after 30 May 2005. He said:
"32. The inability or refusal of Canon Australia to supply "HP only parts" to James Aston in December 2004 may have been beyond the control of Canon Australia if Canon Australia did not have the parts because Canon Inc had not supplied them. The only evidence to that effect appears as assertions in correspondence tendered by Mrs Patton.
33. The refusal after 30 May 2005 is however to be seen in a different light. By then Canon Australia was able to supply the parts if it so wished."
50 There was some evidence from Mrs Patton that in the December 2004-January 2005 period Canon Australia replaced its computer system, "which took a long time to implement and did not work properly for quite a while. No orders were processed by Canon in December 2004 or in January 2005 presumably because of the new computers." In my view, both because the possibility of the new computer system interfering with regularity of supply had not been negatived, and because there was a possibility left open, even on Mrs Patton's own evidence, of Canon Australia not having the parts to supply, the primary judge was right in not drawing any conclusion that Canon Australia had engaged in unconscionable conduct up to 30 May 2005 by failing to supply. It must be borne in mind that a person who alleges that a transaction is unconscionable has the onus of proving that it is more likely than not that it is unconscionable. If the facts are such that there is a realistic possibility that a state of affairs exists in accordance with which the action of a defendant would not be unconscionable, the discharging of that onus may involve negativing the likelihood of that state of affairs existing.
51 In my view, however, the only change that arose on 30 May 2005 is that Canon Australia became able to supply a single order of HP-only parts, on the basis that it could take more than three months to supply the order. By 30 May, James Aston had a significant overdue debt to Canon Australia, that had accrued over the months January to April 2005. The existence of that debt was not due to any unconscionable behaviour on the part of Canon Australia. Canon Australia, by the terms of supply, reserved the right not to supply goods while amounts were overdue. The terms of the personal guarantees that Mr and Mrs Patton had executed acknowledged that their liability under the guarantee would continue even if Canon Australia refused to supply further goods to James Aston. In my view, the situation concerning failure to supply after 30 May was correctly summarised by Mrs Patton in cross-examination:
"Q. So by July they'd agreed to provide the parts which made your old stocks saleable?
A. That's correct. But they did it because of the lack of - because we owed them money."
Failure to Supply for Cash In Advance
52 The learned primary judge was of the view that Mrs Patton's offers of 22 June 2005 and 27 July 2005 were in substance the same, and were an offer to remit the full price of each order, plus James Aston's margin, prior to delivery. The primary judge evidently regarded Canon Australia's refusal to supply the parts on those terms as one of the elements of unconscionable conduct.
53 In my view, the offer contained in the email of 22 June 2005 was not a simple offer to pay the full price of each order plus margin prior to delivery. It made it clear that the ability of James Aston to remit payment in advance of delivery was dependent upon James Aston's customers prepaying it. When James Aston was, according to the same email, experiencing cash flow problems, Canon Australia would be entitled to wonder whether Mrs Patton's assurance that her (unidentified) customers are "more than happy to pre-pay me" was a sufficient basis upon which to act. It would also be entitled to wonder to what extent there was overlap between the customers said to be more than happy to prepay, and the debtors who were experiencing cash flow problems.
54 Further, by the time of the letter of 27 July 2005, an imprecision had crept into Mrs Patton's proposal. Instead of offering to pay "before you ship", she offered to pass on the payments she received from customers "in line with Canon's delivery schedule" (whatever that may mean).
55 As well, the proposal that Mrs Patton was putting forward in both June and July 2005 was one that had as an essential element of it that James Aston would have the money pass through it, on the way from the customer to Canon Australia. If James Aston was experiencing cash flow problems, Canon Australia would be entitled to not feel total confidence about whether money paid by a customer to James Aston, would emerge from James Aston. I say that attributing no dishonesty whatsoever to Mr and Mrs Patton - it is a common event in Australian commercial life for a Pty Ltd company to give a charge over all its assets to a bank or other financier, and receivership or liquidation can be instigated by the bank or financier in a way and at a time not dependent upon any deliberate decision of the directors. There is no evidence about whether James Aston had given any such charge, but the fact that it was a possibility that had not been negatived is something that should be taken into account in deciding whether Canon Australia's failure to supply on the terms suggested by Mrs Patton had such a high level of moral impropriety that it could properly be described as "unconscionable".
56 In my view, Canon Australia could reasonably have expected to have been provided with more information than was contained in Mrs Patton's email of 22 June 2005 and her letter of 27 July 2005 before it felt confident that it would receive payment in advance for any "HP only" goods that it supplied.
57 As well, there is a distinct flavour in the evidence that Canon Australia was dependent upon being supplied by Canon Inc to be able to meet any orders placed on Canon Australia by James Aston. The evidence does not elucidate the extent to which Canon Australia had stock on hand from which to meet the order placed on 30 May 2005 or needed itself to order stock specifically to meet that order. Beyond the reference in the email of 30 May 2005 to the possibility that it would take three months to supply the order for HP-only parts in full, the evidence does not elucidate the extent to which time would elapse between James Aston placing an order on Canon Australia, Canon Australia placing an order on Canon Inc, Canon Inc supplying the parts to Canon Australia, and Canon Australia in turn supplying the parts to James Aston. There is a finding that "Canon Australia usually delivered orders within days of receipt of the order", but during the period January to July 2005 that situation did not apply in relation to HP-only parts. The reason why that is so appears, from the evidence, to be that Canon Inc would not supply those HP-only parts to Canon Australia. (There might be cases in which the Australian subsidiary of an overseas corporation has unconscionable conduct on the part of its parent attributed to it, but in the present case no allegation was made of unconscionability on the part of Canon Inc.) The proposal that Mrs Patton put on 22 June 2005 involved her paying Canon Australia once Canon Australia had stock on hand. It involved Canon Australia bearing the risk of ordering parts from Canon Inc, and finding, once the order arrived in Australia, that James Aston was not in a position to pay for it. I am prepared to assume that that type of risk is the type of risk that a supplier will often undertake for a regular customer who is creditworthy. Taking such a risk for a customer that was, by its own admission, experiencing cash flow problems may be a different proposition altogether.
58 As well, and particularly importantly, Mrs Patton's proposals in June and July made only a very limited offer to deal with the arrears of debt which, by then, were substantial. The offer to pay Canon Australia the cost plus margin, in relation to the shipment of parts that had arrived in Australia by 27 July, would have resulted in the arrears of debt being reduced only by an amount in the order of $10,000. That would still leave long-standing arrears of more than $160,000.
Refusal to Accept Return of Stock
59 The primary judge also relied, as an element of unconscionability, upon Canon Australia having refused to accept return of James Aston's stock on hand in satisfaction of the debt or any part of it. There was no evidence concerning the age or condition of that stock. Mrs Patton put on no affidavit evidence to establish a value. In the course of being cross-examined, she referred to "the $190,000 worth of stock that we had". That value of $190,000 was evidently accepted by the primary judge. Even so, when it was not part of the terms of trade that Canon Australia would take back unsaleable stock, and when there was no evidence of the age or condition of the stock on hand, I am not persuaded that the failure to take it back was unconscionable.
The Primary Judge's Conclusions
60 The fundamental finding of his Honour was as follows:
"36. There may be circumstances in which refusal to treat on the terms offered by James Aston may be reasonable, although such circumstances do not readily come to mind. However, the distress of James Aston was brought about by actions beyond its control, and the accommodation sought from its trading partner, Canon Australia, involved no commercial risk to Canon Australia.
37. The refusal to supply the parts on the terms offered by James Aston was not reasonably necessary for the protection of the legitimate interests of Canon Australia. To the contrary, that refusal operated to the detriment of the legitimate interest of Canon Australia in recovering the debt owed in respect of earlier sales."
61 In my view, that passage contains error. For the reasons I have earlier given, Canon Australia would be entitled to take the view that the payment proposal put forward by Mrs Patton involved commercial risk to Canon Australia, and did not deal adequately with the long-standing debt.
62 There is some imprecision in the finding that "the distress of James Aston was brought about by actions beyond its control". It is not clear what distress, at what time, was being talked about. It is not readily apparent how any failure by Canon Australia to supply HP-only parts produced the effect that the goods that were supplied during January to April 2005 inclusive were not paid for in accordance with the credit terms at the end of February to May 2005 inclusive. There was no attempt to demonstrate by evidence that it was the unavailability of HP-only parts that caused the cash flow of James Aston to be reduced to such an extent that it could not pay for the Canon parts that were being supplied to it during January to April 2005 inclusive. Further, even if it were correct that the distress of James Aston was brought about by actions beyond its control, what really matters for present purposes, is whether the failure of James Aston to pay for the Canon goods that were supplied to it, was caused by unconscionable conduct on the part of Canon Australia. In my view, this has not been shown. As well, it seems that at least part of the reason for the financial distress of James Aston was that its own debtors were experiencing cash flow difficulties.
63 The primary judge inferred (at [40]) that "the refusal of Canon Australia to supply 'HP only parts' to James Aston after 30 May 2005 was not generated by genuine financial concerns."
64 The evidence does not establish any "refusal" to supply the parts after 30 May 2005 - rather, it establishes a failure to supply the parts at that time.
65 The primary judge recognised that this finding was an inference. He stated its basis as being (at [41]):
"… the trading history between Canon Australia and James Aston which include interruptions to supply for suspect motives, the fact that Canon Australia refused to supply the parts on terms that it be paid in advance, and the fact that Canon Australia would not countenance the mitigation of its loss in any measure, by accepting return of stock to the value of approximately $190,000."
66 The first matter relied on by the primary judge relates to the 1999 interruption to supply. That interruption did not relate to HP-only parts. No ground of appeal relates to the judge's decision to admit evidence of the earlier interruption to supply. Even so, it provides, in my view, the flimsiest basis for any inference concerning the motivation of Canon Australia in ceasing to supply James Aston in 2005. I have earlier explained how the apparent unwillingness of Canon Australia to agree to the payment terms that Mrs Patton proposed in June and July 2005 was more complex than a simple refusal to agree to supply on payment in advance. I would decline to draw the inference that the primary judge drew.
67 In my view, it has not been shown that the conduct of Canon Australia, in failing to supply HP-only parts, was unconscionable. Nor has it been shown that the failure of Canon Australia to supply HP-only parts has caused damage to Mr and Mrs Patton equal in amount to the cost price of the parts for which James Aston has not paid.
68 Since writing the above, I have had the opportunity to read the draft judgment of Basten JA. I would prefer not to make a decision about the correctness of the alternative ground upon which his Honour favours upholding the appeal. It is not a ground that arose in the course of argument of the case. As well, there is a line of authority that has held that, at least sometimes, a guarantor who has guaranteed the payment of what is actually owing by the principal will not be bound by a judgment or arbitration award obtained by the creditor against the principal: Re Kitchin; ex parte Young (1881) 17 Ch D 668; Begley v Attorney-General (NSW) (1910) 11 CLR 432; Bruns v Colocotronis ("The Vasso") [1979] 2 Lloyds Rep 412. (It may be otherwise if the guarantee is of the amount of any judgment or award against the principal (Compania Sudamericana De Fletes SA v African Continental Bank Ltd ("The Rosarino") [1973] 1 Lloyds Rep 21; Sabemo Pty Ltd v de Groot (1991) 8 BCL 132 at 145 ff).) Further, consideration would need to be given to the significance, for the type of estoppel being invoked here, of the fact that the judgment in question against the company was in effect a default judgment. I would prefer not to embark upon these questions when another path to decide the case is open.
Orders
69 I propose the following orders: