‘Moral obloquy’ and the meaning of statutory unconscionability

Director of Consumer Affairs Victoria v Scully & Anor [2013] VSCA 292 (18 October 2013)

A recent decision of the Victorian Court of Appeal clarifies that the judge at first instance did not purport to articulate a new catch-all test for ‘unconscionability’, one bound up in the equally esoteric phrase ‘moral obloquy’. Rather, the Court of Appeal affirmed that courts will only make a finding of statutory unconscionability in respect of conduct which involves some ‘moral taint’ and, ‘that absent such taint, conduct which might thought to be otherwise unfair or unreasonable should not be held to be ‘unconscionable’.’ The case is a reminder for businesses, particularly those involved in the sale of consumer goods and services, to ensure that they have policies and procedures in place to ensure proper oversight of their employees, particularly sales staff paid on commission, who might be at risk of engaging in unconscionable behaviour if unrestrained.

Background

This case involved an appeal from the decision of Justice Hargrave in which his Honour found that the conduct of several defendants involved in residential home finance and brokerage programs was ‘unconscionable’ within the meaning of section 8 of the Fair Trading Act 1999 (Vic) (Act).  That provision has since been repealed, however, the equivalent provision is now found in section 21 of the Australian Consumer Law (ACL).

The defendants had all been involved in two similar related schemes whereby participants would identify a house they wished to purchase, which would then be paid for by an ‘investor’ and the participant would either pay interest or above-market rent to the investor with the ultimate goal to take title of the property after five years. Complex (but subtlety different) financing and ownership arrangements underpinned each of the schemes.

The judge at first instance found that Scully (the first defendant and director of the other scheme) had ‘made a conscious decision’ not to explain the complex arrangements underpinning his scheme to participants – arrangements which benefited his company but posed significant risks to participants.  In those circumstances, his conduct was immoral and deserving of the ‘opprobrium of a finding of unconscionability’.

The third defendant, Hansen, an employee of one of the schemes, persuaded a couple to participate in circumstances where he knew that they did not understand the key terms, could not afford to participate and where he had deliberately manipulated a ‘budget planner’ spreadsheet to disguise the fact from the couple.  The trial judge held that Hanson’s conduct in relation to that couple was unconscionable, however, found that the second defendant (Gilfillan, a director of that scheme) did not authorise Hansen’s behaviour and as such, a case of wilful blindness (constituting statutory unconscionability) could not be sustained against him.

The judge at first instance also held that ‘[t]he cases concerning the content of statutory unconscionability disclose a consistent requirement that the relevant conduct must include a significant element of moral obloquy. It is not enough that the conduct is objectively unfair, unjust, wrong or unreasonable.’ The Director of Consumer Affairs appealed the decision, arguing that the trial judge erred in adopting that formulation of the test for unconscionability.

Decision of the Court of Appeal: the meaning of statutory unconscionability

The Court of Appeal affirmed that courts must follow decisions of equivalent intermediate appellate courts unless those authorities are ‘plainly wrong’ and that earlier decisions on the meaning of statutory unconscionability were not ‘plainly wrong’. Those earlier authorities relating to the concept of statutory unconscionability demonstrate that the concept ‘imports a pejorative moral judgment’ and that a degree of moral taint is required before a court can characterise the conduct of a party with the ‘opprobrium of unconscionability’.

In light of the authorities, the Court of Appeal dismissed the appeal, finding that the primary judge did not simply ‘substitute the phrase ‘moral obloquy’ for the word ‘unconscionable’’, rather, he had deployed the phrase to reveal the way which he understood the meaning of unconscionability. Given that the conduct of a defendant ‘should be deserving of reproach’ to make a finding of unconscionability, the Court of Appeal said that the phrase ‘moral obloquy’ was indeed apt.  It is difficult to see why the Director of Consumer Affairs appealed the trial judge’s decision: it contended for a test which could arguably be easier to satisfy (thereby capturing conduct which Consumer Affairs deems undesirable), however, that contended test was one which clearly ignores a key element present throughout the authorities – the requirement of ‘moral taint’.

In the course of its judgment, the Court of Appeal made several ‘general observations’ which it gleaned from the authorities regarding the meaning of ‘statutory unconscionability’, including:

• in the context of section 8 of the Act, interpretation of the word ‘unconscionability’ should not be confined to the notion of unconscionability developed in courts of equity, rather it has its ordinary meaning;
• the focus of section 8 is on ‘conduct’, and so, a person’s conduct is to be distinguished from the consequences that that conduct may have on the lives of other people;
• cases considering whether conduct has been unconscionable in equity will be useful examples to guide assessment of conduct in the statutory context;
• the presence of one or more of the matters set out in section 8(2) of the Act (now see section 22 of the ACL), though illuminating, will not mean, without more, that the conduct was unconscionable;
• unreasonableness or unfairness are only indicia of unconscionability;
• when courts use phrases to explain how they understand words in statutory provisions, the use of such explanatory words does not replace the precise words used in the statute;
• whether conduct should be described as unconscionable depends heavily on the particular facts of each case and attention should be given to the words ‘in all the circumstances’ – attention which ‘can cast a different complexion on things’;
• a quality of unconscionable conduct which distinguishes it beyond mere unfairness or unreasonableness is that it is unethical, and this is borne out in the cases; and
• the ‘intentional breach or reckless disregard of certain norms or standards amounts to statutory unconscionability’, which ‘will include norms of honesty and fair dealing and norms which exclude exploitation and deception.’

Key message

Assessing whether or not conduct amounts to statutory unconscionability will rarely be a straightforward task and one which is necessarily closely tied to the particular circumstances of the case. Businesses involved in sales of consumer goods and services should ensure they closely monitor the conduct of their employees, especially where incentives are on offer. Clear policies and procedures ensuring careful oversight are vital safeguards against the reputational risk embodied in a finding of statutory unconscionability.