What does ‘unconscionable conduct’ mean?

The Fair Trading Act prohibits unconscionable conduct. It is business activity that is a substantial departure from Aotearoa New Zealand’s generally accepted or expected standards of business conduct. This is conduct of a type that should rarely occur as it so obviously departs from what is to be expected from those acting in good commercial conscience.

Australian law includes a similar prohibition. New Zealand courts are likely to interpret the meaning of unconscionable conduct in a similar way to the Australian courts. They have interpreted unconscionable conduct as being serious misconduct that is so far outside accepted standards of commercial conduct as to be against good conscience. Good business conscience is measured against the values and norms of modern society and expectations of what is right and proper according to those values and norms. Those values and norms can include acting honestly, fairly and without deception or unfair pressure. This is conduct that is more than just hard commercial bargaining but is deliberate and clearly unfair and unreasonable.

Unconscionable conduct can take many forms. It can include a contract between a business and a customer, but it does not have to. It can also involve one off activity or a system or pattern of conduct. No individual needs to be identified as disadvantaged or likely to be disadvantaged by the conduct for it to be considered unconscionable. However, this may often be the case with the most serious cases of unconscionable conduct.

Whether the courts consider conduct is unconscionable depends on the circumstances of the business and the affected person. For example, the courts may consider whether the business used any undue influence, unfair pressure or tactics, and whether the business acted in good faith. They may also consider the relative bargaining strength of the parties, whether the affected customer could protect their own interests given their characteristics and circumstances and whether the customer could understand any documents provided to them by the business.

If parties have entered into a contract, the courts may also consider matters such as the circumstances at the time the contract was entered into, including whether there was an opportunity for effective negotiation and legal advice, whether the terms of the contract are reasonable and the conduct of the business after the contract was entered into.

Who does it apply to?

All businesses need to take care to ensure their business conduct and contracts are not unconscionable. An affected party can be an individual or a business.

What can you do to protect yourself from unconscionable conduct?

Businesses should act reasonably and in good faith. The following tips may help you to avoid being affected by unconscionable conduct:

  • Carefully read all documents before you sign them.
  • If the language in a document is overly technical or difficult to understand, or the document is lengthy and/or complex, ask for a plain language summary or explanation.
  • Check that any summary or explanation clearly describes all the important terms and conditions or ask for more information if you think they do not.
  • Check that you understand what you are signing up to before you sign any documents or enter into any agreements.
  • Take the time to consider any document or agreement and to obtain help, such as independent legal or financial advice, before signing up.
  • Do not feel pressured to agree to something or feel that you cannot ask for more time to think it over before deciding.

What to do if you think a business’s conduct is unconscionable

If you are concerned about conduct by a business that may be unconscionable, you can report it to the Commission. You can also take private action. You may wish to seek legal advice before taking such action.

If found guilty of unconscionable conduct, businesses can be convicted and fined up to $600,000 and individuals can be liable for fines of up to $200,000. The courts can also make a range of other orders under the Fair Trading Act, such as requiring businesses to compensate consumers or vary a contract.

Lessons from Australia

Until we have experience of court decisions here, we can look across the Tasman for examples of the kind of business conduct that might be considered to be unconscionable.

When assessing whether conduct is unconscionable, the Australian courts have focused on the conduct of the parties and assessed whether it is such a departure from the norms of acceptable commercial behaviour ‘to be against conscience or to offend conscience.’

  • For example, in one case found to involve unconscionable conduct, a business’ salespersons used deception to gain access to the homes of three elderly women. They sold the women expensive vacuum cleaners they did not want or need by creating a real sense of obligation to buy.
  • In another case, a franchisor demanded a 50% fee increase from its franchisees for access to a national telephone number which the franchisees relied on to receive consumer inquiries and work. The franchisor disconnected franchisees from the telephone number when they didn’t pay the increased fee. It also required existing franchisees to vary their franchise agreements to include the increased fee. The court found that the franchisor abused its position of strength and engaged in conduct that involved misstatements, non-disclosure of information, threats and intimidation. The court also found that the conduct amounted to unilateral profit gouging and all the elements together, showed that the franchisor’s conduct was unconscionable.
  • In another case, the Australian court found an education provider guilty of unconscionable conduct relating to online diploma courses. Students were enticed to enrol in full-time courses with claims the courses were free and by offers of free laptops, but they were enrolled under a student loan scheme and were left with large debts. The company did not assess the students' suitability for the courses including their language, literacy and numeracy skills and students were unlikely to complete the course. The company also paid large commissions to salespeople who they did not train and monitor.

You can read more details about unconscionable conduct in the Fair Trading Act.