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Reflection Based on ALRC Background Paper FSL9
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EXECUTIVE SUMMARY
Australian Law Reform Commission (ALRC) Background Paper FSL9 (link) argues that the proliferation and overlapping of existing legislations, namely ss 12CA and 12CB of the Australian Securities and Investment Commission Act 2001 (Cth), adds ‘’unnecessary complexity in the law’’, [1] therefore, it’s necessary to repeal s 12 CA of the ASIC Act as well as s 991A of the Corporations Act 2001 (Cth), etc. [2]
I do not support this proposal because in my view, it is first of all a question of how to interpret different provisions. Secondly, it is an issue of how to better classify the unconscionability based on the element analysis. Finally, my suggestion is to separate these provisions for a better protection to consumers.
CRITICAL ANALYSIS
This policy brief focuses on discussing the unconscionable conduct under subdivision C, as ALRC Paper FSL9 uses a similar framework to analyze the misleading or deceptive conduct under subdivision D.
I Analysis of Unconscionable Conduct under Subdivision C
Ordinary Meaning
First, the overlapping comes down to the issue of statutory interpretation regarding the ordinary meaning of the language.
ALRC Paper believes that s 12CB ‘’captures conduct that is, ‘in all the circumstances, unconscionable,’ and this would include at least the well-established conception of unconscionable conduct in Equity.’’ [3]
However, if s 12CB captures ALL the unconscionable conducts, then the interpretation of s 12CA (2) would render it absurd. s 12CA (2) provides:
“This section does not apply to conduct that is prohibited by section 12CB’’.
If s 12CB prohibits ALL the unconscionable conducts, even including the unconscionable conducts ruled under s 12CA (1), then s 12CA (2) will be like:
“This section does not apply to ALL the conducts unconscionable’’.
Literally, there would be no unconscionable conducts left for s 12CA to rule.
It is reasonable to assume that s12CA (2) implies, logically, the unconscionable conducts captured by s 12CB are different from those captured by s 12CA (1).
Element Analysis
Secondly, if we conduct an element analysis and borrow the language from criminal law, maybe we can easily illustrate the difference between ss 12CA and 12CB.
The meaning of unconscionability in s 12CA, within the scope of unwritten law, namely, equity, refers to unconscionability only where “a stronger party to a transaction exploits some special disadvantage which has operated to impair the ability of a weaker party to form a judgment as to his or her interests’’. [4] Exploitation implies the mindset of taking advantage of someone inferior during the transaction to be a must-have element – this requires subjective psychological activities, namely, self-awareness or self-consciousness of the offender, actively engage in the transaction. This is something that the case Kakavas addressed that “a predatory state of mind” should be found in the equitable unconscionability. [5] Such a predator’s mindset indicates that the stronger party must not only knowingly exploit the weaker party, but ‘’make the active decision to exploit’’ also. [6] We may refer to it as a sort of ‘’full fault liability” (“mens rea”) in such an equitable doctrine of unconscionability.
This subjective element of knowledge in the equitable standard didn’t take a strong position under statutory unconscionability (s 12CB) by Kiefel CJ and Bell J in ASIC v Kobelt. [7] In fact, s 12CB can be regarded as a ‘’strict liability’’ which largely relies on the conduct or the circumstance itself, placing greater emphasis on ‘a system of conduct or pattern of behaviour’. [8]
s 12 CC even creates a non-exhaustive list describing those touchpoints’ circumstances during the transaction, using words like ‘’positions’’, ‘’conditions’’, documents’’, “tactics’’, etc. All this aims at establishing objective measurements.
Gageler J suggested that the right approach to interpretation is that s 12CB stipulates a prescriptive standard of conduct that is unconscionable. [9] It is safe to say what s 12CB significantly concerns is the objective character of the conduct rendered as unconscionable based on ordinary meaning. [10]
Of course, s 12CB (4)(a) also provides:
‘’this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct;’’
Does the scope of ‘’not limited by the unwritten law’’ encompasses the scope of s 12CA (1)?
It may be open to the judges to determine this issue. Even though there is a certain degree of ‘’overlapping’’ between ss 12CB and 12CA, it is worth noting that the equitable doctrine is not “determinative of what is required under the statutory prohibition in section 12CB, ’’ [11] equitable doctrine is only ‘’influential’’ under s 12CB. [12]
Such analysis is reasonable because one of the objects of the ASIC Act 2001 is to ‘’maintain, facilitate and improve the performance of the financial system and the entities within that system in the interest of commercial certainty”, [13] and s 12CC also provides a detailed list of standards for assessment. At least the equitable principle of unconscionability is not dominative under s 12CB which has to favor certainty, considering the reputation of equity is associated with uncertainty and the world of commercial transactions needs certainty. [14]
Thus, I agree that the legislative structure ‘’supports s 12CB having a different meaning from that in equity’’. [15] And from here, s 12CA (2) will start to make sense because ss 12CA and 12CB are two different legal systems under different standards. At most, the equitable principle in s 12CB is a ‘’lite’’ or ‘’diluted’’ version.[16]
Generally speaking, ss 12CA and 12CB are complementary. The rigid, absolute, and objective characteristics of s 12CB can be aided by the flexible, relative, and subjective nature of s 12CA. It will also be good for classification if separating both provisions.
II Analysis of repealing s 991A of the Corporations Act 2001 (Cth)
By exploring ASIC’s website, we learn that ASIC as an independent regulator administering both ASIC Act 2001 and Corporations Act 2001, has the power (and the obligation) to “protect consumers against misconduct and harms relating to financial products and services’’. [17]
The audience of the Corporations Act 2001 is relatively narrower so it’s reasonable for the Corporations Act 2001 to use ‘’a financial services licensee’’ in the provision of s 991(A). [18]
On the other hand, it’s natural for ASIC to use ‘’a person’’ in the ss 12CA and 12CB of the ASIC Act 2001, because compared with the Corporations Act 2001, ASIC Act 2001 tends to speak to the wider audience – the general public – than the Corporations Act 2001, given that ASIC’s obligations include protecting consumers against inappropriate conducts. This is in line with one of the Objects listed in s 1(2)(b) under Division 1 of Part 1 Preliminary section, that ‘’ASIC must strive to…promote the confident and informed participation of investors and consumers in the financial system; and…” [19]
There might have some illegal financial service providers who are not ‘’financial service licensees’’ but whose unconscionable conducts can be captured by ASIC Act 2001. For example, controversially, Mr. Kobelt in ASIC v Kobelt is not a licensee to engage in financial services. [20] It is true that ‘’the consumer protection provisions in the ASIC Act should apply more broadly than obligations contained in the Corporations Act’’. [21] However, it does not mean that we need to use ‘’a person’’ to cover ‘’a licensee’’ by repealing s 991A, Corporations Act 2001 supervises the financial industry like a ‘’specialist’’, while ASIC Act 2001 is a bit more ‘’generalist’’. Both Acts serve society with a different focus on regulation.
RECOMMENDATIONS
If we say the legislation is too complicated, that’s only because both human mindset and human behavior are fundamentally intriguing and complicated. A reasonable or functional ‘legislative highway’, [22] is much like a crisscrossing viaduct which, though having overlapping sections, offers different layers of transportation.
Benefits to Consumers
Ideally, from the perspective of protecting consumers, within the spectrum of ‘’unconscionability’’, if s 12 CB serves as a provision attracting ‘’strict liability’’, distinct from s 12CA with the element of predatory mindset, the benefits to the consumers may include two aspects:
1) If against those offenders who might use ‘’the absence of predator’s mindset’’ as an excuse, that will efficiently protect consumers through identifying a problematic system or pattern of behavior harmful to customers. For example, an unconscionable financial service provider who designed a problematic system of service might argue that “the unconscionability is caused by the system, I subjectively didn’t want to exploit the customers. It’s the fault of the system.’’ Because it’s always difficult to identify a predator’s subjective mindset if s 12CB serves as a ‘’strict liability’’ without bothering the subjective ‘’full fault’’ element implied in equitable unconscionability (s 12CA), that will protect consumers in an easy way.
2) Due to the difficulties in finding subjective predators’ mindset within the corporation, the statutory unconscionability relevant to systems may potentially hold “large and complex corporate wrongdoers responsible for unconscionable conduct.’’ [23] This is important to punish those ‘’faceless’’ corporations that developed a problematic system in which customers are easily trapped. s 12CB is especially relevant to the unconscionability related to written law, for example, contract law.
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BIBLIOGRAPHY
A Articles/Books/Reports
Australian Law Reform Commission, All Roads Lead to Rome: Unconscionable and Misleading or Deceptive Conduct in Financial Services Law, Background Paper FSL9 (2022)
Paterson, Jeannie Marie, Elise Bant, and Matthew Clare, ‘Doctrine, policy, culture and choice in assessing unconscionable conduct under statute: ASIC v Kobelt’ (2019) 13 Journal of Equity 81
Leeming, Mark, The Role of Equity in 21st Century Commercial Disputes – Meeting the Needs of Any Sophisticated and Successful Legal System (2019) 47 Australian Bar Review 137
B Cases
Australian Securities and Investments Commission v Kobelt [2019] HCA 18
C Legislation
Australian Securities and Investment Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
E Other
About ASIC, Website page, https://asic.gov.au/about-asic/
[1] Australian Law Reform Commission, All Roads Lead to Rome: Unconscionable and Misleading or Deceptive Conduct in Financial Services Law, Background Paper FSL9 (2022) 1.
[2] Ibid.
[3] Ibid 18.
[4] Jeannie Marie Paterson, Elise Bant and Matthew Clare, ‘Doctrine, policy, culture and choice in assessing unconscionable conduct under statute: ASIC v Kobelt’ (2019) 13 Journal of Equity 81, 92.
[6] Ibid.
[7] Ibid 96.
[8] Australian Securities and Investment Commission Act 2001 (Cth) s 12CB (4)(b).
[9] Ibid.
[10] Jeannie Marie Paterson, Elise Bant and Matthew Clare (n 4) 94.
[11] Ibid 92.
[12] Jeannie Marie Paterson, Elise Bant and Matthew Clare (n 4) 93.
[13] Australian Securities and Investment Commission Act 2001 (Cth) div 1.
[14] Mark Leeming, The Role of Equity in 21st Century Commercial Disputes – Meeting the Needs of Any Sophisticated and Successful Legal System (2019) 47 Australian Bar Review 137, 139.
[15] Jeannie Marie Paterson, Elise Bant and Matthew Clare (n 4) 92.
[16] Ibid 93.
[17] https://asic.gov.au/about-asic/
[18] Corporations Act 2001 (Cth) s 991A.
[19] Australian Securities and Investment Commission Act 2001 (Cth) s 1(2)(b).
[20] Australian Securities and Investments Commission v Kobelt [2019] HCA 18.
[21] All Roads Lead to Rome (n 1)11; Australian Law Reform Commission, Interim Report A: Financial Services Legislation (Report No 137, 2021) 276.
[22] All Roads Lead to Rome (n 1)1.
[23] Jeannie Marie Paterson, Elise Bant and Matthew Clare (n 4) 104.