[2015] FCAFC 50
Federal Court of Australia
Paciocco v Australia and New Zealand Banking Group Limited





In 2013, a class action was launched against ANZ challenging the validity of numerous exception fees charged by ANZ on the basis that they were penalties or were the product of unconscionable or unjust conduct. The fees in question included credit card late payment fees, honour, dishonour and non-payment fees, and overlimit fees.

In February 2014, the First Instance Court determined that the credit card late payment fees were penalties, as they were payable upon breach of contract or as a collateral or accessory stipulation as security for a primary stipulation and were not a genuine pre-estimate of damage or loss that ANZ could suffer. They were found to be “extravagant and unconscionable” when compared to the actual loss suffered. However, the other fees in question were found to be of a different character and did not constitute penalties at common law or in equity. The liability to pay these fees was held to arise in exchange for a further service from ANZ.

ANZ appealed the First Instance decision to characterise late payment fees as penal, and the class applicants cross-appealed on the finding that the other fees were legitimate and not penalties.

On appeal, the Full Federal Court overturned the lower Court’s finding that the late payment fees were penalties, whereas it confirmed the First instance decision that overlimit, honour and dishonour fees were not penalties, unconscionable or unfair.

Among others, the Full Federal Court noted that there was nothing in ANZ’s actions that constituted any unconscionability or unfairness. ANZ had acted honestly, the fees were fully disclosed, the applicants were not vulnerable, the fees could be avoided by the customer by not being in default and the customer chose to run its affairs by risking the fees. There was no lack of good faith by ANZ.

In this latter respect, Chief Justice Allsop referred to the definition of good faith that he had already expressed in the decision United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177 (in Unilex), quoting the following passage:

... [G]ood faith is not a concept foreign to the common law, the law merchant or businessmen and women. It has been an underlying concept in the law merchant for centuries: L Trakman, The Law Merchant: The Evolution of Commercial Law (Rothman 1983) at p 1; W Mitchell, An Essay on the Early History of the Law Merchant (CUP 1904) at pp 102 ff. It is recognised as part of the law of performance of contracts in numerous sophisticated commercial jurisdictions: for example Uniform Commercial Code §1-201 and § 1-203 (1977); Wigand v Bachmann-Bechtel Brewing Co 118 NE 618 at 619 (1918); E A Farnsworth, Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 1 at pp 391-417 § 3.26b; International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts 2004, Rome, Art 1.7 ( [Ed. 3 May 2010]); R Zimmerman and S Whittaker (Eds) Good Faith in European Contract Law (CUP 2000). It has been recognised by this Court to be part of the law of performance of contracts: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263-270; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Burger King Corporation v Hungry Jack’s Pty Ltd at 565-574 [141]-[187]; and Alcatel Australia Ltd v Scarcella at 363-369. ...



Unconscionable conduct – the approach to an evaluative statutory standard

259 Notwithstanding the lack of controversy at the trial about the applicable principles, it is appropriate to say something about the standards involved, in particular unconscionability. This is so in order to explain why the conclusions reached by her Honour in her application of the principles were not shown to be wrong. I will focus, initially, upon the word "unconscionability" in the ASIC Act.

260 It is also necessary to say something as to the relative standards or norms of unconscionability, unfairness and unjustness and the care needed in the use of other language to explicate those standards. In particular, the phrase "moral obloquy" and a "high level of moral obloquy" has been used to identify a feature of unconscionability: see Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; 15 BPR 29,699 at [291] where I referred to what Spigelman CJ said in Attorney-General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 at 583 [121] about the concept of unconscionability in s 62B of the Retail Leases Act 1994 (NSW). There are other cases in which this shorthand has been employed. It is unnecessary to discuss them.

261 It is important to recognise that Spigelman CJ in World Best was using the phrase in a way to differentiate the moral or normative standard in unconscionability as higher than in unfairness or unjustness. At [121] of World Best, the Chief Justice said:

The Ministerial Second Reading speech, quoted above, indicates a similar concern to distinguish what is unconscionable from what is merely unfair or unjust. Even if the concept of unconscionability in s62B of the Retail Leases Act is not confined by equitable doctrine, as the decisions under s51AC of the Trade Practices Act suggest, restraint in decision-making remains appropriate. 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 was "fair" or "just", it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of "unconscionability" would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises.

262 That a degree of morality lies within the word "unconscionable" is clear. "Unconscionability" is a value-laden concept. "Obloquy" is "the condition of being spoken against; bad repute; reproach; disgrace; a cause of detraction or reproach,"; "obliquity" is "a deviation from moral rectitude, sound thinking or right practice; a delinquency; a fault or error.": The Shorter Oxford English Dictionary on Historical Principles (3rd Ed, Oxford, 1969) Vol 2 p 1428. That unconscionability contains an element of deviation from rectitude or right practice or of delinquency can be readily accepted, as long as the phrase "moral obloquy" is not taken to import into unconscionability a necessary conception of dishonesty. The statutory language is "unconscionable": that is, against conscience. A sense of moral obloquy or moral obliquity can be accommodated within the meaning or conception of unconscientious or unconscionable conduct. That said, an understanding of the meaning conveyed by the word "unconscionable" in the statute is not simply restated by substituting other words for those chosen by Parliament; danger easily lurks in the use of other words to capture the meaning of the statutory language. The task involved is not the choice of synonyms; rather, it is to identify and apply the values and norms that Parliament must be taken to have considered relevant to the assessment of unconscionability: being the values and norms from the text and structure of the Act, and from the context of the provision. Parliament has given some guidance to its proper application (and to its meaning) by identifying in s 12CC certain non-exhaustive factors that may be taken into account by a court in deciding whether conduct was unconscionable. Given the value-laden character of the word, it is necessary to ascertain and organise the relevant values and norms by reference to which the meaning of the word is to be ascertained, and by reference to which the application of the section is to be undertaken (the two tasks being distinct). It must, however, be emphasised at the outset that the values and norms that are relevant are those that Parliament has considered, or must be taken to have considered, as relevant. The following discussion should be understood as dealing with those matters, and not with any values or norms disembodied from, or unconnected with, the choice made by Parliament.

263 The first group of values are the enduring historical (and contemporary) norms and values that are recognised in the unwritten law referred to in s 12CA, and that are embedded within the conception of unconscionable conduct as referred to in s 12CB. These are the norms and values in the law, especially, but not limited to, Equity, that bear upon the notion of conscience, in this context the conception of a business conscience – one attending conduct in trade or commerce. These norms and values can be seen in the different branches of the general law, as well as in statute.

264 One should commence with the value of certainty. It is a consideration and legal value central to the rational and coherent operation of the section (and a matter of central concern to Spigelman CJ in World Best). Certainty in the law is an element or essence of enduring importance. As Sir Frederick Pollock said in The First Book of Jurisprudence for Students of the Common Law (5th Ed, London: Macmillan, 1923) at 37:

[T]he normal and necessary marks, in a civilised commonwealth, of justice administered according to law… [are] Generality, Equality, and Certainty.

265 These considerations are central to law's acceptance as an objective form of societal will, and not the subjective views of fellow humans finding themselves in a position of power. Certainty goes to the heart of the conception of the rule of law, not of men.

266 Certainty is a quality sometimes posited as a reason for removing from the expression of rules to govern conduct (in particular in regard to commercial conduct) standards, values and norms that lack precise definition, or that involve the application of values, or that apply or operate in contestable fields or with contestable results. But no sophisticated legal system, or society, seeks intellectual refuge in the proposition that rules alone are the guardians of the security of certainty. Lord Mansfield recognised this. He said that the law merchant must be easily learned and easily retained: Hamilton v Mendes (1761) 2 Burr 1198 at 1214: 97 ER 787 at 795. The rules to which Lord Mansfield referred did not depend on subtleties and niceties of expression or idea, rather they were easily learned and easily retained, because they were "the dictates of common sense, drawn from the truth of the case": at 1214; 795. That was not a call for rules of unbending logical expression; rather, for rules (or principles) expressed in language that reflected the customs, norms and values of the society, or commerce, of the time.

267 The place of norms, values and principles in commercial law, lacking particular precision, but stating a value or general standard, can be seen in the common law, statutes on commercial subjects, in Equity, and in other branches of commercial law. Sometimes, a rule can only be expressed at a certain level of generality, often involving a value judgment. To do otherwise, and to seek precise rules for all circumstances, may be to risk complexity, incoherence and confusion.

268 The common law has many rules and principles expressed in terms of norms and values, rather than specific definitions expressed in terms of a priori logic that are sufficient by linguistic formulae to capture or recognise precise future situations of application. This was so in commerce, as in other fields of activity and life. As Lord Wright said in Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 at 507, the legal implication of what is reasonable runs throughout the whole of English law, and is easily made. The notion of good faith in contract (not Equity) discussed later is another example. The law of restitution involving the informing concept of unjust enrichment is another. The relief from penalties and unconscionable restraints of trade are two more: see generally the comments of Lord Diplock in Schroeder Music Publishing Co v Macaulay [1974] 1 WLR 1308 at 1315-1316.

269 Sometimes, provisions of statutes central to the operation of commerce, are expressed in terms of generality laden with value judgments. For instance, in marine insurance, the notion of discharge of the insurer from liability is central to the operation of the promissory warranty and to the operation of the principles of deviation and delay: see the Marine Insurance Act 1909 (Cth) ss 39-47 (warranties), and ss 52-54 (deviation and delay). The discharge of the insurer will see the assured lose for all time, the benefit of the contract of insurance. If there is delay in a voyage covered by voyage policy, the rule is expressed generally: "the insurer is discharged from liability as from the time when the delay became unreasonable": Marine Insurance Act, s 54. The rule, easily learned and easily retained, is expressed in general terms, by reference to a standard that is evaluative.

270 In Equity, norms and values permeate – as maxims, principles, doctrines, and rules. One of those norms is a rejection of unconscionable conduct. Equitable intervention in, and concerned with, commerce is not exceptional. One needs only to appreciate the reach of Equity into commercial life and law through partnership, joint ventures, agency, directors' duties, trading trusts, the place of equity in bankruptcy, mortgages, relief against forfeiture, penalties, estoppel, mistake, marshalling, subrogation, contribution, hotchpot, equitable assignments, specific performance and injunctions and the attendant discretionary considerations, discovery, rectification, receivers, laches, acquiescence and delay, account, and specific restitution. Of course, certain direct competitive and self-interested aspects of commerce may negate, limit or constrain Equity's influence. Nevertheless the demands of honest commerce conform with a degree of right behaviour. The morals of the market place of which Cardozo J spoke in Meinhard v Salmon 249 NY 458 at 459; 164 NE 545 at 546 (1928) were honesty and good faith, in contradistinction to the punctilio of an honour most sensitive of the trustee.

271 Equity, as a reflection of underlying norms and values (and often expressed thus rather than by rules that are precisely linguistically expressed) required, necessarily, a form of judicial technique different to the common law. This difference was expressed by Dixon CJ, McTiernan J and Kitto J in Jenyns v Public Curator (Qld) [1953] HCA 2 at [3]; 90 CLR 113 at 118-119 and in their repetition (at 119) of Lord Stowell's generalisation in The Juliana (1822) 2 Dods 504 at 522; 165 ER 1560 at 1567:

A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case".

272 The citation of a case in the Admiralty Court concerned with the wages of a seafarer as illustrative of the different technique of Equity to that of the common law reflects the fact that principles of Equity in English law were not confined to the courts of Chancery. Equity, as the natural expression of fairness and decency in the face of sharp practice, or the taking of advantage over the vulnerable and weak, unfair tactics, fraud and surprise, was a hallmark of maritime law, especially in, but not limited to, the oversight of the rights and lives of mariners. For instance, in Harden v Gordon 11 F Cas 480; 2000 AMC 893 (Circuit Court 1823) Story J set aside the articles of agreement (the contract of employment) of a seaman that purported to restrict his right to maintenance and cure. The juridical foundations for the approach were the general principles of justice, doctrines of general equity, and customs and usages of the sea.

273 A similar approach was taken by Lord Stowell in The Juliana (the case cited in Jenyns). The plaintiff seaman, Lattimore, was one of only two survivors of a ship wrecked off Portsmouth en route to her final port of discharge, London. The ship had undertaken a series of voyages, for 16 months, from Portsmouth to Tasmania, thence to Batavia, thence to Bengal, thence to return to the Port of London. Lattimore's articles of agreement were entered into prior to the voyages. By the articles themselves, it was agreed that no officer or seaman could demand or be entitled to his wages, or any part thereof, until the arrival of the ship at the final port of discharge (London) and until her cargo was delivered. There was no suggestion that Lattimore was other than a loyal and competent seaman. He had worked for 16 months. Under the articles, he was entitled to nothing, beyond the sustenance, and maintenance and cure that he had received while working for almost a year and a half. Lord Stowell discussed the history of the Admiralty Court's setting aside of bonds taken simultaneously at the point of entry into articles of agreement which renounced the rights of mariners to a lien on freight or to demand any wages until return of the ship to the final port of discharge. There was, of course, often good reason to encourage seamen to remain on board until the end of the voyage in conformity with their articles of agreement. Lord Stowell then considered the question as to whether these cases on bonds could be circumvented by incorporation of the term previously the substance of the bond into the articles of agreement. It was in this context that the passage quoted in Jenyns appeared. Lord Stowell then went on to say at 521; 1567:

This court certainly does not claim the character of a Court of General Equity; but it is bound by its commission and constitution, to determine the cases submitted to its cognisance upon equitable principles, and according to the rules of natural justice.

274 The provision incorporated into the articles was not enforced, because it was taken to be an imposition on illiterate and inexperienced persons against their own ignorance and imprudence: 522; 1567, and was unjust and taken upon advantage of ignorance and weakness, and, in other words, by oppression or fraud: 515; 1565.

275 The context of The Juliana (a case so carefully cited by the Court containing two of the great masters of law and Equity in Australian law, Sir Owen Dixon and Sir Frank Kitto) was the then epitome of English commercial law: the law governing the relations of the participants in shipping and maritime adventures.

276 Before leaving the law maritime, a quintessential branch of the law merchant, it is worth noting, by but two examples, the central place of conceptions of fairness, justice and equitable principles to the contemporary operation of commercial maritime law. First, in deciding the priority of competing maritime liens to a limited fund from the sale of a ship or other maritime property after an arrest and sale, an Australian or English Court of Admiralty will generally distribute funds by reference to an order of priority that would see a lien for damage done by the ship prevail over a lien for salvage or for crew's wages. The court is, however, able to vary such priority to do justice, according to the equity of the situation: Thomas D, Maritime Liens (Colinvaux R (ed), London: Stevens & Sons 1980, British Shipping Laws, Vol 14) at 234-235.

277 Secondly, a salvage contract will only be enforced according to its terms if it is "consistent with equity": The Firefly (1857) Swab 240 at 241; 166 ER 1116 at 1117. Maritime law, whilst recognising the importance of the bargain between competent persons, provided for a power in the court to set aside or reform contractual salvage bargains that were on inequitable terms. No statute was or is needed for this authority. The equity of rewarding spontaneous services, often required in circumstances of dire need, limited the remedy and the right (including by contract) to what was and is just: The Medina (1876) 1 PD 272 at 275-276; The Juliana at 520-521; The British Empire (1842) 6 Jur 608 at 608; The Emulous (1832) 1 Sumn 207 at 210-211; The Iodine (1844) 3 No C 140 at 142; The True Blue (1843) 2 W Rob 176 at 179 and 181; 166 ER 721, 722 and 723; The Helen and George (1858) Swab 368 at 369; 166 ER 1170; The Strathgarry [1895] P 264 at 270; Rose F, Kennedy and Rose Law of Salvage (8th Ed, Sweet and Maxwell, 2013) at 390-391 and 415-425 and the cases there discussed.

278 The values of justice and equity, simply expressed, have been no strangers to commercial men and women. The context will form and guide their application. The familiarity of the context gives comfort to the relevant commercial community for its acceptance of them in everyday usage. Provisions such as s 12CB and the other relevant statutes are a modern expression of simple norms, generally expressed, being placed into both consumer and commercial law.

279 The statutes in question give express guidance as to the norms and values that are relevant to inform the meaning of unconscionability and its practical application. The central provision relied upon, s 12CB, is to be understood in the context of Subdiv C of Div 2 of Pt 2 of the ASIC Act. Section 12CA provides immediate statutory context. The unwritten law referred to in s 12CA is the general law or common law of Australia, including in that phrase, the principles and doctrines of Equity. Unconscionability in Equity can be understood from at least two perspectives: first, the principles of unconscionable conduct as a basis for setting aside or refusing to enforce transactions or contracts entered into in certain circumstances; and, secondly, as a thematic feature of Equity being a central ethical or moral aspect of the character of Equity: see generally Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 at 72-74 [42]-[46]. Both features are relevant to Subdiv C as a whole. Further, s 12CB as a provision of an Australian statute can be taken to have been using the conception of "unconscionable" used in Australian legal discourse. It is Australian legal and public values that inform the meaning of words of an Australian statute. This is not an expression of parochialism, but a reflection of the influence of community values in the development of legal standards and legal development appropriate to a community: Lange v Atkinson [2000] 1 NZLR 257 at 263 (PC); Skelton v Collins [1966] HCA 14; 115 CLR 94 at 134-137 (Windeyer J); O'Sullivan v Noarlunga Meat Ltd No(2) [1956] HCA 9; 94 CLR 367 at 375-376 (Dixon CJ, William, Webb and Fullagar JJ).

280 Insofar as one is considering the first perspective, it is important to recall that Equity operated to set aside or not enforce a particular transaction between the parties. The conduct and circumstances that gave rise to equitable relief related to the parties themselves, and to the transactional setting in which they found themselves. This is to be contrasted with s 12CB, which, in para (4)(b), provides that the section is capable of applying whether or not a particular individual is identified as having been disadvantaged by the conduct.

281 Insofar as one is considering either the first or the second perspective, it is important to keep in mind the nature of the judicial technique of Equity discussed in Jenyns. This judicial technique was required by the nature of Equity itself: as a body of doctrines, principles and rules significantly based on values and norms, rooted in justice and fairness and often mediated or expressed through the conscience of the party. Equity was not a corpus of fixed rules, but a living body of doctrines, principles and rules, ordered and made coherent by taxonomical and theoretical organisation, especially in the late 18th and then the 19th centuries, but, nevertheless, retaining its principle-based flexibility for adaption to circumstances at hand. The values and norms that informed the equitable notion of conscience included honesty, fraud, surprise, mistake and hardship. The broad scope of these notions, extending beyond deceit and misrepresentation at common law, can be seen in the principles of unconscionable conduct picked up in statutory form by s 12CA.

282 Unconscionable conduct, as a coherent basis for relief, had, at its root, the protection of the vulnerable from exploitation by the strong: Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447, at esp 461-462 and 474-475; Blomley v Ryan [1956] HCA 81; 99 CLR 362 at esp 405, 415 and 428-429; Louth v Diprose [1992] HCA 61; 175 CLR 621 at esp 626-627, 637 and 650; Bridgewater v Leahy [1998] HCA 66; 194 CLR 457 at 485-486; and Kakavas v Crown Melbourne Ltd [2013] HCA 25; 250 CLR 392. Equitable relief for unconscionable conduct is based on a principle, not a rule. The applications or exemplifications of the principle are impossible to describe fully. Care should be exhibited in dwelling over technically or textually on individual expressions of the general principle of normative values, rooted in Equity's remedying of injustice. That said, the expression of the underlying general principle by Mason J and Deane J in Amadio at 462 and 474 and Lord Selborne LC in Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 490-491 are enduring.

283 By the incorporation of the unwritten law into the ASIC Act, Parliament can be taken to have adopted, for the operation of the Act and arising out of its text, the values and norms that inform the living Equity in that doctrine. Section 12CB(4)(a) makes it plain that the operation of s 12CB is not limited by the unwritten law referred to in s 12CA. That is not to say, however, that the values and norms that underpin the equitable principle recognised within s 12CA do not have a part to play in the ascription of meaning to, and operation of, s 12CB, notwithstanding s 12CA(2).

284 Further, in s 12CB Parliament can be taken to have adopted the conception of unconscionability as developed in Australian law. Australian law can be seen to have used unconscionability in standards (implicitly moral in character) exacted of parties in a variety of circumstances (including, at times, in commercial law) reflecting the values that concern Equity: Dowsett v Reid [1912] HCA 75; 15 CLR 695 at 705 (discretionary defences to specific performance); Legione v Hateley [1983] HCA 11; 152 CLR 406 (promissory estoppel); Amadio; Taylor v Johnson [1983] HCA 5; 151 CLR 422 (mistake); Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; 156 CLR 41 (fiduciary obligation); United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49; 157 CLR 1 (joint ventures); Chan v Zacharia [1984] HCA 36; 154 CLR 178 (fiduciary obligations); Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387 (equitable estoppel); Moorgate Tobacco Co v Philip Morris Ltd (No 2) [1984] HCA 73; 156 CLR 414 (breach of confidence); Muschinski v Dodds [1985] HCA 78; 160 CLR 583 (constructive trust); Baumgartner v Baumgartner [1987] HCA 59; 164 CLR 137 (constructive trust); and the contexts referred to in Berbatis 214 CLR at 72-73 [42].

285 More specific guidance to the meaning and operation of s 12CB as a consumer provision is given by the matters set out in s 12CC (whether from 2002 to 2011 inferentially from s 12CC applying to "business transactions" as referred to in the section heading for s 12CC as to which see subss 12CC (6), (7), and where relevant (8) and (9), or since 1 January 2012 as expressly directly explicative of s 12CB) to which a court may have regard for the purposes of considering the question of unconscionable conduct. These matters assist in setting a framework for the values that lie behind the notion of the relevant conscience of the parties in trade or commerce identified in s 12CB. Those values and conceptions can be seen as: fairness and equality: see paras (a), (b), (d) – (k); a lack of understanding or ignorance of a party: para (c); the risk and worth of the bargain: paras (e) and (i); and good faith and fair dealing: para (l).

286 Some of the matters enumerated in s 12CC deserve specific comment. The inclusion in para (a) in sub-ss (1) and (2) of inequality of bargaining power can be seen to be a recognition that in commerce there may arise circumstances of asymmetry of power; such asymmetries are sometimes ruthlessly exploited in a manner that may offend the commercial conscience: see for example Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [102] – [105] (Gordon J). The reality of that to business people is no more difficult to understand than is the difference between sharp practice and good faith, even when the latter is accompanied by hard bargaining. (That does not mean, however, that using one's bargaining position is necessarily unconscionable, or even unfair.)

287 Paragraph (l) in sub-ss (1) and (2) refers to good faith. That is a conception that has been recognised (though not by all courts in Australia) as an implication or feature of Australian contract law attending the performance of the bargain and its construction and implied content: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Hughes Aircraft Systems International v Airservices Australia (No 3) [1997] FCA 558; 76 FCR 151; Seddon N, Bigwood R, Ellinghaus M, Cheshire and Fifoot's Law of Contract (10th Ed, Aust Ed, 2012) 10.41- 10.47; cf Commonwealth Bank of Australia v Barker [2014] HCA 32 at [42] and [107]; 88 ALJR 814 at 827 and 837. Yet, good faith in the performance of contracts is well-known to the common law and to civilian systems. It is a good example of the presence of values in the common law. I repeat what I said in United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; 74 NSWLR 618 at 634 [58] (in a commercial context of a clause expressly incorporating good faith):

… [G]ood faith is not a concept foreign to the common law, the law merchant or businessmen and women. It has been an underlying concept in the law merchant for centuries: L Trakman, The Law Merchant: The Evolution of Commercial Law (Rothman 1983) at p 1; W Mitchell, An Essay on the Early History of the Law Merchant (CUP 1904) at pp 102 ff. It is recognised as part of the law of performance of contracts in numerous sophisticated commercial jurisdictions: for example Uniform Commercial Code §1-201 and § 1-203 (1977); Wigand v Bachmann-Bechtel Brewing Co 118 NE 618 at 619 (1918); E A Farnsworth, Farnsworth on Contracts (Aspen 3rd Ed 2004) Vol 1 at pp 391-417 § 3.26b; International Institute for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts 2004, Rome, Art 1.7 ( [Ed. 3 May 2010]); R Zimmerman and S Whittaker (Eds) Good Faith in European Contract Law (CUP 2000). It has been recognised by this Court to be part of the law of performance of contracts: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263-270; Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91; Burger King Corporation v Hungry Jack's Pty Ltd at 565-574 [141]-[187]; and Alcatel Australia Ltd v Scarcella at 363-369. …

288 The usual content of the obligation of good faith that can be extracted from cases such as Renard Constructions, Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; 69 NSWLR 558, Alcatel Australia Ltd v Scarcella [1998] NSWSC 483; 44 NSWLR 349, and United Group Rail Services Limited is an obligation to act honestly and with a fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.

289 None of these obligations requires the interests of a contracting party to be subordinated to those of the other. It is good faith or fair dealing between the parties by reference to the bargain and its terms that is called for, be they both commercial parties or business dealing with consumers. As Posner J said in Market Street Associates Limited Partnership v Frey 941 F.2d 588 (1991) the contractual notion of good faith varies in what is required for its satisfaction by reference to the nature of the contract. But the notion is rooted in the bargain and requires behaviour to support it, not undermine it, and not to take advantage of oversight, slips and the like in it. To do so is akin to theft, and if permitted by the law led to over-elaborate contracts, and defensive and mistrustful attitudes among contracting parties. At 595 Posner J said:

The contractual duty of good faith is thus not some newfangled bit of welfare-state paternalism or (pace Duncan Kennedy, "Form and Substance in Private Law Adjudication", 89 Harv Law Rev 1685, 1721 (1976)) the sediment of an altruistic strain in contract law, and we are therefore not surprised to find the essentials of the modern doctrine well established in nineteenth century cases.

290 The standard of fair dealing or reasonableness that is to be expected in any given case must recognise the nature of the contract or relationship, the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. That a normative standard is introduced by good faith is clear. It will, however, not call for the same acts from all contracting parties in all cases. The legal norm should not be confused with the factual question of its satisfaction. The contractual and factual context (including the nature of the contract or contextual relationship) is vital to understand what, in any case, is required to be done or not done to satisfy the normative standard.

291 It is unnecessary to deal with the jurisprudence on the subject of good faith in other jurisdictions, beyond saying that the above expression of the matter is consistent with the content ascribed to the phrase "good faith" in persuasive cases in influential jurisdictions in the United States: for example, refraining from acting with subterfuge and evasion: Daitch Crystal Dairies Inc v Neisloss 190 NYS 2d 737 (Appeal Div 1959); Harbor Insurance Co v Continental Bank Corp 922 F.2d 357 (7th Cir 1990); refraining from opportunistic conduct such as by taking advantage of a disadvantageous position of the other party who has performed first: Industrial Representatives Inc v CP Clare Corp 74 F.3d 128 (7th Cir 1996); refraining from hindering or preventing the occurrence of conditions of the party's own duty or the performance of the other party's duty: see the discussion in Farnsworth E A, Farnsworth on Contracts (3rd Ed, Aspen, 2004) Vol 2 at § 7.17 p 362 and § 8.6 and 8.15; co-operating to achieve the contractual goals: Larson v Larson 636 NE 2d 1365 (Mass App Ct 1994); AMPAT/Midwest Inc v Illinois Tool Works Inc 896 F.2d 1035 (7th Cir 1990). See generally, Farnsworth on Contracts at § 7.17-7.17b and Director General of Fair Trading v First National Bank plc [2001] UKHL 52 at [17], [36], and [54]; [2002] 1 AC 481 at 494, 500 and 505. The above are but a few examples.

292 Good faith does not import an equitable notion of the fiduciary that is rooted in loyalty to another in the service of her or his interests: Smith L, "Fiduciary Relationships: Ensuring the Loyal Exercise of Judgement on Behalf of Another" (2014) 130 LQR 608. Rather, it is rooted in honest and reasonable fair dealing: Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [12]-[13].

293 Trickery and sharp practice impede commerce by decreasing trust and increasing risk. Good faith and fair dealing promote commerce by supporting the central conception and basal foundation of commerce: a requisite degree of trust. Business people understand these things.

294 Any hesitancy in courts in Australia in relation to good faith has been made irrelevant for the operation of s 12CB by s 12CC (1)(l)and (2)(l), at least since 1 January 2012. Further, the relevance of good faith is not merely in regard to the support of the bargain as made; rather, at least since 1 January 2012, good faith in s 12CB can be seen as part of a nascent doctrine of bargaining in good faith (culpa in contrahendo) since the standard of conduct required extends to the possible supply of financial services: see the chapeau to s 12CB.

295 Thus, commercial law, whether drawing on common law, Equity, Admiralty or statute, is infused with norms and values in its rules and principles. Unconscionability in new statutory contexts is just another example.

296 The working through of what a modern Australian commercial, business or trade conscience contains and requires, in both consumer and business contexts, will take its inspiration and formative direction from the nation's legal heritage in Equity and the common law, and from modern social and commercial legal values identified by Australian Parliaments and courts. The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.

297 The variety of considerations that may affect the assessment of unconscionability only reflects the variety and richness of commercial life. It should be emphasised, however, that faithfulness or fidelity to a bargain freely and fairly made should be seen as a central aspect of legal policy and commercial law. It binds commerce; it engenders trust; it is a core element of decency in commerce; and it gives life and content to the other considerations that attend the qualifications to it that focus on whether the bargain was free or fair in its making or enforcement.

298 The normative standard of a business conscience referred to in the statute is permeated with accepted and acceptable community values: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23]; Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [64] and Australian Securities and Investment Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 139-140, esp [30].

299 These considerations may involve behaviour that is best evaluated relationally in a transaction; they may involve conduct that can be evaluated against normative or ethical standards, apart from any particular transaction: see, for instance, National Exchange.

300 It should also be borne in mind that the conduct in s 12CB is of sufficient seriousness as to warrant the punishment involved in a civil penalty: s 12GBA. The penal character of the provision is relevant to its construction: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; 239 CLR 27 at 49 [57]; Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58; 224 CLR 193 at 210-211 [45].

301 The judicial technique involved may perhaps be seen to be described by Lambert JA in the Court of Appeal of British Columbia in Harry v Kreutziger (1978) 95 DLR (3d) 231:

The single question of whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded must be answered by an examination of the decided cases and a consideration, from those cases, of the fact patterns that require that the bargain be rescinded and those that do not. In that examination, Canadian cases are more relevant than those from other lands where different standards of commercial morality may apply, and recent cases are more germane than those from earlier times when standards were, in some respects, rougher and, in other respects, more fastidious. In my opinion, it is also appropriate to seek guidance as to community standards of commercial morality from legislation that embodies those standards in law.

302 The last sentence of this passage reflects the place of public statutes in influencing the values and norms to be considered. See also Lux Distributors at [5] and [23]; Pound R, "Common Law and Legislation" (1908) 21 Harvard LR 383; Finn P, "Statutes and the Common Law" (1992) 22 UWALR 7; Burrows A, "The Relationship Between Common Law and Statute in the Law of Obligations" (2012) 128 LQR 232; Finn P, "Statutes and the Common Law: the Continuing Story" in Corcoran S and Bottomley S (ed), Interpreting Statutes (5th Ed, Federation Press, 2005).

303 Here, the terms of s 12CB (the will of Parliament) have made more difficult to accept the notion that ruthless commerce, red in tooth and claw, is now acceptable in Australia, at least in relation to the supply or possible supply of financial services in trade or commerce: cf Verco v Rutland Fund Management Ltd [2010] EWHC 424 (Ch) at [343].

304 In any given case, the conclusion as to what is, or is not, against conscience may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms. Thus, any agonised search for definition, for distilled epitomes or for shorthands of broad social norms and general principles will lead to disappointment, to a sense of futility, and to the likelihood of error. The evaluation is not a process of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules. It is an evaluation of business behaviour (conduct in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute.

305 The task is not limited to finding "moral obloquy"; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute. The clearest example of the lack of need for dishonesty, at least in Equity in unconscionable conduct (in the unwritten law), is the lack of criticism of the bank manager in Amadio by Deane J: 151 CLR at 478. See also Johnson v Smith [2010] NSWCA 306 at [5] and Aboody v Ryan [2012] NSWCA 395 at [65]. Such is not to deny that, in many cases of unconscionable conduct in Equity, a degree of moral criticism may attend the evaluation that the relevant conduct was unconscionable.

306 As Deane J said in Muschinski v Dodds 160 CLR at 616, property rights (and the same can be said of jural relations in trade or commerce) should be governed by law, and not some mix of judicial discretion or the subjective views as to who should win based on the formless void of individual moral opinion. Nothing in Subdiv C and ss 12CB and 12CC or the other statutes with which this case is concerned should be seen as requiring this. The notions of conscience, justice and fairness are based on enunciated and organised norms and values, including the organised principles of law and Equity, taken from the legal context of the statutes in question and the words of the statutes themselves. Employing judicial technique involving a close examination of the complete attendant facts and rational justification, the Court must assess and characterise the conduct of an impugned party in trade or commerce against the standard of business conscience, reflecting the values and norms recognised by Parliament to which I have referred.


346 It is true that the fees were charged under contracts of adhesion, reflecting a strength of bargaining power to impose terms. But these terms could only be imposed whilesoever the person remained a customer. The accounts could be closed at will. The fees were not charged if the customer kept within the original terms of the account. The terms were openly disclosed.

347 In all the circumstances, in particular, the lack of any proven predation on the weak or poor, the lack of real vulnerability requiring protection, the lack of financial or personal compulsion or pressure to enter or maintain accounts, the clarity of disclosure, the lack of secrecy, trickery or dishonesty, and the ability of people to avoid the fees or terminate the accounts, I do not consider the conduct of ANZ to have been unconscionable. To do so would require the court to be a price regulator in banking business in connection with otherwise honestly carried on business in which high fees were extracted from customers.}}