Unjust contracts and negligence in consumer law: HSC Legal Studies

What this dot point is asking

This page covers two dot points in the nature of consumer law: unjust contracts - common law and statutory protection and the role of negligence in consumer protection. Both are about what happens when the ordinary rules fail consumers: when a contract is formally valid but unfair, or when a product or service causes harm and there is no contract term to rely on.

The key themes are compliance and non-compliance (unconscionable and unfair conduct is often systemic), law reform in recognising the rights of consumers (statute stepping in where the common law was too narrow), and the effectiveness of legal responses in achieving justice. The basics of contracts and the consumer guarantees are on consumer contracts and statutory guarantees.

The answer

Why "unjust contracts" need special protection

A contract can satisfy every element of validity and still be unjust: the terms may be one-sided, or one party may have exploited the other's weakness. Classical contract law was reluctant to intervene because of freedom of contract and the need for certainty in commerce. The law now intervenes in three ways: by asking whether consent was genuine (common law and equity), by prohibiting unconscionable conduct (statute), and by striking out unfair terms (statute).

Common law and equitable protection

The leading cases.

• Blomley v Ryan (1956): a contract for the sale of a farm by an elderly man affected by alcohol was set aside because the buyer took advantage of his condition.
• Commercial Bank of Australia v Amadio (1983): Mr and Mrs Amadio, elderly Italian migrants with limited English, signed a guarantee and mortgage over their property for their son's company debts at their kitchen table, believing their liability was limited to $50,000 and six months. It was unlimited. The bank manager knew their son's company was in trouble and of their disadvantage. The High Court set the guarantee aside because the bank had taken unconscientious advantage of their special disadvantage.
• Louth v Diprose (1992): a man's emotional dependence on a woman was a special disadvantage, and his gift of money to buy a house, obtained by her exploiting it, was set aside.
• Thorne v Kennedy (2017): the High Court set aside a financial agreement signed days before a wedding by a woman who had moved to Australia and had no financial security, because of undue influence and unconscionable conduct.

Evaluation. Equity is flexible and responds to exploitation of the vulnerable. But its remedies are discretionary, each case turns on its facts, and the consumer must bring expensive litigation. It does not stop a business using the same tactics on thousands of others, and it does not punish.

Statutory protection: unconscionable conduct

The ACL (and the ASIC Act 2001 (Cth) s 12CB for financial services) prohibits unconscionable conduct in trade or commerce:

• Section 20 prohibits unconscionable conduct within the meaning of the unwritten law, which brings the equitable doctrine into the statute so that regulators can seek penalties and injunctions.
• Section 21 prohibits unconscionable conduct in connection with the supply or acquisition of goods or services. It is not limited by the unwritten law, can apply to a system of conduct or pattern of behaviour, and does not require an identified person to have been disadvantaged.
• Section 22 lists factors a court may consider, including relative bargaining strength, whether conditions were reasonably necessary to protect the supplier's interests, whether the consumer could understand the documents, whether undue influence, pressure or unfair tactics were used, and the price the consumer could have paid elsewhere.

The cases show both the strength and the limits of s 21.

• ACCC v Lux Distributors (2013): door-to-door salespeople who used a "free maintenance check" to get into the homes of elderly women and sell them expensive vacuum cleaners acted unconscionably.
• Productivity Partners v ACCC [2024] HCA 27: on 14 August 2024 the High Court held that Captain Cook College engaged in systemic unconscionable conduct by removing safeguards from its online enrolment and withdrawal process so it could claim VET FEE-HELP funding for unwitting or unsuitable students. About 5,500 consumers were left with VET FEE-HELP debts totalling over $60 million, and about 86 per cent never logged in to their course. Its chief operating officer, Blake Wills, was personally liable as knowingly concerned. Penalties totalled $30.4 million.
• ACCC v Optus Mobile (2025): Optus admitted unconscionable conduct in selling phones and plans to more than 400 consumers, many of them First Nations people in remote areas, and was ordered to pay $100 million on 24 September 2025.
• ASIC v Kobelt (2019): the High Court held, 4 to 3, that a remote store's "book-up" credit system, under which Anangu customers in the APY Lands handed over their debit cards and PINs, was not unconscionable, partly because customers understood and valued the system. The decision shows how high the threshold is and how courts can disagree about community standards.

Statutory protection: unfair contract terms

The unfair contract terms regime (ACL ss 23 to 28; ASIC Act s 12BF for financial products) targets standard form consumer and small business contracts, where the consumer has no chance to negotiate.

• What is unfair (s 24)? A term is unfair if it would cause a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the business, and would cause detriment to the consumer if relied on. Transparency (plain language, clearly presented) is relevant.
• Examples (s 25) include terms letting only one party terminate or vary the contract, change the price, or limit its own liability.
• What is excluded? Terms that define the main subject matter of the contract, set the upfront price, or are required by law cannot be challenged.
• Consequence. An unfair term is void. Since 9 November 2023, under the Treasury Laws Amendment (More Competition, Better Prices) Act 2022, proposing, using or relying on an unfair term is prohibited, with civil penalties; since 28 March 2026 the maximum for a corporation is the greater of $100 million, three times the benefit, or 30 per cent of adjusted turnover. The 2023 changes also widened the protection for small businesses.

Example. In ASIC v PayPal Australia (4 July 2024) the Federal Court declared unfair a term in about 600,000 small business contracts that let PayPal keep fees it had charged in error unless the customer noticed and complained within 60 days. The term was declared void from the start and PayPal was restrained from relying on it. Because the contracts pre-dated November 2023, no penalty was available; under the current law, it would be.

Statutory protection: the Contracts Review Act 1980 (NSW)

The Contracts Review Act 1980 (NSW) gives NSW courts a broad power to relieve a person from an unjust contract, meaning one that is "unconscionable, harsh or oppressive".

• Who can apply? Only a person who entered the contract otherwise than in the course of or for the purpose of a trade, business or profession (s 6), so it protects consumers, not businesses.
• Remedies (s 7). The court can refuse to enforce the contract, declare it void in whole or part, or vary it.
• Factors (s 9) include inequality of bargaining power, whether the terms were negotiated, whether the person could have negotiated them, whether the terms were unreasonably difficult to comply with, the person's age and education, whether they obtained legal or other advice, and whether undue influence, pressure or unfair tactics were used.

The National Credit Code s 76 gives a similar power to reopen unjust credit transactions. These Acts are powerful but little used because the consumer must go to court.

The role of negligence in consumer protection

Contract law protects only the parties to the contract. A consumer who is injured by a product they did not buy, or who has no contract with the manufacturer, needs tort law.

Donoghue v Stevenson [1932] AC 562

Mrs Donoghue's friend bought her a bottle of ginger beer; she alleged it contained a decomposed snail and made her ill. She had no contract with the manufacturer. The House of Lords held that a manufacturer owes a duty of care to the ultimate consumer. Lord Atkin's neighbour principle requires reasonable care to avoid acts or omissions that you can reasonably foresee would be likely to injure people closely and directly affected by your conduct.

Grant v Australian Knitting Mills [1936] AC 85

Dr Grant developed severe dermatitis from woollen underwear containing excess sulphites. The Privy Council, on appeal from Australia, applied Donoghue and held the manufacturer liable in negligence, and the retailer liable under the implied conditions of the South Australian Sale of Goods Act.

The elements

The consumer must prove:

1. a duty of care (manufacturers and suppliers owe one to consumers);
2. a breach: failing to take the precautions a reasonable person would have taken against a foreseeable, not insignificant risk (Civil Liability Act 2002 (NSW) s 5B); and
3. damage caused by the breach (s 5D) that is not too remote.

The Civil Liability Act 2002 (NSW)

After an insurance crisis, the Ipp Review (2002) recommended limiting negligence claims, and NSW responded with the Civil Liability Act. It codified the standard of care and causation, removed liability for the materialisation of obvious risks of dangerous recreational activities (s 5L), set thresholds and caps on damages for non-economic loss, and made it harder to sue. This reduced insurance costs but also reduced compensation for injured consumers.

Statutory strict liability

Because proving fault is difficult when a consumer cannot see inside a factory, ACL Part 3-5 (ss 138 to 141) makes manufacturers liable to compensate people injured, or whose property is damaged, by goods with a safety defect, meaning their safety is "not such as persons generally are entitled to expect" (s 9). No carelessness needs to be proved, although defences exist, including that the defect could not have been discovered given the state of scientific or technical knowledge when the goods were supplied (s 142).

The pelvic mesh class action

In Gill v Ethicon Sàrl (No 5) [2019] FCA 1905, Justice Katzmann found that Johnson & Johnson's subsidiaries were negligent in supplying transvaginal mesh implants without adequate warnings, that the products were defective, and that the companies engaged in misleading conduct. The Full Federal Court upheld the decision in March 2021, and on 16 March 2023 the Federal Court approved a $300 million settlement, the largest product liability class action settlement in Australian history. The first proceedings were filed in October 2012: justice came, but more than a decade later and only because the claims were brought together as a class action.

Evaluation of negligence

• Strengths. No contract needed; compensation for personal injury; deterrence through the risk of large claims; class actions share costs.
• Weaknesses. The consumer must prove fault and causation, often against expert evidence; litigation is slow and costly; the Civil Liability Act caps damages; many product harms are small and not worth suing over. Negligence works best combined with the ACL's strict liability, product safety regulation (see product certification) and class actions.

Evaluating the protection against unjust contracts and careless conduct

Judgement. The law protects consumers against unjust contracts and careless conduct to a large extent in principle. Statute has filled the main gaps in the common law: unconscionable conduct can now be proved against a whole system, unfair terms carry penalties, and injured consumers do not need to prove fault for defective goods. But in practice these protections depend on enforcement by regulators and collective litigation. An individual consumer rarely sues over an unfair term or an unconscionable sale, and Kobelt shows that courts set a high bar. The most significant outcomes (Captain Cook College, Optus, pelvic mesh) came from the ACCC and class actions, often years after the harm.

In one sentence

The common law's protection against unjust contracts and careless manufacturers, from Amadio to Donoghue v Stevenson, has been extended by statute to catch systemic unconscionable conduct, unfair standard form terms and unsafe goods without proof of fault, but its effectiveness depends on regulators and class actions because individual consumers rarely have the means to litigate.

Try this

Q1. Define unconscionable conduct. (2 marks)

• What the marker wants. Exploiting another's special disadvantage or acting against conscience in trade, with a statutory reference (ACL s 20 or s 21).

Q2. Explain how the unfair contract terms regime protects consumers. (5 marks)

• What the marker wants. Standard form contracts, the s 24 test, the 9 November 2023 changes and penalties, and an example such as PayPal.

Q3. Assess the effectiveness of negligence in protecting consumers. (8 marks)

• What the marker wants. Donoghue and Grant, the elements, the Civil Liability Act, ACL strict liability, the pelvic mesh class action and a judgement.