Unconscionable Conduct in Banking Law

This assignment delves into the implications of provisions addressing unconscionable conduct within the Australian banking sector. It examines reforms introduced in 1998, focusing on ASIC's role in consumer protection. The analysis encompasses sections 12CA, CB, and CC of the ASIC Act, defining unconscionable conduct and its limitations on companies and individuals providing financial services. Case law examples like ACCC v TPG Internet Pty Ltd and ACCC v CG Berbatis Holdings Pty Ltd demonstrate court responses to such conduct. The role of consumer advocate groups, such as The Finance and Consumer Rights Council and the Australian Competition and Consumer Commission (ACCC), in identifying and addressing unconscionable practices is also highlighted.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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The concept of Unconscionability had been brought into the legal word for the purpose of
upholding fair play and equity in relation to contracts. As defined by Goldberger (2016)
unconscionability is a doctrine in relation to contract law which is used for the purpose of
defining those provisions in a contract which are unjust to an extent which is not in accordance
to good conscience or are largely in favor of only one of the parties to the contract having high
bargaining power as compared to the other party. In situation where unconscionability is found
in relation to a contract, the contract is made unenforceable it would have not been agreed by any
informed or reasonable person otherwise. The person who has initiated the addition of the
unconscionable term in a contract is not provided the benefit of the contract as contract is
considered as not having or having inadequate consideration. Although as per the rule of
consideration the mere presence of it makes a contact valid, the identification of unconsionablity
in the terms nullifies the consideration rule in such situation. The court declares such contract as
unenforceable when it is established that it would be vastly unjust to make the contact binding on
the party who wants to escape it.
The determination of unconsionability in relation to the contract is done by analyzing the
circumstances which lead to the formation of the contract in context. Then in order to establish
unconsionability in a contact an unconscionable conduct has to be present at the very time of
formation of the contract any conduct which has taken place after the contract has been formed is
irrelevant in the situation. No standardized criteria for the purpose of determining the presence
of unconsionability in a contract exists and is limited to the subjective findings of the judge. The
concept is only applied to nullify a contract where if the contract is validated it would be an
affront to the judicial system’s integrity. A great deal of flexibility is available to the court in
relation to the remedies which could be provided in the situation. The court in this situation may

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totally nullify the contract by stating that it lacked free consent and was forced to be signed or
under misunderstanding and duress, or the court may refuse to implement the clause in relation
to a contract which is unconscionable or awards damages or necessary actions through which a
fair outcome to the contract may be achieved.
There are various situation which may lead to a conduct which is unconscionable in
nature. Some of the most frequently found causes are discussed in this section of the paper. In
situations where the contractual business transaction is sophisticated in nature and constitutes
boilerplate language which is not generally understood by such person or an average person may
constitute unconscionable conduct. This language may be in relation to disclaimer of warranties
and extended liabilities within a contract.
Where the price of the goods are widely inflated by a seller and where the inflation has
been done in such a way that the total cost which the buyer is liable to pay is concealed from
him, it accounts to an unconscionable conduct. Another example in relation to the situation is
when imposition of severe penalty provision is done with respect to failing to pay installments
for loan in a prompt manner and such terms are hidden physically through small prints or middle
of a paragraph in a lengthy agreement. The court in this situation may come to a conclusion that
there has been no meeting of mind in relation to the parties to the contract and the terms of the
contract have not been accepted by the weaker party (Chew 2014).
In situation where a standardized contract of adhesion is provided by the seller in relation
to the purchase of necessary services and goods such as transport, food and shelter to the buyer
on “accept it or leave it” terms without providing any reasonable opportunity to the buyers to
bargain an unconscionable conduct may arise. Although standard for of contracts are totally legal

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a few terms contained in them can be invalided based in unconsionability. These provisions had
been discussed in the case of Harris v. Blockbuster Inc, where it has been held by the court that
provisions of compelling arbitration and restricting class action was an unconscionable and
illusory conduct.
In addition procedural unconscionable conduct is considered as a disadvantage which a
weaker party suffers with respect to negotiation on the other had substantive unconscionability
means unfairness in outcomes or terms. A contract may be set aside by the mere presence of a
procedural unconsionability without any substantive unconscionability being present. The role of
the court in this situation is not to determine whether the bargain was good or not but to merely
identify the position of the party to analyze his or her own interest in relation to the contract.
Unconsinability in Australia is also known as unconscionable conduct and had been
designed initially to promote fair play and equity in contracts. A behavior which can justify the
decision of the court to nullify a contract is regarded as unconscionable conduct. The case of
Blomley v Ryan (1956) 99 CLR 362 applied the doctrine of unconsionability in Australia for the
first time. In addition its validity had been strengthened further in the case of Commercial Bank
of Australia Ltd v Amadio 1983.
In the Bolmely case there was a contract between the plaintiff and the defendant in
relation to the purchase of a farm. The seller was a plaintiff in this case and was 78 years of age.
The buyer taking advantage of the alcoholic nature of the plaintiff got into a contract with him to
purchase the farm at much less than the market value. The court taking into consideration the
circumstances of the case which is the age and alcoholic nature of the plaintiff categorized the
action of the defendant as unconscionable conduct.

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In the Amadio case the plaintiff who were a elderly migrant couple from Italy had been
asked by their Son to act as guarantors in relation to a loan availed by him through the
Commercial Bank of Australia. In this situation Mr Virgo (the bank manager) was a close
communication with the couple’s son and also had proper understanding in relation to business
reality. He had knowledge that the son has most probably made a misrepresentation of facts to
his parents in relation to the loan so that they get into the contract and act as guarantor. The
business of the son failed and he was not able to repay the loan and subsequently the bank made
a claim to mortgage the property belonging to the plaintiffs. In this case it was held by the court
that based on the doctrine of equity and unconsionability the conduct of the bank in this case was
unconscionable and the contract of guarantee between the bank and the plaintiffs was not
enforceable. This was because the plaintiff in this case had a special disadvantage which was
their lack of understanding of the terms of the contract and the manger being aware of the
situation did not notify them about it, thus it was an unconscionable conduct indulged into by the
bank in this case.
Since the decision provided in this case there have been several developments in relation
to statutory and common law practices. This includes the Australian Securities and Investment
Commission Act 2001 (Cth), the Corporation Act 2001 (Cth), the Trade Practices Act 1974
which has been repealed by the provisions of Australian Competition and Consumer Act 2010
(Cth). The Special Contracts Review Act 1980 also deals with unconscionable and unfair terms
in relation to a contract.
The provisions in relation to unconscionable conduct has been provided through section
21 of the ACCA and states that until the terms of the contract is totally understood by the parties

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the contract cannot be formed. A person in the course of trade and commerce must not indulge
in a conduct which may be regarded as unconscionable conduct. The circumstances in which the
contract had been formed has to be considered by the court in order to determine unconscionable
conduct. In addition the court must not take into consideration any circumstances which may
constitute unconscionable conduct once the contract has been formed as per subsection 21(4)(c).
further the section provides the equity would intervene in situation where one of the party tried to
take advantage of another with respect to their weakness such as bargaining power, age or lack
of understanding.
There are specific factors which are provide through section 22 of the ACL that needs to
be taken into consideration while determining an unconscionable conduct. These factors consists
of consideration of the bargaining power of the parties to the contract, the understanding of the
consumers in relation to the contract document, the presence of any pressure or undue influence
against the consumer, any industry code requirements, the failure on the part of the supplier to
disclose any material risk or impact on the interest of the customer and the degree to which good
faith had been observed by the suppliers. These provisions had been applied in the case of ACCC
v Lux Distributors Pty Ltd [2013] FCAFC.
This section of the paper deals with the provisions in relation to the impact of provisions
regarding unconscionable conduct on the banking industry. On first July 1998 reforms had been
introduced in relation to the financial services sector. Primary responsibility had been provided
to the ASIC in relation to governing small business and consumer protection in the banking
sector. The applications of rules in relation to unconscionable conduct in the banking sector are
provided through section 12CA, CB and CC of the ASIC Act. The definition in relation to

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financial products and services are defined appropriately in the ASIC Act and also mirrored in
the provisions of the Corporation Act and the ACCA. These provisions impose restrictions upon
a company or individual from indulging in a conduct which may be regarded as unconscionable
conduct while providing financial services in the course of trade and commerce according to the
explanation provided in relation to the concept in common law. In the same way the other two
sections also prohibit the use of unconscionable conduct while providing financial services.
Thus taking into consideration such provisions the court are reluctant to enforce agreements
which apparently have an element of unconscionable conduct such as in the cases of ACCC v
TPG Internet Pty Ltd [2013] HCA 54 and ACCC v CG Berbatis Holdings Pty Ltd (2003) 214
CLR 51.
One of the most interesting attitude of the court in relation to determining the presence of
unconscionable conduct in a case is interpreting the terms of the contract against the party who
has indulged in an unconscionable conduct. In addition it has been stated in various cases such as
the case of Kakavas v Crown Melbourne Ltd [2013] HCA 25 that “equity would intervene in a
situation where it is identified that a person is attempting to take advantage of the another in
relation to a contract due to the presence of a particular weakness in the other party”.
It is the role of a consumer advocate group such as The Finance and Consumer Rights
Council in relation to unfair agreements is to locate and identify any conduct which may be
regarded as an unconscionable conduct which may subject the consumers to detriment. These
bodies have to act like a watch dog in relation to consumer agreements. Another body operating
in Australia which is responsible for this is the Australian Competition and Consumer
Commission (ACCC). There have been various cases in Australia where an unconscionable

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conduct have been indentified such as the case of ACCC v Lux Distributors Pty Ltd where the
defendant had been held liable for unconscionable conduct as it deceived the consumers by using
its high bargaining positions and “push them over the edge".

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References
ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51.
ACCC v Lux Distributors Pty Ltd [2013] FCAFC.
ACCC v TPG Internet Pty Ltd [2013] HCA 54
Australian Competition and Consumer Act 2010
Australian Securities and Investment Commission Act 2001 (Cth),
Blomley v Ryan (1956) 99 CLR 362
Chew, C. Y. (2014). Unconscionable conduct in banking law: the impact of the legislative
regime (Pt 2).
Commercial Bank of Australia Ltd v Amadio 1983
Goldberger, J. (2016). Unconscionable conduct and unfair contract terms. Commercial Law
Quarterly: The Journal of the Commercial Law Association of Australia, 30(2), 17.
The Corporation Act 2001 (Cth)
The Trade Practices Act 1974 (Cth)