Unconscionable Conduct in Australian Law

This assignment examines the legal concept of unconscionable conduct within the Australian legal framework. It delves into the definition, application, and implications of this principle across diverse sectors of the nation's economy. The analysis incorporates key legislation, including the Competition and Consumer Act 2010, and draws upon significant case precedents such as *Commercial Bank of Australia v Amadio* and *Louth v Diprose* to illustrate the practical application of unconscionable conduct principles in real-world scenarios.

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Business Law Assignment
Unconscionability
22-Jan-18
(Student Details: )

Business Law Assignment
Under the contract law, unconscionability is referred to such terms which are so unfair or unjust,
that one side of the contracting party is overwhelmed by the other side of the contracting party,
which holds superior bargaining power, and which is against the good conscience (Latimer,
2012). Basically, unconscionability or unconscionable conduct covers the transactions which are
undertaken in between a weak party and a dominating party. Due to this, there is an overlapping
of this concept with the other vitiating factors in a contract, of duress and undue influence. The
concept of unconscionability is applicable based on the scenario in which it takes place and
accordingly attracts the common law or the statutory law (Vout, 2009). In equity, the
unconscionable conduct is related to the conduct where one party is taken off by some other
person due to the special disability help by the first person. The examples of special disability
include illiteracy, age, lack of education, or these factors being in combination. Due to these
reasons, the weaker party is treated in a harsh and oppressive manner (Australian Contract Law,
2018a). The following parts cover a detail on unconscionability and its various aspects in
Australia, in terms of its applicability under common and statutory law and the leading cases on
it.
Unconscionable conduct is something which results in the transaction undertaken under the
contract being null and void. There are a number of cases where unconscionable conduct has
resulted in the transactions being set aside, or given a null affect (Clarke and Clarke, 2016). In
Australia, the leading matter in context of unconscionable conduct is that of Commercial Bank of
Australia v Amadio (1983) 151 CLR 447. In this case, a mortgage had been signed by Amadio
for the purpose of securing loan for their son. The details of this mortgage or what actually was
going on was not informed to Amadio. Amadio were Italian and they did not know much of
English which made them nearly illiterate. When the Bank attempted to seize their home which
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had been mortgaged, the validity of this mortgage was challenged by Amadio. This led to the
court ruling in favor of Amadio based on the presence of unconscionable conduct in this matter.
The reason for upholding the presence of unconscionable conduct was that there was an absence
of English knowledge with Amadio (Australian Contract Law, 2018b).
Another example of presence of unconscionable conduct was seen in Louth v Diprose (1992) 175
CLR 621; [1992] HCA 61. In this matter, D was infatuated towards L and he was in the habit of
showering D with a number of gifts repeatedly. Once D proposed to L, she declined. After some
time, D was told by L that L had been very depressed and that in case she was not able to pay the
money on her home, she would be evicted from it and would have no place to live. And as soon
as this would happen, L would be committing suicide. The majority of it was untrue. Responding
to this emotional pressure, D agreed that he would buy the home for L and that he would be
putting the home in L’s name as she was insisting on doing so. Certain years passed and the
relationship which was present between the two got deteriorated. D asked L to transfer the home
in his name as he had paid the money for it but L declined to honor this request. As a result of
this, D sued L and was successful (Australian Contract Law, 2018c).
The judge of the case stated that D was beneficially entitled to the land bought by him. He
further stated that it would be unconscionable in this case where the home is given to L. Even
upon the appeal being made by L, these were not successful, both in the Court of Appeal and in
High Court of Australia. The High Court had held in this case that L had created such an
environment of crisis which in reality had never been present. D held such a post in this case
where he had been completely dependent on L. This led to the home being purchased by D
which was just done due to D being emotionally dependent on L and the influence which she
held over him, where he even disregarded his own interest. There was complete
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Business Law Assignment
unconscionability in L’s conduct which involved careful calculation by L for inducing D for
gaining benefit for her (Australian Contract Law, 2018c).
Apart from the common law, the statutory law also covers the unconscionable conduct. Under
section 21 of the Australian Consumer Law, there is a prohibition from indulging in
unconscionable conduct with regards to the supply of goods or service, or where the goods or
services are acquired in the business transactions (Australasian Legal Information Institute,
2018). There are a number of examples of unconscionable conduct, and mostly dependent upon
the situations. For instance, encouraging an individual to sign a blank contract or not giving the
party sufficient time for reading a contract (Coorey, 2015). Section 22 of Australian Consumer
Law, provides different factors which have to be taken into account by the courts but the factors
are not restricted to this section. For indulging in such conduct, the maximum penalty for
individuals is $220,000 and for body corporate it is $1.1 million (Corones, 2012).
An example of this can be found in ACCC v Craftmatic Australia [2009] FCA 972. In this case,
the ACCC had initiated proceedings against the defendant where it was stated that they had
indulged in or acted in unconscionable manner against the senior citizens, when adopting the
door to door sale of beds. The claim was that an advantage was taken by the defendants of the
commercial inexperience of such household and elderly customers, by using high pressure sales
tactics. Even though some customers had been happy with the bed but the ones which did not
want the bed or could not afford the same, were made to change their mind by use of unfair sales
techniques. It was held by the Federal Court of Australia that the method of sale and promotion
by the defendant covered steps which were scripted, and designed in a manner to make undue
influence on the potential consumers for creating and taking benefit of unequal bargaining
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Business Law Assignment
position. This led to the Federal Court ordering an injunction for 7 years against the defendant
from a number of conducts (ACCC, 2014).
Back in July 1998, the financial service sector faced a number of reforms. The primary
responsibility under these changes was for the consumers and for the small business protection
issue in the financial sector. There is a respective application of the aforementioned provisions of
unconscionable conduct in the contracts of financial services, and the same is determined by
taking into consideration, the specific definitions and exclusions covered under section 12CA,
12CB and 12CC of the ASIC Act, 2001 (Federal Register of Legislation, 2017). Even though the
financial products and services have been clearly defined under this act, the provisions regarding
unconscionable conduct mirror the ones covered in the Australian Consumer Law, which results
in the businesses getting similar obligations for compliance when they deal in the financial
services (Pearson, 2009).
There is a specific prohibition of unconscionable conduct in a range of industry based legislative
schemes. An example of this includes the industry which the panel has been asked to consider in
their review, legislation which govern the retail tenancy, in the jurisdictions which prohibit
unfair conduct or unconscionable conduct to retail lease by the parties. There are similar sections
in different legislations which govern fitness services, residential property and tourism services.
Though, the majority of these are covered through the governing sections of Australian
Consumer Law. The courts do not determine if there has been a good or bad bargain, they simply
see the opportunity which was held by the individual for their personal benefit. The case of
Amadio shows that the courts are reluctant in enforcing the agreements which seem to be
unequal or unfair. This is the reason why the statues have been developed with regards to the
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Business Law Assignment
Australian Consumer Law and the ones related to the banking and finance sector (Law Teacher,
2018).
Apart from these laws, the Fair Trading Acts of all the states and territories of the nation have
some or other form of prohibition incorporated in them for the unconscionable conduct in their
laws. The fair trading legislations of the states and territory also mirror the provisions of the
Australian Consumer Law (Morandin and Smith, 2011). The key here is that the businesses need
to be aware regarding the statutory protection being given against such undertaken conduct in the
consumer transactions, along with the range of venues which are available, along with going to
the Federal Court. Even though this law applies only on individuals and does not become
applicable on the companies; section 43 of the fair trading act does cover the unconscionable acts
undertaken on consumers by the traders (Campbell, 2013).
There have been a number of opponents and proponents on the provisions of unfair contract
terms, particularly on unconscionable conduct, by different bodies. One of such body is Financial
and Consumer Rights Council Inc., which has supported the agreement of including the
provisions which specifically address the unfair contract terms under the Australian Consumer
Law. They stated that there was a prevalence of unfair terms in the standardized contracts which
left very little bargaining power with the consumers. As a result of this, the proposal was put
forward for banning some kind of unfair contract terms. In the view of Financial and Consumer
Rights Council Inc, this would make certain that all of the consumers; particularly the ones
which were prone to such unfair practices would have the confidence of getting in the contracts
and be assured that they are properly protected through the provisions of the Australian
Consumer Law (Financial and Consumer Rights Council Inc, 2018).
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Business Law Assignment
They even presented their recommendations on this aspect and stated that the consumers would
be benefited where certain terms had been banned from being made a part of the standardized
contracts. This was particularly the term which was related to the retaining of the title for the
suppliers of goods, which is not possible to be removed from the premises of the consumers
without any damage; and the terms which allow the suppliers to get a repossession of goods.
This was due to the fact that the repossession of goods was a very intimidating and frightening
act for the consumers. As a result of this, it would have a devastating impact over the most
vulnerable consumers. The consumers who were single parents, from non English speaking
households, with disability, low income earners, or were elderly were more vulnerable for being
intimidated for paying these debts which were owed through the act of the supplier repossession
(Financial and Consumer Rights Council Inc, 2018).
Thus, from the discussion undertaken in the previous segments, it becomes clear that Australia
has a number of laws which can protect the unconscionability or unconscionable conduct taking
place in the nation. Owing to the presence of unconscionable conduct, the contract is not deemed
as valid and the weaker party is protected through the law. This is present both in cases of
common law and the statutory law. The previous discussion covered the different cases in which
the court set aside any conduct which was unfair or unconscionable for the consumer. The
leading case was that of Amadio which basically brought a revolution in this context, and also
resulted in changes being brought forward in the laws to restrict any and every kind of
unconscionable conduct. This was not restricted to the consumer laws but also came to be
applicable on the financial industry through the different statutes. The crux of the matter is that
the nation takes a proactive approach against such conduct. Furthermore, the bodies like FCRC
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make contributions in this regard, on restricting unconscionable conduct in all the sectors in the
nation.
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Business Law Assignment
References
ACCC. (2014) Business snapshot. [Online] ACCC. Available from:
https://www.australiancontractlaw.com/law/avoidance-unconscionable.html [Accessed on:
22/01/18]
Australasian Legal Information Institute. (2017) Competition and Consumer Act 2010 - Schedule
2. [Online] Australasian Legal Information Institute. Available from:
http://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/sch2.html [Accessed on:
22/01/18]
Australian Contract Law. (2018a) Unconscionable Conduct. [Online] Australian Contract Law.
Available from: https://www.australiancontractlaw.com/law/avoidance-unconscionable.html
[Accessed on: 22/01/18]
Australian Contract Law. (2018b) Commercial Bank of Australia v Amadio. [Online] Australian
Contract Law. Available from: https://www.australiancontractlaw.com/cases/amadio.html
[Accessed on: 22/01/18]
Australian Contract Law. (2018c) Louth v Diprose. [Online] Australian Contract Law. Available
from: https://www.australiancontractlaw.com/cases/louth.html [Accessed on: 22/01/18]
Campbell, D. (2013) International Consumer Protection, Volume 1. New York: Springer.
Clarke, P., and Clarke, J (2016) Contract Law: Commentaries, Cases and Perspectives. 3rd ed.
South Melbourne: Oxford University Press.
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Federal Register of Legislation. (2017) Australian Securities and Investments Commission Act
2001. [Online] Federal Register of Legislation. Available from:
https://www.legislation.gov.au/Details/C2017C00326 [Accessed on: 22/01/18]
Financial and Consumer Rights Council Inc. (2018) Submission. [Online] Financial and
Consumer Rights Council Inc. Available from:
https://archive.treasury.gov.au/documents/1501/PDF/Financial_and_Consumer_Rights_Council.
pdf [Accessed on: 22/01/18]
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia
Limited.
Law Teacher. (2018) Unconscionable Conduct In Australia. [Online] Law Teacher. Available
from: https://www.lawteacher.net/free-law-essays/contract-law/unconscionable-conduct-in-
australia-contract-law-essay.php [Accessed on: 22/01/18]
Morandin, N., and Smith, J. (2011) Australian Competition and Consumer Legislation 2011.
NSW: CCH Australia.
Pearson, G. (2009) Financial Services Law and Compliance in Australia. Victoria: Cambridge
University Press.
Vout, P.T. (2009) Unconscionable Conduct: The Laws of Australia. 2nd ed. Pyrmont, NSW:
Thomson Reuters.
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