Unconscionability in Common Law and Statutory Law of Australia

This article discusses unconscionability in common law and statutory law of Australia, including case laws and provisions under the Australian Consumer Law. It also presents the views of different entities on unconscionability.

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Unconscionability, also referred to as unconscionable conduct, is usually found under the
contract law; though, these are not restricted to the contract law and can also be found in
statutory laws like the Australian Consumer Law. So, unconscionability is not limited to the
common law and is also present in the statutory laws (Vout, 2009). Unconscionability is
basically such term in the drawn contract whereby one of the parties to the contract is dominated
by the other party of the contract. This is possible due to the other party holding a superior
bargaining power against the person who is at a weaker position (Latimer, 2012). This is
particularly wrong as it is not ethically correct. Unconscionability is present in such relationship
where there are two parties, in which one is the dominating one and the other is the weaker one.
As a result of this, unconscionability is often mixed with the vitiating factors like undue
influence and duress. Under the contract law, unconscionability allows the dominating party to
take advantage of the weaker party due to the special disability held by the weaker party. Some
of the special disabilities include age, less education, illiteracy and the combination of these.
This special disability allows for the weaker party to be oppressed and to be dealt in a harsh
manner (Clarke, 2018a). This discussion is focused on highlighting the different facets of
unconscionability particularly in context of the common law and the statutory law of the nation.
In doing so, the established case laws and the use of this in the commercial world would be
highlighted.
When a case of unconscionability is present under the common law of contract, the
contract becomes voidable at the request of the weaker party. As a result of this, the undertaken
transaction is set aside and the dominating party is no longer able to take advantage of the
situation (Clarke & Clarke, 2016). There are a number of case laws which prove to be an
example of unconscionability not being tolerated. Particularly in context of Australia, the leading

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example of unconscionability is the case of Commercial Bank of Australia v Amadio (1983) 151
CLR 447. The reason for the significance of this case is not just because this case involved
unconscionability but also because this case became an important lesson for the banks in the
nation, to not be indulged in such conduct, which could prove costly for them. This case had a
mortgage being signed for securing the loan for the son of A by them. A were never informed of
what was going on or even about the details of this mortgage. A did not know English that much
due to them being Italian and this made them almost illiterate. When an attempt was made by the
bank for seizing the home which had been kept as a mortgage, A challenged the validity of this
mortgage. The court analysed the entire case and gave the ruling in A’s favour due to
unconscionability being present here. The special disability which led to the presence of
unconscionability in this case was the almost illiteracy of A (Clarke, 2018b).
There is another prominent case law which shows the court taking a strict approach
against unconscionability and this is the case of in Louth v Diprose (1992) 175 CLR 621; [1992]
HCA 61. Diprose in this case had been infatuated towards Louth and to show his affection, he
used to give Louth a number of gifts. When Diprose proposed to Louth, she did not accept the
proposal. After some time had passed, Louth told Diprose that she was very upset due to her
inability in paying the money for her home. As a result of this, she was facing eviction. This
would mean that she would not have a home to live in, and ultimately she would end her life.
However, most of this was false. Due to the emotional pressure exerted by Louth on Diprose, he
agreed to purchase the house for Louth; and due to instance of Louth, the name of Louth was put
on the documents. After some years lapsed, the relation between the two was damaged and
ended. Diprose then asked Louth to transfer the home which he had brought for her in his name,
as he had made the payment for the house. However, Louth denied to do so and this led to

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Diprose initiating a suit against her. When the matter was presented before the court, they stated
that Diprose had to be given the entitlement to the land for the reasons of him having brought the
same and given to Louth due to her use of unconscionability. The succeeding appeals to this
matter were also declined b the court due to the misuse of the emotional state of Diprose by
Louth (Clarke, 2018c).
Till now, the unconscionability was discussed in context of the common law, but now the
discussion would move on to the statutory law of Australia, which provides the provisions
against unconscionability. The Australian Consumer Law (ACL), which is covered under
schedule 2 of the Competition and Consumer Act, 2010 presents the provisions against
unconscionability. Section 21 of the ACL places a restriction on the ones indulged in trade and
commerce, from indulging in unconscionable conduct, when the goods and services are supplied
in business transactions (Austlii, 2018). When it comes to unconscionability, the situations
surrounding the transaction is what decides its presence or absence (Coorey, 2015). An example
of this can be cited in the individual not being provided with sufficient time for going through a
contract to be signed by them. Under section 22 of the ACL, the various factors which have to be
considered by the court for holding the presence of unconscionability. Where the presence of
unconscionability is found in the business, the penalty on individuals is imposed to a maximum
of $220,000 and this value for the body corporate stands at $1.1 million owing to the undertaken
unconscionability (Corones, 2012).
An example of unconscionable behaviour being used by the vendor in Australia is that of
Australian Competition and Consumer Commission v Nuera Health Pty Ltd (In Liquidation)
ABN 97 113 678 452 [2007] FCA 695. In this matter, allegations were made against NuEra
Health Pty Ltd by ACCC, along with against the family members who operated the company, for

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being indulged in unconscionable conduct while marketing RANA system. This product was
marketed to the highly vulnerable consumers while they were signing up for paying the
substitutive cancer treatments. This system was a substitute approach to the cancer treatment, as
a result of which the cancer patients got hope. This system had a range of services and products
and the costs of all these was nearly $35,000. It was falsely claimed in the marketing of this
system by the company that the cancer could be stopped, reversed, or cured and was based on
science. However, all this was not true. This led to the Federal Court of Australia deeming the
conduct of NuEra Health Pty Ltd as unconscionable under the erstwhile statute of Trade
Practices Act. This was deemed as a reprehensible kind, which revealed the heartless and cynical
exploitation. This led to the court putting a complete restrain on the company and the family
running the company from engaging in any sort of offending conduct (ACCC, 2014).
During the mid of 1998, a number of reforms were being put forth in the financial service
sector. The main duties in these amendments were for the protection of small businesses and the
consumers in this sector. The principles stated above were respectively applied in the financial
services contracts and this was determined by considering the particular exclusions and the
definitions covered under the three key sections of ASIC Act, 2001, i.e., sections 12CA, CB and
CC (Federal Register of Legislation, 2017). This act clearly defined the financial products and
services and these provisions were mirrored in the ACL, as a result of which, there was a
similarity in the compliance obligations regarding the financial services being dealt with
(Pearson, 2009).
In a number of industry based legislative schemes, there was a specific restriction placed
on unconscionability. There are a number of examples of this and includes the panel being asked
to review the legislation which govern the retail tenancy in the prohibited areas for such conduct

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by the parties to retail lease. As touched upon earlier, there is a similarity in the different statutes
where the different services are governed. The majority of these, however, find their place in the
leading sections of ACL. It is not up to the courts to decide on a good or bad bargain being
made; they only seek the change through which the personal benefit was attained by the person.
The Commercial Bank of Australia v Amadio case is a leading example of the courts being
reluctant when they have to enforce the unfair or unequal agreements. As a result of this, the
legislation had been developed for the financial sector and for safeguarding the consumers of the
nation (Law Teacher, 2018).
Other than the ASIC Act and the ACL, there are other legislations putting up similar
prohibitions for the unconscionability and amongst this is the Fair Trading Acts. These
legislations, of the states and territory, are mirrored in the ACL provisions (Morandin & Smith,
2011). The theme in these is that the businesses have to know that there are statutory protections
being forwarded to the individuals and where unconscionability is undertaken with the
consumers, they have a range of avenues to protect their interest. Even though this legislation is
applicable only for individuals and not on companies, but section 43 of this act does cover the
unconscionability undertaken by the traders against the consumers (Campbell, 2013).
When it comes to the provisions of unconscionability, some entities become positive
towards it and the others provide their criticism to it. Amongst the different bodies which
presented their view point on unconscionability is the Financial and Consumer Rights Council
Inc. (FCRC), which has presented its support for the unconscionability provisions being present
in the ACL. This was due to the commonality of unfair terms in standard contracts, as a result of
which the consumers were left with very less power for bargaining. Due to these reasons, the
proposal for prohibiting unconscionability in contract was put forth. As per FCRC, this would

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have allowed the consumers to be sure that they were protected through the ACL provisions,
particularly where they were at a high risk of unfair practices. The FCRC also presented
recommendations in this regard, particularly regarding the retaining of title for goods suppliers,
where the goods could not be removed without any kind of damage and the suppliers being
allowed to get the possession of the goods. The reason for this was the repossession being an
intimidating task for the consumers which particularly is disadvantageous for the vulnerable
consumers. The consumer group here included the non English speaking individuals, elderly and
the other vulnerable groups (FCRC, 2018).
To sum up the entire discussion and to get to the conclusion, unconscionability is
something which is prohibited under the common law and also in the statutory laws of Australia.
These laws protect the individuals against being taken advantage of, in their dealings, where they
hold the position of weaker party, and the dominating party misuses their position, for furthering
their benefit, at the cost of the benefit of the weaker party. There are a number of cases, as
highlighted upon in the previous segments, which shows the strict approach adopted by the
courts against the individuals and the entities involved in unconscionability. The historical
background of unconscionability in Australia, along with its presence under the different laws
further highlights the significance and the strictness adopted by the courts against
unconscionability. These provisions were brought forward due to efforts of entities like the
FCRC and the rising number of cases where unconscionability was being used by the financial
institutions. Thus, the unconscionability provisions do offer wholesome protection to the
consumers in the nation.

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References
ACCC. (2014). Business snapshot. Retrieved from: https://www.accc.gov.au/system/files/217_
%20BS%20Don't%20take%20advantage%20_FA_Web_Nov-2014.pdf
Austlii. (2017). Competition and Consumer Act 2010 - Schedule 2. Retrieved from:
http://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/sch2.html
Campbell, D. (2013). International Consumer Protection, Volume 1. New York: Springer.
Clarke, J. (2018a). Unconscionable Conduct. Retrieved from:
https://www.australiancontractlaw.com/law/avoidance-unconscionable.html
Clarke, J. (2018b). Commercial Bank of Australia v Amadio. Retrieved from:
https://www.australiancontractlaw.com/cases/amadio.html
Clarke, J. (2018c). Louth v Diprose. Retrieved from:
https://www.australiancontractlaw.com/cases/louth.html
Clarke, P., & Clarke, J (2016). Contract Law: Commentaries, Cases and Perspectives (3rd ed.).
South Melbourne: Oxford University Press.
FCRC. (2018). Submission. Retrieved from:
https://archive.treasury.gov.au/documents/1501/PDF/Financial_and_Consumer_Rights_C
ouncil.pdf
Federal Register of Legislation. (2017). Australian Securities and Investments Commission Act
2001. Retrieved from: https://www.legislation.gov.au/Details/C2017C00326

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Latimer, P. (2012). Australian Business Law 2012 (31st ed.). Sydney, NSW: CCH Australia
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Law Teacher. (2018). Unconscionable Conduct In Australia. Retrieved from:
https://www.lawteacher.net/free-law-essays/contract-law/unconscionable-conduct-in-
australia-contract-law-essay.php
Morandin, N., & Smith, J. (2011). Australian Competition and Consumer Legislation 2011.
NSW: CCH Australia.
Pearson, G. (2009). Financial Services Law and Compliance in Australia. Victoria: Cambridge
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Vout, P.T. (2009). Unconscionable Conduct: The Laws of Australia (2nd ed.). Pyrmont, NSW:
Thomson Reuters.