Unconscionable Conduct and Misrepresentation in Contract Law

The issue in the case of John and EastWest Bank is whether John can avoid his liability under the guarantee provided to the bank due to the unconscionable conduct of Isobel. The relevant provisions of the Australian Consumer Law (ACL) that deal with unconscionable conduct are discussed, particularly section 20 and section 21. It is concluded that John may avoid the contract on grounds of unconscionability and that EastWest Bank may be held liable for the breach of section 21 of the ACL.

Question one
Issue: The issue that arises on the facts of this question is if John can avoid his liability under the
guarantee provided to the EastWest Bank. This issue arises due to the unconscionable conduct of
Isobel, who had misrepresented the facts to John and made him sign the guaranteed under the
belief that it was not financially disadvantageous for him.
Rule: according to the common law, a particular contract can be described as unconscionable if
it results in an unfair dispute between a dominant and the weaker party. In such a case it is
required that certain advantage should have been taken by the dominant party of the 'special
disability' from which the weaker party was suffering. Some of the examples of such special
disability in case of a contract can be described as an elderly, poorly educated or illiterate, drunk
or disabled person is involved. An example of unconscionable conduct can be given from the
facts of Commercial Bank v Amadio (1983). This case provides a good example of
unconscionable contract. The effects of this case are that the Commonwealth Bank tried to
enforce mortgage guarantee against an elderly couple who had provided personal guarantee
regarding the loan taken by the company owned by their son. In this case, the elderly couple was
not very fluent in English language and the result was that they did not fully understand the
effect of the guarantee that was signed by them. Under these circumstances, the guarantee was
set aside by the court. It was stated by the court that under these circumstances, it will be
unconscionable to give effect to the terms of the guarantee against the elderly couple,
particularly due to the reason that in this case, the bank was aware of the limitations in English
language as well as their advanced age and infirmity. Still, the bank failed to take any steps in

order to make sure that the elderly couple had received independent advice regarding the
transaction they were going to enter into.
In this way, unconscionable conduct is related in the transactions that take place between
dominant and weaker parties. As a result, it overlaps with duress and undue influence.
Unconscionable conduct has been to war, and also by statute (ACL). Therefore,. Under the
common law, equity intervenes where advantage has been taken by one party regarding this
special disability from which the other party was suffering (Louth v Diprose, 1992). Normally,
the resulting transaction is harsh and oppressive for the weaker party. Where the weaker party is
able to establish the unconscionable conduct of the other party, it is for the weaker party to select
to avoid the transaction (Blomley v Ryan, 1956).
Regarding the issue of misrepresentation by nondisclosure, it was stated by the court in Amadio.
The duty of the ring to disclose information to a customer in such cases arises only if a special
agreement is present between the bank and the customer of the nature, which would not be
expected by the surety. In the present case, this was the case and the bank had failed to this close
the presence of such special arrangements, misrepresented. Regarding civilian part of the
transaction and the result was that the guaranteed was not binding (Kakavas v Crown
Melbourne Ltd., 2013). Among the certain circumstances that were present in this case were the
fact that the arrangement between the bank and Vincenzo to increase the overdraft and require
Vincenzo to considerably limit the overdraft in a short period.
Another relevant fact was deselected dishonoring of the cheques by the bank in an effort to
maintain the facade of prosperity of the company. However, Gibbs J was not ready to find
express misrepresentation made by the bank. Even if there was such misrepresentation it was
made by their son and not by the bank.

Application: In the present case also, it can be claimed by John that East West Bank should not
be allowed to enforceability on account of below mentioned reasons:
That the bargain was unconscionable
That it was reviewed by undue influence; and
The bargain had been induced by misrepresentation or 'concealing facts' which the bank was
under a duty to disclose.
It is revealed by the effects of the present question that Isobel was working as an employee
content and she was in a de facto relationship with John for the last two years. While Isobel is an
employee accountant in an accounting firm in Sydney for the last five years, John is working as a
carpenter. John is infatuated with Isobel. Therefore he obediently follows the orders given by
Isobel. The couple was living in a rented apartment and did not have any joint assets. However,
John has a holiday house, which was left to him by his grandparents. When Isobel decided to
start her own accounting practice, she may be a loan of $150,000. Therefore, Isobel asks Mark,
the manager of the bank to bank will provide a loan of $150,000 if she finds the guarantor, who
has sufficient assets for providing security. The holiday house owned by John was worth
$800,000. Isobel asks John if he would sign a bank guarantee. She makes a misrepresentation
that the guarantee is going to be for $50,000 only and it would be repaid in six months. When
John visits Mark at the bank, he shows the guarantee documents, but does not read them to John.
In fact, the guarantee covered for security over the holiday house and it was not restricted to
$50,000. John also tells Mark that he is relying on Isobel that he will not be disadvantaged by the
guarantee. Under the circumstances, the guarantee is signed by John without reading it.
Now, the bank wants to enforce the guarantee. However, John can claim that the contract is
made by unconscionability and as a result, he is not bound by the contract.

Conclusion: under these circumstances and are applying the rules of unconscionability that have
been discussed above, it can be said that in the present case that John may avoid the contract on
grounds of unconscionability.

Question two
Issue: in the present question the issue is if Isobel had told Mark, the manager of the bank that
John was under false belief that the guarantee was restricted to $50,000 and the house was not
going to be sold even if Isobel defaulted on loan. Under these circumstances, if Mark remained
silent and allowed John to sign the guarantee even after knowing that John was under the
mistaken belief regarding the effect of the guarantee. Under these circumstances the provisions
of Australian Consumer Law need to be discussed that may have been breached by EastWest
Bank.
Rule: there are certain provisions of the Australian Consumer Law (ACL) that deal with the
unconscionable conduct. Therefore, section 20 is related with unconscionable conduct under the
'unwritten law'. Similar section 21 is related with unconscionable conduct that affects the
consumers. It has been provided by section 20 of the ACL that a person (including a corporation)
should not involve in conduct, in trade or commerce that is unconscionable under the meaning of
unwritten law (ACCC v Zanok Technologies Pty Ltd., 2009). This section has been mainly
added with a view to increase the range of remedies that may be available to the victims of
unconscionable transactions. At the same time, this section also allows the Australian
competition and consumer commission (ACCC) to investigate the instances of unconscionable
conduct and if required, take legal action on behalf of the person who suffered unconscionable
conduct (ACCC v TPG Internet Pty Ltd., 2013).
It appears that section 20 refers to the doctrine of unconscionability that has been interpreted in
case law. However, the words used in this section are perfectly general and it is not settled by the
courts what amounts to unconscionable conduct under unwritten law. Therefore, the courts may

move beyond the doctrine of unconscionable dealing for including other equitable doctrines
(Haros v Linfox Australia Pty Ltd., 2012).
The unconscionable conduct that affects the consumers: it has been provided by section 21 of the
ACL that a person (including a corporation) should not, in context of supply of goods or
services, in trade or commerce, be involved in conduct that can be described as unconscionable
under all the circumstances. The purpose of this provision is to provide protection to persons
however; the general definition of consumer mentioned in section 3 in context of consumer
guarantees is not applicable. Instead the protection that has governed by section 21 is applicable
only regarding the goods and services that are off the kind generally required for personal,
domestic or household use. Therefore, it needs to be noted that the limit of $40,000 is not
applicable in this case. As a result of this limit, the business purchases made under $40,000 were
considered to be consumer purchases. On the other hand in case of section 21, a monetary limit
has not been prescribed but the goods or services should be of the kind that are generally
required for the mistake, personal or household use. Therefore it would cover certain business
purchases, for example, a microwave purchased for staff kitchen.
It is required under the consent of unconscionability that the party that has been alleged to be
acting unconscionably was aware of the vulnerability of the other party. Then such party had
taken advantage of this vulnerability by proceeding with the transaction. As is the case with
misleading or deceptive conduct, the prohibition is applicable in case of any conduct and not
only the conduct that took place at the time of entry into the contract. A particular cause of the
contract may also be declared as unconscionable even if unconscionable conduct was not present
in the way. The contract was signed. For example, a clause mentioned in fine print of the
contract that resulted in onerous obligation for the other party may be treated as unconscionable.

Application: in this question, Isobel had told the manager of EastWest Bank, Mark that John
falsely believed that the guarantee was restricted to $50,000 and is house was not going to be
sold even if Isobel defaulted on loan. Under the circumstances, Mark decided to remain silent
and allowed John to sign the guarantee. In this way, it is clear in the present case that EastWest
Bank was aware of the special disability from which John was suffering. As a result, it was the
responsibility of the representative of the bank to clearly describe the effect of the guarantee to
John. However Mark, the manager of the bank failed to do so. The result was that John entered
into an unconscionable transaction, which was usually disadvantageous for him. In this case, it
can be stated that the bank had taken advantage of the disability from which John was suffering.
Moreover, the bank was aware of the presence of such disability on part of John. Instead of
clearly explaining the situation to John, the manager of the bank, Mark decided to remain silent
and allowed John to sign the guarantee. Under these circumstances, it is clear that East West
Bank had reached the provisions of Australian Consumer Law, particularly section 21, which
prohibits a person or a corporation to become involved in conduct, in supply of goods or services
that may be described as unconscionable under the circumstances.
Conclusion: after going through the facts provided in this question, as well as the relevant
provisions of Australian Consumer Law (s21) it can be said that in the present case, East West
Bank may be held liable for the breach of section 21 of the ACL.

References
ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640
ACCC v Zanok Technologies Pty Ltd [2009] FCA 1124
Blomley v Ryan. (1956) 99 CLR 362
Commercial Bank v Amadio (1983) HCA 14
Haros v Linfox Australia Pty Ltd (2012) 287 ALR 507
Kakavas v Crown Melbourne Ltd [2013] HCA 25
Louth v Diprose (1992) 175 CLR 621