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Storey & Gough issues its clients with a regular newsletter which highlights developments which have taken place in the firm. Our latest issue can be viewed below:
December 2015
Protecting property purchasers: A look at unconscionable conduct laws
Traditionally, equitable intervention in relation to unconscionable conduct was connected with mortgages. However, the decision in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, paved the way for the equitable doctrine of unconscionability that was distinct from undue influence, while providing for a wider application than contracts of mortgage, and contracts of loan.
The doctrine of unconscionable conduct under the common law
Unconscionable conduct is generally applied in instances where one party is disadvantaged by another, and is unfairly taken advantage of.
The doctrine was affirmed in Amadio where the plaintiffs had executed a mortgage, favouring the bank as a guarantee for the extension of credit that was granted to their son. The plaintiffs were unaware of the difficult financial position of their son, while also having no appreciation of the nature of the mortgage, and the guarantee was made even though they had a limited grasp of the English language. As a consequence, the plaintiffs were almost wholly dependent on their son in relation to their understanding of the agreement. Meanwhile, the bank understood that any understanding of the agreement by the plaintiffs was derived from their son.
Ultimately, the court held that both the mortgage and guarantee should be set aside due to the fact that if the plaintiffs had understood the nature of the agreement as well as the financial state of their son, they would not have entered into the agreement. Mason J outlined the common law doctrine of unconscionability with the following statement (at 502):
“Relief on the grounds of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party, who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest.”
Corporations and unconscionable conduct
In the event that it is a corporation, or an individual who is engaged in a trade or commerce who is involved in unconscionable conduct, s 20 of the Australian Consumer Law (ACL), gives effect to the common law, and more generally, statutory relief is also provided by the provisions found in both the ACL, and fair trading legislation across all jurisdictions in Australia.
Complimenting the ACL, the National Credit Code (NCC) can also be applied in circumstances where relief in respect of unconscionable terms or excessive interest in relation to consumer credit contracts is required.
For consumers, s 21 of the ACL prohibits unconscionable dealings and provides that a corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services, engage in conduct that is in all the circumstances, unconscionable. Meanwhile, fair trading laws extends the prohibition to individuals dealing in trade or commerce.
When determining whether a person is in contravention of s 21, s 22(1) of the ACL outlines the types of conduct that may be considered unconscionable by the courts which includes the following:
“(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier ) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer ), the court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the customer; and
(b) whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e) the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f) the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the customer:
(i) any intended conduct of the supplier that might affect the interests of the customer; and
(ii) any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and
(j) if there is a contract between the supplier and the customer for the supply of the goods or services:
(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
(iv) any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and
(l) the extent to which the supplier and the customer acted in good faith.”