Unconscionable conduct is conduct that is not in agreement with what is considered reasonable. It is where one party knowingly takes unfair advantage of the other partys disability. This concept of unconscionability first arose in the early eighteenth century and was developed by the English Court of Equity. Since this time it has been used for a variety of uses, such as protecting expected heirs from fraud and people who are poor and ignorant from falling victims to unconscionable conduct.It allows a judge to strike down a clause of a contract or the whole contract on the grounds that it is unconscionable.However in modern times it has been used far less as judges are much less inclined to let a party use this concept as a grounds for relief or to change a contract simply because one party feels that the rules of the contract are harsh, but not, in the eyes of the judge or the law, unconscionable.
There is a long history behind the concept of unconscionable conduct. It has been a cause for intervention on the grounds of equity in various circumstances, such as fraud. This stance was commonly used by expectants in the eighteenth century. These were typically the sons of aristocracy, who had no occupation and no, or little income. They would usually wait until the death of a relative and expected some inheritance. Thus came the name expectants. So many expectants would borrow money against this expected inheritance, with high interest rates that were substantially disadvantageous to them. For this reason these kinds of cases were set aside for unconscionability, giving the lender the borrowed amount and reasonable interest.1Slowly the courts came to protect persons who had simply been paid an inadequate price.The courts also started to give relief to persons who were sick, weak-minded, illiterate, drunkenness, emotion infatuation, lack of education, economic duress, youth and those who had not the advantages of independent advice.Equity was however approached with cation and costs were not often awarded in favour of the party that had been granted relief.
In the early seventies there were efforts to revive this old jurisdiction with the new defence of inequality of bargaining power, which was developed by Lord Denning MR in Lloyds Bank v Bundy2, however the case was eventually decided on the basis of undue influence.Inequity in bargaining power had no support in England with the House of Lords often ruling for the party accused of inequity, as in National Westminster Bank pic v Morgan3 which involved the relationship between a husband and a wife.The Trade Practices Act 1974 was also implemented around this time. It comments on unconscionable conduct with section 51aa and 51ab devoted to this concept. Section 51ab states that A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person engage in conduct that is, in all circumstances, unconscionable.Victoria has simply legislation in s89 of the Good Act 1958. Other states and territories also have similar acts however by reasons of metal disability or drunkenness a person still must pay the necessaries which are goods suitable to a persons station in life.
A victim of unconscionable conduct may be denied relief on equitable grounds ie. Laches. In Barburin v Barburin (1991) 2 Qd R 240 the plaintiff sought to set aside a transfer of shares after 14 yrs was denied relief on the basis that there had been unreasonable delay in commencing proceedings, & in view of what had occurred in the period which lapsed since the transfer it would have been unjust to grant relief.
The history of unconscionability also shows the making of basis for relief of unconscionability. Such as in the case of Commercial Bank of Australia Ltd v Amadio4 were the Amadios son heavily overdrawn his accounts and owed a large sum of money to the bank. The Amadios, who knew only a little English and had no knowledge that their son was in such a bad position, agreed to be liable for $50,000 to a period of six months. However the bank disagreed and when the sons business collapsed. The bank then demanded their money. The Amadio claimed unconscionable conduct and ask that the contract be set aside, which the court granted as it saw that the bank had know about their illiteracy but when ahead with the contract regardless.However since this time unconscionable conduct is rarely a reason itself to set aside a contract.
In recent times the shift towards not accepting unconscionable as a basis of relief is becoming more evident, with judges repeatedly warning against it, as Lord Radcliffe stated in Bridge v Campbell Discount Co Ltd, Unconscionable must not be taken to be a panacea for adjusting any contract between competent persons when it shows a rough edge to one side or the other highly sceptical of the courts duty to apply the epithet unconscionable or its consequences to contracts made between persons that did not fall within the familiar categories of fraud, surprise, accident, et.
When dealing with a case on unconscionability the concern for the judge is to see whether and in what circumstances the court may set aside the contract on this concept. .
FOLLOWING FROM GUIDEBOOK TO CONTRACT LAW IN AUST,
-To appreciate its relevance a number of focal points maybe distinguished.
1. Persons may unconscionably seek to depart from a promise, representation or assurance made, but has no contractual significance.
2. Unconscionability may be relevant to the decision to contract. This is say a contract maybe entered into because one party has engaged in unconscionable conduct in order to influence the other to enter into the contract.
3. Terms of contract maybe unconscionable in that sense that it is unfair to one of the parties.
4. Enforcement of the contract may in circumstances be unconscionable.
5. Unconscionability maybe a statutory justification for re-opening a contract.
The concept of unconscionability as a basis for relief may be established by evidence of, inter alia, inequity of bargaining power in particular cases but unconscionability does not lend itself to specification. It is an error to equitable fraud can be specially defined, or that classes of case in which it has been found be exist are mutually exclusive, or concluding that or such as inadequacy of consideration or disadvantages resulting from a transaction which influenced a court to relieve in a particular case, is always essential, or that any one element, such as presence of independent advice, which supported a refusal of relief in a particular case, will always be decision. The prescription of certain elements, proof of which by the plaintiff is to place an onus of justification on the transaction of the defendant can not make predictable decisions which depend on all the circumstances of the particular case & which necessarily involve an element of the general jurisdiction of the courts to grant relief in cases of equitable fraud, & to see unconscionable conduct as is circumstances which may attract the exercise of that jurisdiction.
-See Hart v OConnor (1985) AC 1000 at 1024.
– The general common law rule is that the courts will not provide remedies to a party only upon the ground that the contract concerned may be harsh or unconscionable or oppressive to that party, in the absence of some element of remediable impropriety or misconduct on the same transaction by other party to the contract. J.S. Stake QC,
above found in Cheshire.
Retailers get legal back-up
Small retailers in shopping centres will benefit from an amendment to the Trade Practices Act which lifted the value of contracts that can be dealt with under the provisions covering unconscionable conduct from $1 million to $3 million.
An amendment to the Trade Practices Act, S51AC, which came into operation on July 1, lifted the value of contracts that can be dealt with under the provisions covering unconscionable conduct from $1 million to $3 million (beyond which they fall under common law); and in an earlier decision the Federal Court found that a landlord’s behavior had constituted unconscionable conduct.
Melbourne property lawyer Max Cameron, a partner at Minter Ellison, said thousands of retail tenants would now be better protected in dealings with landlords. “With the higher ceiling most specialty retailers – many of whom are tenants in major shopping complexes – will now have the benefit of that protection,” Mr Cameron said.
“This, combined with a Federal Court decision earlier this month, highlights the importance of unconscionable conduct to the property industry.”
The Federal Court decision – the first unconscionable conduct case under the act to produce a decision – found that a landlord’s behavior in the treatment of a food plaza tenant in Adelaide had constituted unconscionable conduct.
The landlord had allowed the exclusive menu entitlements that the landlord had conferred on the tenant to be infringed by a competing tenant, and had specified the price at which the first tenant could sell its dishes, thereby inhibiting its ability to be competitive with other tenants.
Mr Cameron said the decision was a significant milestone given that the act did not conclusively define unconscionable conduct.
The executive director of the Australian Retailers Association, Tim Piper, welcomed the amendment and the court decision, but said retailers would, in practical terms, be unable to use a provision that would set them against their landlords and perhaps permanently damage the relationship. He said security of tenure remained the key issue in tackling the unequal relationship between landlords and tenants.
The Federal Court case was funded by the Australian Competition and Consumer Commission, which has set aside funds to mount test cases to produce case law defining acceptable commercial behavior.
above from http://www.theage.com.au/bus/20000719/A14836-2000Jul18.html
Atiyah, An Introduction to the Law of Contract, (5th Edition, 1996, Oxford university Press) 300
Bradford A Cafferey, Guidebook to Contract Law In Australia (4th Edition, 1991, CCH), 1504
Cheshire, Higgins and Titfoot, Law of Contract (4th edition, 1980, Butterworths) 10937
Gillies, Concise Contract Law, (1st Edition, 1988, Federation Press) 188
Graw, An Introduction to the Law of Contract (3rd Edition, 1998, LBC) 274 280
Heffey, Hocker and Paterson, Contract, Commentary and Materials, (8th Edition, 1998, LBC)
Lindgren and Vermeesch, Business Law of Australia (7th edition, 1992, Butterworths) 250 -4
McPhee, The Law handbook, (4th Edition, 2000, Fitzroy Legal Service Inc ) 205
List of Cases
Commercial Bank of Australia v Amadio, (1983) 57 ALJR 358
Lloyds Bank v Bundy (1975) QB 326 at 339
Moneylenders Act 1900 UK
Trade Practices Act 1974 Cwth
1 P.S Atiyah, An Introduction to the law of Contract, (5th edition, 1996, Oxford University Press) 300
2 (1975) QB 326 at 339
3 (1985) 1 AII ER 821
4 (1983) 57 ALJR 358