6.8 Unconscionability

As discussed, duress and undue influence relate specifically to the requirement for consent being given freely, and misrepresentations and mistakes relate specifically to the requirement for consent to be informed. In contrast, unconscionability could be said to relate to both of those aspects of consent; that is, under the right circumstances, unconscionability can be argued if the given consent was not informed and/or if it was not given freely.

Unconscionability is addressed both under equity and under statutes.

6.8.1 Unconscionability under equity

The application of the equitable doctrine of unconscionable dealings is well illustrated in Commercial Bank of Australia Ltd v Amadio.^[1]  There, the matter before the Court involved Mr and Mrs Amadio, an elderly couple with Italian origins, who had agreed to act as guarantors for a building business owned by their son.

The couple had little business experience, little formal training and limited grasp of written English. Further, they had no reason to believe that their son’s company was in financial trouble. However, the bank was well aware of the company’s financial difficulties. Indeed, it was in response to the bank’s demands for security that the son approached Mr and Mrs Amadio to give a guarantee of approximately $50,000 for six months (the son had not discussed any such limitations to the guarantee with the bank). When the bank manager, Mr Virgo, visited Mr and Mrs Amadio to obtain their signatures, the couple did not read the agreement, and apart from discussing that the guarantee was in fact not limited in time, Mr Virgo did not explain the content of the agreement.

The agreement that was signed was not at all in line with what the son had told Mr and Mrs Amadio. Instead, under the agreement, Mr and Mrs Amadio undertook to pay to the bank, on demand, all money owing, or that thereafter became owing, by the company, together with interest. Less than a year after the agreement was signed, the company went into liquidation and the bank sought to exercise the rights under the contract. It was held that the whole transaction was to be set aside, and Deane J expressed the following rule:

The jurisdiction [of courts of equity to relieve against unconscionable dealing] is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable.^[2]

Furthermore, Mason J stated that:

[I]f A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.^[3]

This passage makes clear that there is no need for actual knowledge of the innocent party’s special disadvantage; constructive knowledge is sufficient. However, it is equally clear that, where the party that is said to have acted unconscionably had neither actual nor constructive knowledge of the innocent party’s special disadvantage, as was the case in Lisciandro v Official Trustee in Bankruptcy,^[4] the doctrine of unconscionability cannot intervene.

In the Lisciandro case, the appellant (Mr Lisciandro) had entered into guarantees in respect of the obligations of a company (TAG Industries). When the company to which the guarantees were granted (Alminco) sought to exercise its rights under these guarantees, Lisciandro argued that the guarantees were unenforceable against him due to misrepresentations made by the person procuring the guarantees (Mr Radford) on behalf of TAG Industries. Lisciandro argued that Radford was an agent of Alminco and procured the guarantee from Lisciandro on behalf of TAG and Radford’s misrepresentations could be imputed to Alminco. One of the matters in focus was whether Alminco had knowledge of Mr Lisciandro’s special disadvantage in relation to Mr Radford. The Court adopted the reasoning of the trial judge, Kiefel J:

In the present case Alminco could not be said to have known of any financial difficulties experienced by Mr Radford or that he was unlikely to be able to meet payments on the account. It knew little of his background. It knew nothing of Mr Lisciandro’s personal circumstances, save that he was a director of the company TAG Industries, as in fact he was, and that he had in that sense an interest in the company. It knew nothing of the trust he placed in Mr Radford nor indeed of any relationship between Mr Radford and Mr Lisciandro save for the business relationship appearing from the information provided. It made no inquiry, but there was in my view nothing apparent from the circumstances to raise a question as to Mr Lisciandro’s circumstances or understanding of the transaction. Whilst it would obviously be desirable if creditors made inquiries as a matter of course I do not understand the law to have proceeded to the point where it is required in all cases before a security document obtained can be enforced.^[5]

The impossibility of exhaustively listing the circumstances under which a party is acting under special disadvantage is widely recognised. However, in Amadio, the High Court referred to Fullagar J’s statement in Blomley v Ryan:^[6]

The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other.^[7]

The last sentence of Fullagar J’s statement is not to be understood to imply that inequality of bargaining power always indicates unconscionability. In fact, the respective strength of contractual parties is rarely, if ever, exactly equal.

In Blomley v Ryan,^[8] the plaintiff had entered into a contract with the defendant by which the latter sold a grazing property to the former for £25,000. Having noted that the defendant was heavily intoxicated at the time of negotiations and at the time of signing the contract and bearing in mind that the property was worth £8,000 – 9,000 more than the agreed price, the Court found that the contract should be rescinded. The majority of the factors listed above in Article 3, are mentioned in Fullagar J’s statement in this case (see above). Others, such as “emotional dependence”, have been recognised as relevant in other cases.^[9] While a few cases have already been discussed, it is useful to examine a few more to properly illustrate the application of the equitable doctrine of unconscionability.

In Louth v Diprose,^[10] the respondent (Diprose) was a solicitor who was “completely in love” with the appellant (Louth). While his feelings were not shared by Louth, their friendship lasted for approximately seven years. Having known each other for about three years, Diprose bought a house for Louth in 1984. Louth was already living in the house in question and had told Diprose that she would commit suicide if she was forced to move out. Louth continued living in the house, but in mid-1988 the relationship between the two parties deteriorated, and Diprose sought ownership of the house. The High Court held in Diprose’s favour, and Deane J noted that:

On the findings of the learned trial judge in the present case, the relationship between the respondent and the appellant at the time of the impugned gift was plainly such that the respondent was under a special disability in dealing with the appellant.  That special disability arose not merely from the respondent’s infatuation.  It extended to the extraordinary vulnerability of the respondent in the false “atmosphere of crisis” in which he believed that the woman with whom he was “completely in love” and upon whom he was emotionally dependent was facing eviction from her home and suicide unless he provided the money for the purchase of the house.  The appellant was aware of that special disability. Indeed, to a significant extent, she had deliberately created it. She manipulated it to her advantage to influence the respondent to make the gift of the money to purchase the house.^[11]

In discussing this case, some commentators have made important observations as to the potential impact that societal presumptions regarding gender and class may have on a court’s reasoning.^[12] This is extremely important. At the minimum, it is ma reminder that (1) societal values and perceptions evolve, (2) the law ought to reflect those changes, and (3) older precedents must be evaluated by reference to modern societal standards rather than being blindly accepted.

A more recent case is perhaps hinting at the mentioned change. In Mackintosh v Johnson,^[13] a man in his mid-70s – Mr Johnson – was infatuated with a considerably younger woman, Ms Mackintosh. Their relationship began with a sexual encounter in August 2008 and by February 2009, Mr Johnson had: (1) paid Ms Mackintosh about $175,000 to support her business, and (2) provided $480,000 to buy a house in her name as sole proprietor. While the relationship did not end until April 2010, all sexual relations ceased after 17 January 2009, the day on which Mr Johnson gave Ms Mackintosh the deposit on the house.

Once the relationship ended, Mr Johnson pleaded, amongst other things unconscionability, pointing to special disadvantage constituted by his age, the fact that he was lonely and vulnerable, the fact that he was retired and desirous of a companion, as well as that he was ‘infatuated’ with Ms Mackintosh, and that in February 2009 he was recovering in hospital from heart surgery.

Examining the facts of the case, the Court pointed out that Mr Johnson was a successful and wealthy businessman who was well able to afford his dispositions in favour of Ms Mackintosh. This was placed in contrast to Louth v Diprose where the man in question gave away nearly all of his assets to the woman, in circumstances where he simply could not afford it and he had three dependent children. The Court also emphasised the absence of an atmosphere of crisis in this case, which may be most important distinguishing factor to Louth v Diprose.

Further, the Court disagreed with the trial judge who had found in favour of Mr Johnson by pointing to the impact of the infatuation and the other argued factors pointing to a special disadvantage:

Taken together, his reasons amount to no more than findings that Mr Johnson became infatuated with Ms Mackintosh and that he set out to win her continued affections by lavishing large sums of money upon her in the hope of establishing a lasting relationship. That state of affairs was not sufficient to establish a special disability within the meaning of the authorities. Something more than mere infatuation and consequent foolish action based on clouded judgment was required to establish that Mr Johnson’s ability to make decisions in his own best interests was so seriously affected as to amount to a special disability or disadvantage.^[14]

Against this background, the Court concluded that:

Mr Johnson was not affected by a special disability at the time he made the payments to Ms Mackintosh. It is accordingly unnecessary to decide whether Ms Mackintosh exploited him and thus acted unconscionably. The judge found that Ms Mackintosh acted deceitfully, by concealing the true nature of her feelings for Mr Johnson from him. In our opinion, conduct of that kind would not, on its own, be sufficient to amount to exploitation of the kind required to establish a case based on unconscionable conduct. It is the stuff of ordinary human relationships.^[15]

Another illustrative case is Bridgewater v Leahy.^[16] There the respondent (Neil) had had a close business and personal relationship with a man named Bill York. Put simply, Mr York had agreed to sell land to the respondent at a very favourable price. When Mr York died, his four daughters (jointly the appellants) sought the sale to be set aside, arguing that the transaction was unconscionable. Even though a medical practitioner had found Mr York fit to make his own decisions, and despite the fact that Mr York was perfectly happy with the disputed transaction, the majority of the High Court found the contract unconscionable. This decision may be thought of as surprising considering that Mr York had non-financial reasons for selling the land to the respondent. Mr York wanted to retain the land as “an integrated farming enterprise under reliable and experienced management”.^[17] Instead of taking this into account in determining whether the contract was fair, just and reasonable, the majority of the High Court viewed this goal as an indication of emotional dependence: “Bill’s goal to preserve his rural interest intact and his perception that [the respondent] was the candidate to provide reliable and experienced management thereof were significant elements in his emotional attachment and dependency upon Neil”.^[18]

Furthermore, it is interesting to note that, in the majority’s view, the fact that Mr York had had access to legal advice was negated by the fact that Mr York’s solicitor also did work for the respondent. Evidence suggesting that the transaction would have been carried through even if another solicitor had been involved was held to be irrelevant: “[The] denial of the opportunity to have ‘the assistance of a disinterested legal adviser’ … rather than speculations as to what might have followed had it been pursued, is an element in the unconscientious conduct in respect of which equity intervenes”.^[19]

The ‘weaker party’ to a contract entered into as a result of unconscionable conduct is entitled to the same remedies as is the weaker party to a contract entered into under duress or undue influence. Thus, the contract is voidable at the weaker party’s option. However, where the other party proves that the contract was, in fact, fair, just and reasonable, the weaker party loses her/his right to have the contract declared void. As far as the fairness, justness and reasonableness of the contract are concerned, the statement made in Blomley v Ryan^[20] is illustrative:

It does not appear to be essential in all cases that the party at a disadvantage should suffer loss or detriment by the bargain …But inadequacy of consideration, while never of itself a ground for resisting enforcement, will often be a specially important element in cases of this type. It may be important in either or both of two ways – firstly as supporting the inference that a position of disadvantage existed, and secondly as tending to show that an unfair use was made of the occasion.^[21]

Thus, the contract being unfair, unjust and/or unreasonable is not a necessary requirement for establishing unconscionability. Instead, the contract being fair, just and reasonable is a defence against the defendant’s unconscionable conduct making the contract voidable.

Finally, just as in relation to duress and undue influence, a party having entered into a contract as a result of unconscionable conduct must bring its action as soon as possible after that the unconscionability has ceased. In Barburin v Barburin,^[22] the plaintiff had sold shares to her sons. Nineteen years later she sought damages and to have the transaction set aside. The trial judge found that, while the case did not involve undue influence, the sons had engaged in unconscionable conduct. However, the trial judge also found that the plaintiff’s delay disentitled her to relief:

In my view there was unreasonable delay in commencing these proceedings and in view of what has occurred in the period, which has elapsed since the transfer of the shares, the consequences of that delay are such that it would be unjust to grant the relief sought by the plaintiff.^[23]

The trial judge’s approach was upheld on appeal.^[24]

6.8.2 Unconscionability under statute law

There are several pieces of legislation that regulate unconscionability. Doubtlessly, the most important of these is the Competition and Consumer Act 2010 (Cth) (formally the Trade Practices Act 1974 (Cth)), and more precisely the Australian Consumer Law making up Schedule 2 of that Act. In addition, as far as New South Wales is concerned, attention must also be given to the Contracts Review Act 1980 (NSW).

Further, while the statutory provisions dealt with in this part are discussed in the context of their effect on the formation of a contract (i.e., issues going to consent), several of the relevant provisions may also regulate the substance of a contract, and thereby have an effect, strictly speaking, going beyond the issues going to consent.

6.8.2.1 The relevant rules of the Australian Consumer Law

There are three provisions in the ACL of relevance in relation to unconscionability, all of which are found in Part 2-2.

Section 20 (TPA s. 51AA) merely provides for the application of the common law and equity discussed above:

The definition of “in trade or commerce” has been discussed above (see Chapter 2). The effect of ACL s. 20 is to extend the remedies available under the ACL to situations involving unconscionable conduct, as defined under Australian common law. Importantly, one exception is made: s. 20 is not applicable where the more specific rules of the ACL, as found in s. 21 are applicable.

In Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd,^[25] a legal dispute was ongoing between the owner of a shopping complex and several of its lessees. In order to be able to sell its business, one lessee needed to have the lease renewed. The owner of the shopping complex was aware of the business operators desire to sell and would only agree to renew the lease if a clause was included in the lease agreement (cl 14). By which the lessee agreed to discharge the owner from all claims made in the ongoing legal dispute. The ACCC brought an action arguing that this conduct amounted to a breach of the TPA’s s. 51AA (ACL s. 20). The Court made the following observation:

There were three apparent resolutions to the impasse between the parties. First, the lease might be renewed without the inclusion of cl 14. This was unacceptable to the owners; they were not obliged to grant any renewal at all and so were at liberty to prevent that outcome and thereby deprive the [lessee] of their sale proceeds. The second and third possibilities were both acceptable to the owners but … the second probably was preferable. The second was renewal of the lease and inclusion of cl 14; the third was no renewal and no release of the owners by cl 14. To the [lessee], the renewal of the lease (albeit giving up the other claim later shown to be worth apparently only some $3,000) was vital to the sale of the business, making the second outcome preferable to the third. Against that background, it may not be surprising that the bargain struck reflected the second outcome.^[26]

In the light of this, the Court held that there was no special disadvantage.

A somewhat similar dispute arose in ACCC v Samton Holdings Pty Ltd.^[27] In that case, Patricia and Giuseppe Farruggio were operating a lunch bar at premises leased from the respondent. The lease was to expire on 2 June but could be renewed up until 2 March. The Farruggios’ company, New York Fries Pty Ltd, executed an agreement to sell the lunch bar to a company called Executive Bloodstock Services Pty Ltd. The sale was conditioned upon the respondent agreeing to transfer the lease from the Farruggios to Executive Bloodstock. The respondent agreed, and the sale was completed on 26 of February. On 18 March, Executive Bloodstock gave notice to the respondent of their intention to renew the lease but were advised that they acted too late and that the lease would expire on 2 June. Following negotiations, it was agreed that Executive Bloodstock would be allowed to lease the premises. Although the conditions of the new lease were unfavourable, Executive Bloodstock considered they had no alternative, as their newly purchased business would have been “quite worthless” without the lease. The ACCC commenced proceedings against the respondent, alleging unconscionable conduct in breach of the TPA’s s. 51AA (ACL s. 20). The Court held in favour of the Respondent.

In commenting on the proper scope of the TPA’s s. 51AA (ACL s. 20), the Court noted that: “Section 51AA [ACL s. 20], in referring to the unwritten law from time to time of the States and Territories, refers to the common law of Australia.” It also observed that:

[T]he words of the section and the extrinsic material indicate that it was not intended to extend the categories of unconscionable conduct in respect of which relief could be granted. Its object is to attract, to cases of unconscionable conduct to which it applies, the remedies available under the Trade Practices Act and to allow for those remedies to be pursued by the Commission.^[28]

And that:

Almost by definition the conduct which attracts equitable relief as unconscionable can be viewed as “towards the extreme end” of the scale of unreasonable behaviour by one person towards another. What his Honour did was to make plain that it is not enough to demonstrate that one person has acted unreasonably towards another in the circumstances of a particular case.^[29]

The Court also entered into a detailed discussion as to when a person can be said to be under a special disability:

[T]he fact that somebody is in a position of special weakness because they have lost through their own fault rights necessary to the operation of their business does not provide a basis upon which a claim for unconscionable conduct can be built because another party puts a premium on the acquisition of those rights … The disadvantage under which the Farruggios and Executive Bloodstock laboured had arisen from a combination of considered commercial judgment (the decision to borrow heavily in order to purchase the business) and the Farruggios oversight in neglecting to exercise the option in good time. These factors did not impair the Farruggios ability to make a decision about the best course of action in the circumstances. At least in the case of an experienced business person there must, in our opinion, be something more than commercial vulnerability (however extreme) to elevate disadvantage into special disadvantage … The Farruggios situation could not be characterised as one of special disadvantage only because the respondents failed to make an offer that they had no obligation to make.^[30]

In other words, a weaker party cannot rely upon a self-imposed special disadvantage in arguing unconscionability.

Section 21 (TPA s. 51AB) provides rules regulating unconscionability in the context of a person supplying goods or services to consumers:

Consideration of the circumstances relating to formation of the contract.

The definition of the terms “supply”, “engage in conduct”, “goods”, “services” and “consumer” are all of relevance to an understanding of the scope of s. 21. Those terms have been discussed in detail above (see 2.6 and 4.1.1), and that discussion will not be repeated here. The prohibition of unconscionable conduct in s. 21 broadens the equitable concept of unconscionability by including consideration of matters beyond the circumstances relating to contract formation (see ACL s. 22). For example, the court may have regard to the terms and conditions of the contract. Previously, the scope of s. 21 was limited to persons other than a listed public company, however, this was recently amended. Section 21 is now available for publicly listed companies.

Although s. 21 expressly makes clear that ‘this section is not limited by the unwritten law relating to unconscionable conduct’, this has not prevented courts from mixing in notions from equity when applying s. 21 (and more specifically its sister-provision in ASIC s. 12CB). In the High Court’s 2019 decision in Australian Securities and Investments Commission v Kobelt, Kiefel CJ and Bell J. stated that:

It is the application of the last-mentioned value with which the appeal is concerned. In Kakavas v Crown Melbourne Ltd and Thorne v Kennedy it was said that a conclusion of unconscionable conduct requires not only that the innocent party be subject to special disadvantage, but that the other party must also unconscientiously take advantage of that special disadvantage.^[31] (internal footnotes omitted)

In contrast, in the same case, Edelman J stated:

[S]tatutory unconscionability permits consideration of, but no longer requires, (i) special disadvantage, or (ii) any taking advantage of that special disadvantage. Like other open-textured criteria, such as “unfair” or “unjust”, there is no clear baseline moral standard for what constitutes “unconscionable” conduct within s 12CB of the ASIC Act.^[32]

This important matter remained unsettled until the FCAFC decision in Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd:^[33]

Whilst some form of exploitation of or predation upon some vulnerability or disadvantage of people will often be a feature of conduct which satisfies the characterisation of unconscionable conduct under s 21, such is not a necessary feature of the conception or a necessary essence in the embodied meaning of the statutory phrase. The circumstances of this case reveal why this must be so. Here the facts that were agreed for the penalty hearing are such as to permit the conclusions (substantially drawn by the primary judge) that the respondents engaged in deliberate systematic conduct of misusing their superior bargaining position by dishonestly misleading commercial counterparties (referred to as the investors of no proven particular vulnerability other than from their place in the relevant commercial circumstances) and pressuring the investors by imposing entirely unjustified and unnecessary requirements upon the investors as their contractual counterparties, thereby clearly exhibiting a dishonest lack of good faith, all in order to extract for at least one of them financial benefits which were surreptitious and undisclosed to the investors.^[34]

More generally, it may be seen as unhelpful that courts have sought to proclaim a diverse range of threshold tests for what amounts to unconscionable conduct under s. 21. After all, on their own, phrases such as ‘unfair’, ‘exploitation’ and ‘dishonest lack of good faith’ are hardly more enlightening than is the phrase ‘unconscionable conduct’. However, taken together, perhaps these phrases add somewhat to our understanding. In the end, however, it is the text of the legislation that must be our main focus. Courts have acknowledged this.^[35]

Bearing in mind the factors set out in s. 21(1), it is now expressly provided by s. 21(4) that “this section is not limited by the unwritten law relating to unconscionable conduct.” This confirms previous commentary suggestions that the scope of s. 21(4) is broad. Australian Competition & Consumer Commission v Lux Pty Ltd^[36] concerned the sale of a vacuum cleaner by Lux to Mrs Standing. Mrs Standing had an intellectual disability and was illiterate. Mr Podger, a Lux representative, went to her house. There, after inspecting her old vacuum cleaner, he showed Mrs Standing a new vacuum cleaner. He stated that he offered Mrs Standing a trade-in deal in which he will credit her $50 for her old vacuum cleaner. She agreed because she needed the money. Mrs Standing filled in a credit application. She could not spell or write very well, so Mr Podger took over filling in the form, which he stated was common practice. He also noted that he considered whether she needed independent advice, and because he thought it was just a matter of her not be able to spell, he dismissed that thought. Mrs Standing stated that Mr Podger scared her by standing next to her and shouting at her, and that she wanted him to leave. She admitted that she had not communicated her wish for him to leave, or that she did not want to buy the new vacuum cleaner. She argued that her signing the contract was the only means by which she could make Mr Podger leave. She further argued that her illiteracy contributed to her not understanding the contract.

The applicant suggested that Mr Podger’s conduct was unconscionable on a number of grounds:

1. The relative bargaining strengths between an intellectually disabled person and Mr Podger (the TPA s. 51AB(2)(a) now, ACL s. 21(2)(a));
2. Mrs Standing’s capacity to understand (the TPA s. 51AB(2)(c)), now ACL s. 21(2)(c)); and
3. Mr Podger’s conduct constituted undue influence, pressure and/or unfair tactics (TPA s. 51AB(2)(d), now ACL s. 21(2)(d)).

In his judgment, R D Nicholson J stated that:

[T]he features of the meeting between Mrs Standing and Mr Podger … make apparent that the meeting was “clearly unfair or unreasonable” … [and] “irreconcilable with what is right or reasonable”. Mr Podger came close to realising this when he thought of the question whether Mrs Standing should receive independent advice. He veered away from that course because he considered she had told him that she could read. However, even if that was the case he was on notice that Mrs Standing was illiterate and unable to understand commercial matters in any depth … While it is clear she was not deprived of an independent and voluntary will, it must have been apparent to him that she was not able to make a worthwhile judgment as to what was in her best interests in the circumstances. I consider that it is established that in all the relevant circumstances (and particularly his decision not to give Mrs Standing the opportunity to take independent advice) he acted without regard to conscience and so acted unconscionably.^[37]

In the light of this, the Court ruled that Mr. Podger had acted unconscionably.

The application of s. 21 is further illustrated in Australian Competition & Consumer Commission v Keshow.^[38] That case involved the sale of children’s education materials to persons in closed gate indigenous communities. It was argued that the respondent took advantage of the lack of education and commercial experience of the indigenous communities. The goods sold were in many instances not needed or not useful when regarding the age of the consumer. In many instances, the product was not even supplied entirely, or at all.

Payments were open-ended periodic payments, which were received when the appellants received Centrelink benefits. In a number of instances, the respondent continued to receive payments well beyond the value of the goods.

The respondent argued that he did not have control over “stopping the payments” and doing so was solely the responsibility of the complainants. Further, the respondent argued that, in some cases, the buyers had moved to unknown places and could not be contacted.

In considering the educational and commercial literacy of the complainants, the Court held that the respondent was in breach of TPA s. 51AB (ACL s. 21). The Court noted that the respondent was a 63-year-old teacher. Further, the Court observed that the complainants did not ask for documentations or enquire as to when and where the goods will arrive or what would happen if the goods did not arrive. The only document that was signed was the direct debit payment forms. This led the Court to the conclusion that the nature of the transactions was not understood by the complainants. Therefore, the Court held that the respondent was in breach of s. 51AB(2)(a), (b) and (c) (ACL s. 21(2)) in particular and reached the conclusion that the respondent engaged in unconscionable conduct.

Australian Competition & Consumer Commission v Radio Rentals Limited^[39] involved Mr Groth, a person with an intellectual disability and a schizophrenic illness. His sole income was his disability pension. He entered into a number of agreements with Radio Rentals, to the sum of approximately $20,700. The ACCC took proceedings against the company as there was concern about Mr Groth’s ability to adequately manage his own affairs, and Radio Rentals choice to enter into dealings with such a customer.

The ACCC suggested that the company knew that Mr Groth had a disability and thus could not read the agreements. Further, it was suggested that the agreements were not in his favour, as he paid nearly 40% of his income under them. In the alternative, it was argued that, if Radio Rentals did not know of Mr Groth’s special disability, it should have been apparent in the circumstances.

Radio Rentals argued that the agreements used by them in dealing with Mr Groth were the same as for all their other customers, and that the persons who dealt with Mr Groth did not recognise his disability, as he was pointing toward appliances and describing what he needed and for what use.

The Court held that no unfair pressure existed under TPA s. 51AB (ACL s. 21) Mr Groth’s disability was borderline (relying on expert evidence to determine his disability), and, although the events in this case were unfortunate, there was no exercise of unfair tactics or pressure exercised when Radio Rentals dealt with Mr Groth. Thus, the appeal was dismissed. A comparison between this case and the Keshow case^[40] (discussed above), shows that there is a fine line between conduct that is unconscionable and conduct that is not unconscionable.   

In Australian Competition & Consumer Commission v Black on White Pty Ltd,^[41] the organiser of a course had stated that the course in question had certain accreditation, which it in fact did not have. Upon becoming aware of this, some students sought to withdraw from the course. In doing so, it was brought to their attention that the contract contained clauses to the effect of rendering a student liable for the full tuition fee, whether the student commenced the course. Those clauses were held to contravene TPA s. 51AB (ACL s. 21), as they were “not reasonably necessary for the protection of [the course organisers’] legitimate interests”,^[42] and were not properly brought to the students’ attention at the time the parties entered into the contract.

QANTAS Airways Ltd v Cameron^[43] is interesting in that it highlights the enormous diversity of actions being brought under the three sections of the TPA that deal with unconscionability. In that case, passengers who had booked non-smoking seats were seated adjacent to smoking seats and were affected by the smoke. The Court agreed with the trial judge who found that the conduct of Qantas was not unconscionable in allowing smoking on the flights.  Further the Court noted that Qantas had taken some steps, albeit inadequate, to diminish the problem which arose from having smokers sitting in close proximity to non-smokers. Further, having noted that the case at hand was not “an appropriate case in which to enunciate all possible denotations of the term ‘unconscionable’ as it is used in ss. 51AA [ACL s. 20] and 51AB [ACL s. 21] of the Trade Practices Act”,^[44] the Court stated that:

It is sufficient for present purposes that the term carries the meaning given by the Shorter Oxford English Dictionary, ‘2. Of actions, etc: Showing no regard for conscience; irreconcilable with what is right or reasonable … The conduct of Qantas was not of this character.  Qantas did not act in blatant disregard of the medical problems which environmental tobacco smoke might cause. It acted to diminish the risks but unfortunately it failed to take all those steps which, as a reasonable carrier having regard to the health of its passengers, it could and should have done.^[45]

Thus, the Court concluded that Qantas had not acted in breach of the relevant sections of the TPA (now ACL).

In George T Collings (Aust) Pty Ltd v H F Stevenson (Aust) Pty Ltd,^[46] the plaintiff, George T Collings (Aust) P/L sought to rely upon a clause of a standard contract. That clause was particularly onerous to the defendant. The Court ruled that, even though neither party was aware of the onerous clause at the time of signing the contract, it was nevertheless unconscionable to include that clause in the contract at hand and, in finding for the defendant, Nathan J stated:

These matters contained in the RESI form are wholly inconsistent with the creation of a general agency agreement. It is unconscionable to embed in a pro forma contract, a term inconsistent with its stated purpose … In my view the indefinite nature of the obligation is an ingredient of the unconscionability. The imposition of limitless contingent liability is onerous and unfair. It places upon a vendor a contingent liability which may only expire with him or her. … Should an unconscionable term find its way into a contract merely by the accidental behaviour or omissions of the parties, it does not lose that characteristic of because if it.^[47]

The last sentence of this quote seems to make clear that intention is not a necessary component of unconscionability.

Finally, in Hurley v McDonalds,^[48] McDonalds was relying on certain conditions of a competition it had initiated, in refusing to give prizes to an unexpectedly large number of winners. A class action was taken, alleging, amongst other things, breach of TPA s. 51AB (ACL s. 21). However, the Court noted that: “Before sections 51AA [ACL s. 20], 51AB [ACL s. 21] or 51AC  will be applicable, there must be some circumstance other than the mere terms of the contract itself that would render reliance on the terms of the contract ‘unfair’ or ‘unreasonable’ or ‘immoral’ or ‘wrong’”.^[49]  The Court concluded in dismissing the appeal that, “while the true meaning of s 51AB [ACL s. 21] and its relationship with s 51AA [ACL s. 20] would be a matter of substance, the proposed pleading does not make any allegation of circumstance that could on any view fall within s 51AB [ACL s. 21]”.^[50]

The lengthy and complex s. 22 of the ACL provides guidance for the application of ACL s. 21.

 to which the acquirer and the supplier acted in good faith.

While the previous TPA s. 51AC (incorporated in ACL s. 21) expressly covered dealings that involved a corporation, ACL s. 21 is still broad enough in its application to cover such dealings. In CBA v McArthur,^[51] Mr McArthur wanted to buy a music supply retailing business, and his mother agreed to help him. Mrs McArthur consulted her accountant, who drew attention to the excessive price ($300,000) and the particular reasons for the business owner selling the business. Despite being cautioned, she decided to go ahead with the purchase and obtained a $320,000 loan from a bank, with a mortgage over her home as security. The business did not perform well, and the subsequent financial difficulties resulted in the McArthurs wanting to refinance their loan.

CBA agreed to lend them money to pay off the first loan and provide working capital, on the condition that a satisfactory valuation of the business was obtained. This was put in a letter sent to the mother. The son arranged a valuation, but that valuation was not satisfactory to the bank, which then conducted a second valuation. The second valuation was lower, meaning that the bank would only lend the McArthurs a lower amount, with more onerous repayment obligations. This was stated in a second letter sent to Mr McArthur. The loan money was granted, but later the son defaulted on the repayments. He had never signed or returned the second letter, and claimed his mother was unaware of it.

The McArthurs claimed that their mortgage should be rescinded because CBA had breached s. 51AC by altering the principal contract, and because the mother was merely a passive investor with limited experience. They also argued that the bank knew that repayment would be too difficult for them, and the mother was unaware of the second letter until it was too late for her to make a different financial arrangement.

These arguments failed. The Court, ruling in favour of the bank, allowed it to enforce its rights under the mortgage. It was held that Mrs McArthur understood the relevant documents, there was no misrepresentation by the bank, and the bank did believe that the McArthurs could repay.

As is illustrated in a recent case, it is common for a plaintiff to rely on both the previous TPA and the FTA. In Miller v Gunther,^[52] the defendants had been engaged in a scheme under which properties were sold at inflated prices to commercially naïve recent immigrants with little knowledge of English and little education. Several of the buyers were also adherents to a Church with which one of the defendants was associated. Referring to both the TPA and the FTA, as well as to the common law principles expressed in Commercial Bank of Australia Ltd v Amadio, the Court had no hesitation in finding that “the conduct engaged in by [the defendants] was, in all the circumstances, unconscionable”.^[53]

The courts have also commented on the difference between s. 51AA (ACL s. 20) on the one hand, and ss. 51AB (ACL s. 21) and 51AC on the other. In Australian Competition & Consumer Commission v Simply No-Knead (Franchising) Pty Ltd, a franchiser, Simply No-Knead, had engaged in conduct with several franchisees that was described as “unreasonable, unfair, bullying and thuggish behaviour”.^[54] In ruling against the franchiser, the Court noted that:

Whatever might be the position with s 51AB [ACL s. 21], in my view “unconscionable” in s 51AC is not limited to the cases of equitable or unwritten law unconscionability the subject of s 51AA [ACL s. 20]. The principal pointer to an enlarged notion of unconscionability in s 51AC lies in the factors to which sub-s (3) permits the Court to have regard.^[55]

Thereby the Court made clear that the “unconscionability” referred to in s. 51AC of the TPA is not limited by the common law doctrine of unconscionability. Indeed, the Court went on to suggest that the same is true about s. 51AB (ACL s. 21):

The s 51AB(2) [ACL s. 21(2)] factors do not so clearly suggest, as do the s 51AC(3) factors, that unconscionability in s 51AB [ACL s. 21] is a more ample concept than the unwritten law’s unconscionability. Nevertheless, as with s 51AC(3), s 51AB(2) [ACL s. 21(2)] does not limit the factors the Court may consider. It would be curious if “unconscionable” in the two provisions had different meanings – in s 51AB [ACL s. 21] the same as in s 51AA [ACL s. 20] and in s 51AC  a wider meaning.^[56]

However, it is important to note that the Franchising Code of Conduct now regulates the relationship between franchisor and franchisee. The Code mandates a good faith obligation on the part of the franchisor in all aspects of the franchising relationship. This obligation attracts a civil penalty of up to 300 penalty units if contravened. While franchisees might have recourse to the Franchising Code of Conduct, small businesses can still rely on ACL s. 21 in dealings with bigger businesses. Furthermore, as discussed above (6.8.2.1) the Full Federal Court has held that there is no need to prove that the victim has a vulnerability, disability or special disadvantage which clearly broadens the scope of its application (ACL s. 21) to dealings between businesses. In ACCC v Quantum Housing Group Pty Ltd,^[57] the Court held that if there is a sufficient departure from the norms of acceptable commercial behaviour it may be enough to find a contravention of unconscionable conduct pursuant to ACL s. 21.

Before concluding the discussion of ss. 21 and 22, mention must be made of s. 22A which includes an important reference as to presumptions relating to whether representations are misleading.

Finally, a few words need to be said about the relevant remedies available in cases where s. 20 (TPA s. 51AA), and s. 21 (TPA s. 51AB) of the ACL have been breached. Where a party has acted in breach of one of the sections of the ACL that deal with unconscionability, remedies may be sought under ss. 232 (injunctions), 236 (damages) and/or 237 (ancillary orders) of the same Act. As those provisions have been dealt with in detail above (Chapter 4.4), no further discussion is necessary here. What should be noted, however, is that, by bringing unconscionability within the scope of the ACL, it is made possible for the ACCC to take action against unconscionable conduct.

6.8.2.2 The relevant rules of the Contracts Review Act 1980 (NSW)

The Contracts Review Act 1980 (NSW) aims at regulating unjust (including unconscionable, harsh or oppressive) contracts, and its scope is rather wide. First, the Act applies to unjust contracts, whether or not they have been fully executed, and whether or not they form part of an arrangement consisting of an inter-related combination or series of contracts. Second, the Act is not only applicable to fully formed unjust contracts but may also extend to situations where a person has embarked, or is likely to embark, on a course of conduct leading to the formation of an unjust contract.

However, certain limitations to the scope of the Act are in place. First, the Contract Review Act is obviously only applicable where NSW law is applicable. Thus, it would typically not be of any relevance in a dispute, for example, between two parties based in Queensland. Second, the Crown, public or local authorities, and corporations (excluding Strata title corporate bodies and the like, under certain circumstances) cannot seek relief under this Act. Similarly, where a person enters into a contract for the purpose of trade, business or profession (other than farming), she/he cannot be granted relief under the Contracts Review Act 1980 (NSW). In addition, certain time limitations are in place:

Furthermore, the Act does not apply to a contract of service to the extent that it includes provisions that are in conformity with a State industrial instrument, or an award or agreement (whatever called) that is in effect under a law of the Commonwealth and deals with matters relating to conditions of employment, that is applicable in the circumstances.

Finally, s. 22 states that: “Nothing in this Act limits or restricts the operation of any other law providing for relief against unjust contracts or unfair contract terms, but the operation of any other such law in relation to a contract shall not be taken to limit or restrict the application of this Act to the contract.”

Having examined the scope of the Act, it is time to look at its substance. Section 7 contains the most central provisions of the Act:

In addition, where the court makes a decision or order under s. 7, it may also make such ancillary orders as may be just in the circumstances. The types of orders that can be made are set out in Schedule 1 of the Act, and include orders such as:

Thus, the types of orders that a court can make under the Contract Reviews Act 1980 (NSW) are extraordinarily wide.

In clarifying what the court should take into consideration when determining whether a particular contract is unjust, the somewhat lengthy s. 9 sets out the following:

Finally, it is to be noted that the Act contains rules (s. 17) aimed at ensuring that the Act is not simply contracted aside:

Indeed, the Act goes as far as to make an offence of attempts to contract out of the application of the Act, with a penalty not exceeding 20 penalty units (s. 18).

Several cases have been decided under the Contracts Review Act 1980 (NSW). In Baltic Shipping Co v Dillion,^[58] the plaintiff, Dillon, was a 52-year-old widow who purchased a ticket for a cruise. On the tenth day of the cruise, the ship sank near New Zealand. The plaintiff suffered physical injury, nervous shock, and the loss of all her belongings. Dillon was especially concerned about her loss of belongings, some of which were irreplaceable memories of her late husband. Her action was brought under s. 7 of the Contracts Review Act 1980 (NSW). That section provides that, where the court finds a contract, or a provision of a contract, to have been unjust at the time it was made, the court can avoid or refuse to enforce any or all of the provisions of the contract. Dillon sought relief under the section in regard to a release and indemnity that she had signed, under which she received only $4,876. Given that Dillon had limited financial resources, with no legal aid, the Court felt that “she was overwhelmed by the situation. She had…neither the emotional nor the financial resources to challenge the defendant’s insistence that she execute the release before she obtains any compensation, other than the unused portion of her ticket”.^[59] The defendant used Dillon’s desire to resolve the issue of her lost personal property as a lever to get her to surrender the right to sue for damages as a result of her personal injuries. The whole release and indemnity signed by Dillon was held to be void ab initio.

In contrast, in West v AGC (Advances) Ltd,^[60] the appellant’s action failed. The facts of the case were as follows: Mrs West owed $23,000 for a home loan. She defaulted on interest, and the mortgagee threatened to exercise its power of sale. Her husband, Mr West, suggested using her home as security for an $85,000 loan to Quiche, a company in need of further finance. In return, Quiche would discharge the existing mortgage. The relevant arrangements were made and AGC granted the loan to Quiche. Quiche defaulted on the loan to AGC. AGC, in return, applied for Quiche to wind-up. Mrs West opposed and argued that Quiche owed her money. Quiche wound up shortly thereafter.

The issue raised was whether the contract between AGC and Mrs West, or any of its provisions when it was made, were unjust in the circumstances. In dismissing Mrs West’s arguments, McHugh JA suggested that the s. 9(1) of the Act makes it clear that in determining whether a contract was unjust, the circumstances need to be examined and consideration to public interest needs to be given. Among other circumstances, McHugh JA considered the fact that it was reasonably foreseeable to AGC that Quiche might not be able to meet the payments which were owed by Mrs West to AGC. Second, Mrs West rejected her accountant son’s advice not to go forward with the transaction. Secondly, she also discharged advice given to her by a barrister to obtain more substantial guarantees from Quiche directors. Thirdly, she knew that the wives of Quiche directors refused to go through with the same transaction. Lastly, although Mrs West was not a business woman, she had some commercial expertise and her eight years’ experience distinguished her from an ‘ordinary home owner’ or ‘suburban housewife’. Therefore, she acted independently, considering the discharge of her first mortgage to enter into the new agreement. On those circumstances, McHugh J held that the deed of loan was not unjust.