Flashcards in Unconscionable Conduct and Unfair Terms Deck (23)
harsh clauses are ok
› South Australian Railways Commissioner v Egan (1973) 130 CLR 506
(at 512) “…the most wordy, obscure and oppressive contract I have ever come across…The contract is so outrageous that it is surprising that any contractor would undertake [it]…” (but… enforceable anyway!)
Freedom of contract.
It’s not the court’s role.
Notice requirements (as exemption clauses) – if notice is given and agreed to – interfoto picture library v Stiletto Visual Programmes Ltd.
llyods bank Ltd v Bundy
Decided on the basis of undue influence
339: Through all cases on duress, undue influence, undue pressure etc “there runs a single thread. They rest on ‘inequality of bargaining power’
General rule = pay
› Exception – ‘when one is so strong in bargaining power and the other so weak that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall’
inequality of bargaining power 4 requirements for exception
› Unfair/excessive terms.
› Lack of bargaining power.
› Undue pressure or influence used.
› Absence of independent advice.
equity and unconscionability
- An equitable remedy.
- What is unconscionable conduct?
› Similar to capacity
Blomley v Ryan
› Ryan was owner of farm. When drunk his father exploited him, convincing to sell farm to him for unreasonably low price.
› Similar to UI
Amadio (later) per Deane J at 474:
› UI looks to the quality of the consent.
› UC looks to the conduct of the stronger party.
Position of ‘trust’ (undue influence) v position of ‘power’ (unconscionable conduct)
UI= inducing weakness, UC = exploiting an independently existing weakness
› One party in a dominant position takes advantage of an obvious weakness of another party to obtain an unfair outcome.
Son approached parents. He needed to borrow money for his business.
Parents went guarantor for him.
› Liability limited to $50 000 for a period of only 6 months.
Did not get independent advice.
Liability was significantly more than $50, 000.
Special disability – couldn’t understand/language barriers.
Per Dean J at 475 onwards: 3 requirements
A‘ special disability’ existed so that there was no real equality
The stronger party was aware of this ‘special disability’
› Bank knew parents weren’t fully informed.
It is unfair or ‘unconscientious’ for the stronger party to procure agreement in the circumstances in which it was procured
› Had no independent advice etc.
what is a special disability
- Has the ability to make a decision become susceptible to control or influence by the stronger party because of their position of power.
› Can be through ignorance, inexperience, trust, poverty, desperation, sickness, lack of education, lack of assistance / advice, emotional dependence, infatuation and more
› Loss of the ability of someone to make a rational decision in their own best interests
- Mere disadvantage is not a ‘special disability’
› Really effect ability to make rational judgement.
- Most contracts have some difference in bargaining power
- Mason J in Amadio at 462 (must be that which):
› “…seriously affects the ability of the innocent to make a judgment as to his own best interests…”
- Even serious commercial disadvantage is not a ‘special disability’ if rational judgments can be made
louth v diprose
› He was infatuated with a woman.
› She manufactured a false situation of crisis, to convince man to give her the money.
› Gave a gift to her (a lot of money).
› Loss of ability to make rational decision.
effect of UC
- Voidable by the weaker party (rescission)
- Can reduce liability instead of voiding
› Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102
Company in financial difficulties. In stead of pay, asks to guarantee for future suppliers. Ended up being guarantor for all suppliers
Rather than set aside completely. Still guarantor for future suppliers. Not liable for prior.
› Chose not to in Amadio (Plaintiff didn’t know true position)
- ‘Practically just’ result even if it means enforcing part of the bargain
› Ratification, affirmation, acquiescence, UC by plaintiff
› Equity – he who seeks equity must do equity (clean hands)
3 sections on UC
› S20 – unconscionable conduct within the meaning of the unwritten law
› S21 – unconscionable conduct by a business in its dealings with consumers and other businesses
› S22 – Factors
› ‘A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time’
Eg CBA v Amadio
› (1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
› UC not defined but it is not limited to the ‘unwritten law’ such as showing there is a special disadvantage – can cover more than that – see s22
› Matters the court may have regard to for the purposes of section 21
Relative bargaining strengths
Comply with conditions that were not reasonably necessary for protection of legitimate interests
Able to understand the documents
Undue influence, pressure or unfair tactics
Amount and circumstances under which the goods or services could be obtained elsewhere
Dominant party’s conduct is consistent with its conduct to towards others
Requirements of any applicable industry code
Failed to disclose impact / risks of conduct or intended conduct
Dominant parties’ willingness to negotiate and general conduct
Extent to which the parties acted in good faith
› ACCC v Lux Distributors Pty Ltd  FCAF 90
Pressured into buying vacuum cleaner
relief available for UC through legislation
› S236 – terminate and seek damages.
› S237 – compensation for loss or damage suffered.
› S 243 – ancillary remedies
Invalidating, varying, refusing to enforce any or all provisions, refunds, return of property, reimburse, repairs, provide parts, supply services
› S224 – penalty of up to $1.1m (Co), $220k (other)
purpose of legislation if applying section 20
› What is the point of s20 then?
Rescission is common law remedy
Legislation = more remedies including ancillary remedies under s243.
Unfair Terms ACCC
- Unfair contract terms, particularly in standard form contracts.
- ACCC reports on unfair terms.
Unfair terms only if:
- Standard form contract.
- Consumer or small business contract.
- Not excluded contract or provision
- Term/s must be unfair
› Goes beyond protecting legitimate business interests.
s 27(2) ACL
how to determine a ‘standard contract’
› Bargaining power (typically big company).
› Prepared by one party (prior to contract discussions).
› Can only accept or reject (take it or leave it).
› No negotiation
› Template style not specifically tailored to each customer.
contracts for goods or services wholly or predominantly for personal, domestic or household use
contract terms not covered by ACL
› terms that set out the price
› terms that define the product or service being supplied
› terms that are required or permitted by another law (such as terms limiting liability permitted by Australian Consumer Law)
- there are also certain Contracts that are not covered.
s 24(1) - determination of unfair term
- Does the term cause a significant imbalance between your rights and obligations and those of the business; and
- Is the term reasonably necessary to protect the legitimate interests of the business; and
› (presumed not to be necessary unless proven otherwise)
- Would the term cause you detriment (financial or non-financial) if the business tried to enforce it?
- How transparent is the term?
› Legible, presented clearly, readily available
› The contract as a whole
business POV on unfair terms
- Remember to consider what the legitimate interests of the business might be?
- What if they cannot recoup the costs of providing a service?
- What if they expend money in reliance on a contract