Unconscionable Conduct and Unfair Terms Flashcards Preview

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Flashcards in Unconscionable Conduct and Unfair Terms Deck (23)
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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!)
› Consider
 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.


Amadio facts

 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.


amadio principle

 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.
› Unconscionable.


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
- Limits
› 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


section 20

› ‘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


section 21

› (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


section 22

› 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 [2013] 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.


s 23(3)

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


examples of unfair contract terms

- Mobile phones
- Credit Cards
- Health Clubs
- Security Services