Unconscionability In Contract Law And Statutory Laws Essay.

Unconscionability under the Common Law of Contract

Question:

Discuss about the Facets of Unconscionability In Law.

Unconscionability, also referred to as unconscionable conduct, is usually found under the contract law; though, these are not restricted to the contract law and can also be found in statutory laws like the Australian Consumer Law. So, unconscionability is not limited to the common law and is also present in the statutory laws (Vout, 2009). Unconscionability is basically such term in the drawn contract whereby one of the parties to the contract is dominated by the other party of the contract. This is possible due to the other party holding a superior bargaining power against the person who is at a weaker position (Latimer, 2012). This is particularly wrong as it is not ethically correct. Unconscionability is present in such relationship where there are two parties, in which one is the dominating one and the other is the weaker one. As a result of this, unconscionability is often mixed with the vitiating factors like undue influence and duress. Under the contract law, unconscionability allows the dominating party to take advantage of the weaker party due to the special disability held by the weaker party. Some of the special disabilities include age, less education, illiteracy and the combination of these. This special disability allows for the weaker party to be oppressed and to be dealt in a harsh manner (Clarke, 2018a). This discussion is focused on highlighting the different facets of unconscionability particularly in context of the common law and the statutory law of the nation. In doing so, the established case laws and the use of this in the commercial world would be highlighted.

When a case of unconscionability is present under the common law of contract, the contract becomes voidable at the request of the weaker party. As a result of this, the undertaken transaction is set aside and the dominating party is no longer able to take advantage of the situation (Clarke & Clarke, 2016). There are a number of case laws which prove to be an example of unconscionability not being tolerated. Particularly in context of Australia, the leading example of unconscionability is the case of Commercial Bank of Australia v Amadio (1983) 151 CLR 447. The reason for the significance of this case is not just because this case involved unconscionability but also because this case became an important lesson for the banks in the nation, to not be indulged in such conduct, which could prove costly for them. This case had a mortgage being signed for securing the loan for the son of A by them. A were never informed of what was going on or even about the details of this mortgage. A did not know English that much due to them being Italian and this made them almost illiterate. When an attempt was made by the bank for seizing the home which had been kept as a mortgage, A challenged the validity of this mortgage. The court analysed the entire case and gave the ruling in A’s favour due to unconscionability being present here. The special disability which led to the presence of unconscionability in this case was the almost illiteracy of A (Clarke, 2018b).

Unconscionability under the Statutory Law of Australia

There is another prominent case law which shows the court taking a strict approach against unconscionability and this is the case of in Louth v Diprose (1992) 175 CLR 621; [1992] HCA 61. Diprose in this case had been infatuated towards Louth and to show his affection, he used to give Louth a number of gifts. When Diprose proposed to Louth, she did not accept the proposal. After some time had passed, Louth told Diprose that she was very upset due to her inability in paying the money for her home. As a result of this, she was facing eviction. This would mean that she would not have a home to live in, and ultimately she would end her life. However, most of this was false. Due to the emotional pressure exerted by Louth on Diprose, he agreed to purchase the house for Louth; and due to instance of Louth, the name of Louth was put on the documents. After some years lapsed, the relation between the two was damaged and ended. Diprose then asked Louth to transfer the home which he had brought for her in his name, as he had made the payment for the house. However, Louth denied to do so and this led to Diprose initiating a suit against her. When the matter was presented before the court, they stated that Diprose had to be given the entitlement to the land for the reasons of him having brought the same and given to Louth due to her use of unconscionability. The succeeding appeals to this matter were also declined b the court due to the misuse of the emotional state of Diprose by Louth (Clarke, 2018c).

Till now, the unconscionability was discussed in context of the common law, but now the discussion would move on to the statutory law of Australia, which provides the provisions against unconscionability. The Australian Consumer Law (ACL), which is covered under schedule 2 of the Competition and Consumer Act, 2010 presents the provisions against unconscionability. Section 21 of the ACL places a restriction on the ones indulged in trade and commerce, from indulging in unconscionable conduct, when the goods and services are supplied in business transactions (Austlii, 2018). When it comes to unconscionability, the situations surrounding the transaction is what decides its presence or absence (Coorey, 2015). An example of this can be cited in the individual not being provided with sufficient time for going through a contract to be signed by them. Under section 22 of the ACL, the various factors which have to be considered by the court for holding the presence of unconscionability. Where the presence of unconscionability is found in the business, the penalty on individuals is imposed to a maximum of $220,000 and this value for the body corporate stands at $1.1 million owing to the undertaken unconscionability (Corones, 2012).

Reforms in the Financial Service Sector

An example of unconscionable behaviour being used by the vendor in Australia is that of Australian Competition and Consumer Commission v Nuera Health Pty Ltd (In Liquidation) ABN 97 113 678 452 [2007] FCA 695. In this matter, allegations were made against NuEra Health Pty Ltd by ACCC, along with against the family members who operated the company, for being indulged in unconscionable conduct while marketing RANA system. This product was marketed to the highly vulnerable consumers while they were signing up for paying the substitutive cancer treatments. This system was a substitute approach to the cancer treatment, as a result of which the cancer patients got hope. This system had a range of services and products and the costs of all these was nearly $35,000. It was falsely claimed in the marketing of this system by the company that the cancer could be stopped, reversed, or cured and was based on science. However, all this was not true. This led to the Federal Court of Australia deeming the conduct of NuEra Health Pty Ltd as unconscionable under the erstwhile statute of Trade Practices Act. This was deemed as a reprehensible kind, which revealed the heartless and cynical exploitation. This led to the court putting a complete restrain on the company and the family running the company from engaging in any sort of offending conduct (ACCC, 2014).

During the mid of 1998, a number of reforms were being put forth in the financial service sector. The main duties in these amendments were for the protection of small businesses and the consumers in this sector. The principles stated above were respectively applied in the financial services contracts and this was determined by considering the particular exclusions and the definitions covered under the three key sections of ASIC Act, 2001, i.e., sections 12CA, CB and CC (Federal Register of Legislation, 2017). This act clearly defined the financial products and services and these provisions were mirrored in the ACL, as a result of which, there was a similarity in the compliance obligations regarding the financial services being dealt with (Pearson, 2009).

In a number of industry based legislative schemes, there was a specific restriction placed on unconscionability. There are a number of examples of this and includes the panel being asked to review the legislation which govern the retail tenancy in the prohibited areas for such conduct by the parties to retail lease. As touched upon earlier, there is a similarity in the different statutes where the different services are governed. The majority of these, however, find their place in the leading sections of ACL. It is not up to the courts to decide on a good or bad bargain being made; they only seek the change through which the personal benefit was attained by the person. The Commercial Bank of Australia v Amadio case is a leading example of the courts being reluctant when they have to enforce the unfair or unequal agreements. As a result of this, the legislation had been developed for the financial sector and for safeguarding the consumers of the nation (Law Teacher, 2018).

Similar Prohibitions for Unconscionability in Other Legislations

Other than the ASIC Act and the ACL, there are other legislations putting up similar prohibitions for the unconscionability and amongst this is the Fair Trading Acts. These legislations, of the states and territory, are mirrored in the ACL provisions (Morandin & Smith, 2011). The theme in these is that the businesses have to know that there are statutory protections being forwarded to the individuals and where unconscionability is undertaken with the consumers, they have a range of avenues to protect their interest. Even though this legislation is applicable only for individuals and not on companies, but section 43 of this act does cover the unconscionability undertaken by the traders against the consumers (Campbell, 2013).

When it comes to the provisions of unconscionability, some entities become positive towards it and the others provide their criticism to it. Amongst the different bodies which presented their view point on unconscionability is the Financial and Consumer Rights Council Inc. (FCRC), which has presented its support for the unconscionability provisions being present in the ACL. This was due to the commonality of unfair terms in standard contracts, as a result of which the consumers were left with very less power for bargaining. Due to these reasons, the proposal for prohibiting unconscionability in contract was put forth. As per FCRC, this would have allowed the consumers to be sure that they were protected through the ACL provisions, particularly where they were at a high risk of unfair practices. The FCRC also presented recommendations in this regard, particularly regarding the retaining of title for goods suppliers, where the goods could not be removed without any kind of damage and the suppliers being allowed to get the possession of the goods. The reason for this was the repossession being an intimidating task for the consumers which particularly is disadvantageous for the vulnerable consumers. The consumer group here included the non English speaking individuals, elderly and the other vulnerable groups (FCRC, 2018).

To sum up the entire discussion and to get to the conclusion, unconscionability is something which is prohibited under the common law and also in the statutory laws of Australia. These laws protect the individuals against being taken advantage of, in their dealings, where they hold the position of weaker party, and the dominating party misuses their position, for furthering their benefit, at the cost of the benefit of the weaker party. There are a number of cases, as highlighted upon in the previous segments, which shows the strict approach adopted by the courts against the individuals and the entities involved in unconscionability. The historical background of unconscionability in Australia, along with its presence under the different laws further highlights the significance and the strictness adopted by the courts against unconscionability. These provisions were brought forward due to efforts of entities like the FCRC and the rising number of cases where unconscionability was being used by the financial institutions. Thus, the unconscionability provisions do offer wholesome protection to the consumers in the nation.

References

ACCC. (2014). Business snapshot. Retrieved from: https://www.accc.gov.au/system/files/217_%20BS%20Don't%20take%20advantage%20_FA_Web_Nov-2014.pdf  

Austlii. (2017). Competition and Consumer Act 2010 - Schedule 2. Retrieved from: https://www.austlii.edu.au/au/legis/cth/consol_act/caca2010265/sch2.html  

Campbell, D. (2013). International Consumer Protection, Volume 1. New York: Springer.

Clarke, J. (2018a). Unconscionable Conduct. Retrieved from: https://www.australiancontractlaw.com/law/avoidance-unconscionable.html  

Clarke, J. (2018b). Commercial Bank of Australia v Amadio. Retrieved from: https://www.australiancontractlaw.com/cases/amadio.html  

Clarke, J. (2018c). Louth v Diprose. Retrieved from: https://www.australiancontractlaw.com/cases/louth.html  

Clarke, P., & Clarke, J (2016). Contract Law: Commentaries, Cases and Perspectives (3^rd ed.). South Melbourne: Oxford University Press.

FCRC. (2018). Submission. Retrieved from: https://archive.treasury.gov.au/documents/1501/PDF/Financial_and_Consumer_Rights_Council.pdf  

Federal Register of Legislation. (2017). Australian Securities and Investments Commission Act 2001. Retrieved from: https://www.legislation.gov.au/Details/C2017C00326  

Latimer, P. (2012). Australian Business Law 2012 (31^st ed.). Sydney, NSW: CCH Australia Limited.

Law Teacher. (2018). Unconscionable Conduct In Australia. Retrieved from: https://www.lawteacher.net/free-law-essays/contract-law/unconscionable-conduct-in-australia-contract-law-essay.php  

Morandin, N., & Smith, J. (2011). Australian Competition and Consumer Legislation 2011. NSW: CCH Australia.

Pearson, G. (2009). Financial Services Law and Compliance in Australia. Victoria: Cambridge University Press.

Vout, P.T. (2009). Unconscionable Conduct: The Laws of Australia (2^nd ed.). Pyrmont, NSW: Thomson Reuters.