Unconscionable Conduct

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 party’s 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.[1] Slowly 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 Lloyd’s Bank v Bundy[2], 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 Morgan[3] 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 person’s 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 Amadio[4] were the Amadio’s 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 son’s business collapsed. The bank then demanded their money. The Amadio claimed unconscionable