Unconscionable dealing

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Unconscionable dealing occurs when a party has acted unconscientiously by exploiting a special disability or disadvantage of another to his own benefit.[1]

Unconscionable dealing is established if:[2]

  1. A party is suffering from a condition or disability which renders it unable to make a proper judgment in the transaction.
  2. The other party is aware (or ought to have been aware) of this condition, and takes an unfair advantage of this condition to procure a contract.
    • Although not essential, an unfair or disadvantageous contract will provide strong proof that unconscionable dealing has taken place, since it can show that the party didn't make a proper judgment and that the disability was taken advantage of.[3]

A party who has entered a contract due to unconscionable conduct will be entitled to rescind the contract.

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 925-6 [36.05-36.15]; 929-937 [36.25-36.35].

Introduction

[4] Unconscionable dealing is an equitable doctrine, somewhat similar to those of duress or undue influence. Since unconscionable dealing is an umbrella term which aims to cover a wide area of unfair treatment, its categories are not definitively limited.[5] However, there are some common categories which are will be discussed below.

Drunkenness and mental disorder

[6] If a party knowingly deals with another who does not appreciate the general nature of the transaction because his mental faculties are impaired through either natural causes or intoxication, it will be considered unconscionable dealing and the contract will be rescinded. This is discussed in Blomley v Ryan:

  • A contract will be set aside for unconscionable dealing where:[7]
    1. A party was aware of the of the other's mental incapacity and
    2. The party unfairly took advantage of that condition to procure a contract.
  • It is not a requirement that the contract should be disadvantageous to the incapacitated party. However, a disadvantageous contract is strong proof to show that unconscionable conduct has taken place.

Note that if the incapacitated party is so deficient that it does not at all understand the transaction, the contract will be void at law (see: Mistakenly signed documents). Here we are concerned with merely someone who does not fully appreciate the transaction.

Sale of goods

[8] Under the Sales of Goods acts, even a person who is incapacitated because of such conditions will have to pay a reasonable price for goods he purchased under such a condition.

Lack of knowledge or education

Similarly, the courts sometime protects those who were taken advantage of due to their lack of knowledge or education. This was discussed in the landmark case of Commercial Bank of Australia v Amadio:

  • Reaffirms the general situations, purpose and requirements in which unconscionable dealing relieves a party from a contract.
  • Distinguishes unconscionable dealing from undue influence.
  • The Respondent's poor education or knowledge of business clearly demonstrated that they were not able to make a proper judgment as to their best interests.
  • "As we have seen, if 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."[9] The same applies if A does not have actual knowledge, but has reason to believe.
  • The Appellant acted unconscionably by taking advantage of the Respondents' clear inability to make a proper judgment. Therefore, the contract is rescinded.


References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. "[R]elief on the ground of 'unconscionable conduct' is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage": Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 461 (Mason J)
  2. Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 474 (Deane J); Blomley v Ryan (1956) 99 CLR 362, 405 (Fullagar J)
  3. (1956) 99 CLR 362, 405
  4. Casebook, p. 925 [36.10]
  5. Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 461 (Mason J)
  6. Casebook, p. 926 [36.15]
  7. (1956) 99 CLR 362, 405
  8. Casebook, p. 929 [36.25]
  9. (1983) 151 CLR 447, 467
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