Unconscionability And How It May Mean That A Cannot Be Enforced

Question: What Are The Characteristics Of An Unequal Bargain That Must Or Might Be Demonstrated To Indicate Unconscionability? Answer: Introducation: In the present assignment, an attempt has been made to explore the impact of unconscionability on the enforceability of contracts that has been created by the parties in their business transactions. Sometimes, unfair practices adopted by the businesses and as a result, a large number of consumers are disadvantaged. With the rising number of such consumers, the need was felt to provide relief to such consumers under statutory law, and also under the provisions of common law. Therefore, in this research, the provisions of statutory law and also the relevant provisions of common law have been explored, particularly the changes that were introduced after the decision given in Commercial Bank of Australia Ltd v Amadio (1983). This was a particularly relevant case in which the court decided that it can rely upon the unconscionable conduct of a party to the contract. Hence, this case can be described as the reason due to which the amendment of unconscionability was introduced in the law of contract in Australia. Similarly, it is worth mentioning that with the rise in the provisions of consumer protection legislation that have been implemented for the purpose of providing justice to the consumers and at the same time to enforce the 'unconscionable conduct' clause when contractual relationships are created between the parties. Generally, the law provides that the ownership of business transactions rests with the trader. As a result, it is the responsibility of the trader to ensure that a fair and reasonable transaction has been created between the parties (Beatson and Virgo, 2002). In its form as a doctrine of contract law, the purpose behind the introduction of unconscionable conduct was that equity and fair play should be upheld. For this purpose, the term unconscionable conduct can be described as the behavior due to which the court may provide relief to the other party. In Blomley v Ryan (1956), the court had relied upon this doctrine for providing relief to the other party. At the same time, the application of unconscionability in cases of contracts created between the parties was further strengthened when this doctrine was used by the court to give its judgment in Commercial Bank of Australia v Amadio (1983). Under these circumstances, it becomes important to briefly mention the facts of this case. There was an elderly migrant couple from Australia, Mr. and Mrs. Amadio who stood as the guarantors for the loan that was taken by their son, Vincenzo from the Commercial Bank. The manager of the bank was in regular contact with Vincenzo and having a good understanding of the business realities, the manager knew that most probability, Vincenzo had not told the facts to his parents and made a misrepresentation for the purpose of preparing them to become guarantors for the loan he was going to take from the bank. Under these circumstances, the company failed and the bank started efforts to enforce the guarantee, which was given by Vincenzo's parents by mortgaging their building. Under these circumstances, the court to decide if the elderly couple can be considered as being bound by the mortgage and if this contract can be enforced against them, keeping in view the circumstances in which the contract was signed by them. It is worth mentioning that Amadios have migrated from Italy and they were not very proficient in English language. Moreover, before signing the contract, no independent advice was available to them. All this took place even when the bank manager, Mr. Virgo was well aware of the business situation of their son. However, he did not try to advise the elderly couple that they should seek professional and independent advice before standing as guarantors for their son. When the Amadios had signed the contract, the bank was well aware of the fact that the financial condition of their son was not very stable. Similarly, the bank also knew that perhaps the elderly couple was not aware of the fact that the business of their son was not doing well. Another issue was that the Amadios was under the impression that under the contract, their liability will be limited to $50,000. Therefore the bank did not try to inform the Amadios that in fact, there liability was unlimited as the guarantors for the loan taken by their son. In view of all these facts, the court arrived at the conclusion that the bank knew regarding the special disability from which the Amadios were suffering. But still the bank did not take any steps so that the elderly couple can understand the nature of transaction. Consequently, the court stated in this case that the bank had taken an advantage of an opportunity in this case and this can be said to be unconscientious. The court pointed o ut that on this basis, the clause of unconscionability relies upon. In view of this decision, a new concept became a part of the contract law. Similarly, as a result of this decision, legislative changes were also made in the statutory law. The term unconscionability can be distinguished in two ways. The first instance is of procedural unconscionability. In this case, the weaker party has suffered a disadvantage during the negotiations. Therefore, the stronger party has taken advantage of the fact that either the consumer does not have sufficient knowledge/understanding regarding the contract or the consumer cannot make an independent decision (Carlin, 2002). Therefore, in this case, there is failure on the part of the consumer to inform him that avenues are available from where help can be taken for the purpose of clearly understanding all the terms of the contract. Hence, it can be concluded in this case that an advantage has been taken by the trader regarding the lack of understanding of the consumer (Grantham and Rickett, 2001). The second case i s of substantive unconscionability. This is related with the unfairness of the contractual terms or the outcome of the contract. Similarly, it can also reveal that a particular contract was made on the basis of undue influence or coercion. Under these circumstances, it is not possible for the consumer to make an independent decision as the consumer is facing undue influence. Generally in such cases, the courts do not try to find out if the parties have received a good bargain or a bad bargain under the contract. But the court considers if in such a case, a chance was available to the party to properly decide if the transaction was in the best interest or not. As a result of the reason that generally went unconscionability is involved, an imbalance of bargaining power is also present among the parties, it is easy for individuals and small companies to allege unconscionability against large companies (Kremer, 2001). Under these circumstances, it can be said that the purpose behind the introduction of the doctrine of unconscionability can be described as to make sure that the stronger party is the aware of the fact that the other party suffers from a disadvantage regarding the transaction. In view of the decision of the court in Amadio's case, it can be said that the stronger party has to establish in the court that the transaction was fair, just and reasonable so that the transaction may not be impugned by the court. After the decision given by the court in Amadio case, several developments took place in this field of law. These changes include the amendments that were made to the earlier Trade Practices Act, 1974 and also the changes introduced in the Corporations Act, 2001 and the ASIC Act. Similarly, various codes of conduct that were in force in different industries also underwent these changes. For instance, reforms were seen in the financial services sector in July 1990. Similarly, it was provided by these changes that the ASIC has been given the main responsibility to handle the issues related with consumer and small-business protection in case of the financial sector. The respective application of different types of provisions related with the unconscionable conduct to the contracts dealing with financial services need to be decided, keeping in view the particular exclusion clauses and the definitions that have been mentioned in the ASIC Act. Although the legislation clearly defines the financial services and products, the provisions dealing with unconscionable conduct under this law are similar to the provisions that existed under the Trade Practices Act, 1974. Consequently, there are equivalent compliance obligations for the businesses that are operating in the financial services sector (Paterson, Robertson and Duke, 2009). For the purpose of dealing with cases where unconscionability is involved, the Australian Competition and Consumer Commission provide certain remedies to the consumers. According to the law, administrative or court action can be taken by the Commission against individuals or businesses if the Commission believes that they are involved in unconscionable conduct that has breached the law. In such cases, the action taken by the Commission will depend on its priorities and also the nature of conduct. Several different types of administrative action is available to the Commission. For example, the Commission may make a request that a particular individual or business should stop particular conduct or it should change a particular trade practice adopted by it (Kremer, 2001). Regarding the serious examples of such conduct, it is available to the Commission to accept an enforceable undertaking from such person or business and the commission can also make it public. The courts can enforce the se written undertakings, in case an application has been made by the Commission. Similarly, it is also available to the Commission to take court action if it is not possible to resolve a particular matter through administrative means. In such cases, the law has empowered the Commission to seek injunction or any other order from the court against such individual or business. It is also available to the Commission to make a decision on behalf of the consumers. The commission can also represent the consumers if they are going to suffer a loss in a particular transaction as a result of the unconscionability of the other party (Paterson, Robertson and Duke, 2009). In Victoria, the apex body for financial counselors is the Financial and Consumer Rights Council. Responsibility has been given to the Council to provide resources and support to financial counselors. Similarly, it also supports the consumers who need support. Due to the financial problems faced by them. The Council has the responsibility to provide support and information as well as advocacy to the consumers in Victoria. The Council works in tandem with the community sectors. The services provided by the Council are confidential in nature and at the same time, they are provided free of cost to the consumers. The major purpose of providing these services to the consumers is to advocate for the vulnerable consumers in Victoria. The Council also supports the financial counselors. It also supports through stakeholder relationships in order to create systemic change. Hence, the Council supports the financial counseling sector through advocacy, law reform and also by ensuring that best pr actices adopted and maintained. in this context, consumer advocacy acts as a voice for the consumers. An examination of the history of consumer advocates see in Australia also supports this view. According to the literature evaluating the term advocacy and the perusal of mission statements of different organizations that claim to be the advocates of consumers, this view is supported. Under the present circumstances, it is very significant that the consumer advocates should act as the voice of the consumers, considering the long-term interests of the consumers. Different consumer organizations need to play an effective role, although significant constraints of resources are present. As a result, generally these organizations have to adopt the strategy to work smarter and harder as compared to their opponents. References Beatson J and Virgo, G J (2002) Contract, Unjust Enrichment and Unconscionability, 118 Law Quarterly Review 352 Carlin, T.M., (2002) The Rise (And Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia, UNSWLawJl 4 Grantham R and Rickett, C (2001) On the Subsidiarity of Unjust Enrichment, 117 Law Quarterly Review 273 Kremer, B (2001) The Action for Money Had and Received, 17 Journal of Contract Law 93. Paterson, Robertson Duke, (2009) Contract: Cases and Materials, Lawbook Co, 11th ed. Case Law Blomley v Ryan (1956) 99 CLR 362 Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 461 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594