The law will not protect individuals or businesses from simple errors of judgment or deals (contracts) that ultimately end up being bad for one party or another.
On the other hand, the law will protect parties in some circumstances from the unconscionable conduct of another.
In this article I propose to briefly set out the circumstances in which the principles of unconscionable conduct operate, and the remedies that might be sought by the wronged party.
What is Unconscionable Conduct?
The doctrine of unconscionable conduct had its genesis in the Courts of equity. Historically, Courts of equity dealt with situations where the common law or the law of statue did not operate or offered no relief in circumstances where justice required relief to be available. In that sense, the Courts of equity frequently dealt with circumstances for aggrieved parties where it was “right” to do so. Although Courts of equity were reticent to develop strict principles by which such decisions would be made, over time certain general doctrines developed upon which legal practitioners could offer some degree of certainty to their clients.
One such doctrine was that of unconscionable conduct. At its most fundamental, unconscionable conduct where a party (often to a transaction of some kind, but not always) engages in activity that is contrary to good conscience. It often contains an element of immorality, taking it beyond the mere application of a tough negotiating stance or hard bargaining position.
Although the distinction between Courts of equity and Courts of law has become blurry in recent times, the doctrine has survived and evolved, and is still applied by Courts today.
Sources of the Doctrine
The common law doctrine of unconscionable conduct (or dealing) still exists and is frequently applied.
However, the doctrine is also being embodied in a number of statutes which apply to many, if not the majority, of dealings between commercial parties. That includes:
- Section 12CA of the Australian Securities and Investments Commission Act;
- Section 20 of the Australian Consumer Law (formerly Section 51AA of the Trade Practices Act);
- Fair Trading Act 1989;
- Consumer Credit Code; and
- Retail Shop Leases Act.
The provisions, although subtly different from each other, all generally reflect the same guiding principle.
Most commonly the doctrine finds application where a party who makes unconscientious use of their superior position or bargaining power to the detriment of a party who suffers from some “special disability” should not be permitted to avail themselves of such unconscientious use.
The doctrine couched in general terms such as the above might appear to be a “get out of jail free” card for all and sundry where they feel they were pressured into an arrangement which was ultimately more beneficial to the other party than it was to the individual. However, the law does not intervene to protect people from a simple bad deal, or even from significant commercial pressure.
Although there is no set checklist for unconscionable conduct, there are certain qualities or characteristics that generally must be present in order for the aggrieved party to avail themselves of the remedies that the law can offer.
Here are some guidelines about how the doctrine operates, in particular in the area of “unconcientious dealing”:
- It is not the position of the plaintiff/aggrieved party that is relevant, so much as it is the relative position of the complainant as against that of the respondent. For example, in one decision a solicitor gifted a house to a woman he loved. His love was unrequited, however, the woman ultimately tricked him into gifting her the house. The gift was set aside. It was the relationship characteristics that were important, not the sophistication of the solicitor generally.
- The relevant inequality might be as a result of a temporary situation (for example, drunkenness);
- A mere inequality of bargaining position is not sufficient to enliven the doctrine. The innocent party must, due to their disabling condition or circumstance, be unable to make a decision or judgment as to their own best interests.
- It is not essential that the party at a disadvantage actually suffer loss or detriment, however, the inadequacy of consideration towards the innocent party will often be a relevant consideration in establishing the position of disadvantage and showing that unfair use was made of that disadvantage.
- The denial of an opportunity to have independent legal advice is a relevant consideration in the unconscientious conduct. It is for this reason that almost all onerous agreements (personal guarantees, for example) contain provisions either requiring you to take independent legal advice or waive your entitlement to do so, but still acknowledging that you were provided with such an opportunity.
- The taking of independent legal advice or the recommendations that such advice be obtained (and sufficient time being given to take such advice) may offer the respondent a reasonable answer to an allegation of unconscientious dealing.
The above dot points show a framework of specific considerations in which the general proposition will be applied. In a scope of an article of this length, it is not possible to explore in detail the kinds of transactions where equity will intervene to protect the innocent party, however, the above summary should give a good understanding of the doctrine and how it is implemented.
Within the scope of the relevant statues there are a raft of available statutory remedies should unconscionable conduct be found.
In accordance with the fundamental proposition of the doctrine, however, one of the key remedies available is to disallow the offending party from ultimately taking advantage the relevant conduct. That remedy might result in an agreement being set aside, money being refunded, in a guarantee being unenforceable, or in steps taken by the respondent party being void.
A party might also seek:
- Refusal of a grant of specific performance (for example, if the unconscientious party was seeking to enforce a property contract);
- An injunction to prevent the unconscionable exercise of rights pursuant to a contract;
- Equitable compensation.
Ultimately, the appropriate remedy in the Court exercising its equitable jurisdiction is the remedy which is “practically just” and may include imposing such terms upon a party as the justice of the case requires. There is a wide scope for different types of remedy.
The doctrine of unconscionable dealings is a potentially powerful one, but is only available in a limited range of circumstances. Sophisticated parties have often developed procedures and contracts designed to minimize the risk of unconscionable dealing being alleged, including most relevantly the requirement that a party seek independent legal advice prior to any deal being finalized.
Over time, important distinctions are arising in the cases between the statutory framework for unconscionable dealing and the common law paradigm.
Each case ultimately turns on its own facts, and the relevance or otherwise of a statutory remedy will need to be considered carefully.