This month at Business Breakfast Club Riley Berry of BAL Lawyers discussed unconscionable conduct and undue influence with a focus on the Australian Consumer Law and what these factors mean for commercial contracts.
Unconscionable Conduct and Undue Influence
There are several instances where a Court will overturn a contract based on the conduct of one of the parties prior to making the contract. Two of the most prevalent are unconscionable conduct and undue influence. Unconscionable conduct requires the innocent party to be subject to a special disadvantage “which seriously affects the ability of the innocent party to make a judgement as to the [the innocent party’s] own self-interest”. The other party must also unconscientiously take advantage of that special disadvantage. There are two types of undue influence: Actual undue influence where it can be proven that one person exerted influence over another to have them enter into the contract, and presumed undue influence which is a deemed relationship of influence were one party is antecedent to the other party. The spheres of undue influence and unconscionable conduct overlap and the line between the two is often blurred.
Only a Court can make a determination if there has been unconscionable conduct or undue influence. As a result if you feel that you have been a victim of this, there are few options except to litigate or to file a complaint with ACCC. Alternately if you are in a position of greater bargaining power and entering into an agreement it is important to ensure that none of your actions risk being viewed as unconscionable or the contract may be undermined by a Court. The best option is to be aware of what actions a Court might consider unconscionable, and avoid engaging in those actions, or avoid entering into contracts with a party engaging in conduct that may be considered unconscionable.
To avoid being a victim of unconscionable conduct:
- ensure all commercial agreements are in writing (and both parties have the contract)
- make sure you fully understand all the terms of the transaction
- do not sign any agreements without reading them carefully
- ask for plain language explanations and obtain independent professional legal or financial advice if unsure
- do not allow yourself to be talked into a deal that is wrong for you by high pressure sales tactics. Be wary of tight decision deadlines
To avoid engaging in unconscionable conduct:
- consider the characteristics and vulnerabilities of your customers. For example, use plain English when dealing with customers from a non-English speaking background
- make sure your contracts are thorough, easy to understand, not too lengthy and do not include harsh, unfair or oppressive terms
- ensure you have clearly disclosed important or unusual terms or conditions of an agreement
- give customers the opportunity to seek advice about the contract before they sign it
- do not reward your staff for unfair, pressure-based selling