Principles of Business Law Semester 2 2024 PDF
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This document summarizes the concept of unconscionable dealing in business law, focusing on the case study of Commercial Bank of Australia v Amadio. It discusses the circumstances where a contract may be voidable due to unconscionable conduct, highlighting the elements needed to demonstrate this form of unfair dealing, and how a court could deem a contract to have been made under unfair circumstances.
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Principles of Business Law Semester 2 2024 TOPIC 8: VITIATING FACTORS UNCONSCIONABLE DEALING Unconscionable dealing: overview A contract is not void for unconscionable dealing simply because it is objectively unfair or one-sided. Rather, the equitable doctrine of unconscionable deali...
Principles of Business Law Semester 2 2024 TOPIC 8: VITIATING FACTORS UNCONSCIONABLE DEALING Unconscionable dealing: overview A contract is not void for unconscionable dealing simply because it is objectively unfair or one-sided. Rather, the equitable doctrine of unconscionable dealing is concerned with procedural unconscionability. Equity recognises that unconscionable dealing may exist when one contracting party suffers from a special disadvantage and so enjoys no reasonable equality of bargaining power. The disadvantage may arise in different circumstances, e.g. because of sickness, age, illiteracy, emotional dependence, lack of education, lack of independent assistance or advice. The victim of unconscionable dealing must act reasonably soon to have the contract set aside, once they are no longer suffering from a special disadvantage, or they will be treated as having affirmed the contract (recall video 8.1). Unconscionable dealing: Overview To establish unconscionable dealing it must be proved that: The weaker party suffered from a ‘special disadvantage’ in that they were unable to properly judge what was in their best interest; and The stronger party is aware, or ought to have been aware, of the ‘special disadvantage’; and The stronger party takes unfair advantage of the circumstances, e.g. to extract unconscionable terms or to obtain consent that would not otherwise have been provided. Unconscionable dealing: CBA v Amadio FPBCL p 335-6 Facts Mr and Mrs A were 76 and 71 respectively. Both had only a limited grasp of English. Mr and Mrs A's son, V, carried on a business as a land developer. The annual turnover of V’s business was considerable, and V was considered a success. In 1976 V held an elaborate Christmas party, attended by over 2,000 people including Mr A and Mr Virgo (V's bank manager). However, the business had started to fare badly in October 1976. The business’ overdraft was extended and exceeded on a couple of occasions. Unconscionable dealing: Commercial Bank of Australia v Amadio Facts (ctd) Eventually, the bank cut off credit. In response, V told the bank that his parents would provide a guarantee over an office block they owned (even though he had not discussed this with them at that time). V later called his parents and asked them to sign a guarantee for approximately $50,000. Mr Virgo went to Mr and Mrs A's home and obtained their signatures on a document that provided for an unlimited guarantee (both in terms of time and amount). During the signing, Mr A mentioned that he was relieved that the guarantee was only for 6 months. Mr V corrected Mr A's misapprehension but did not confirm that Mr A understood other fundamental attributes of the guarantee (such as the fact that the guarantee was for an unlimited amount). Unconscionable dealing: Commercial Bank of Australia v Amadio (ctd) Issue Could CBA enforce the guarantee? Could the Amadios set the guarantee contract aside on the basis of unconscionable dealing? Decision The guarantee was set aside on the basis of unconscionable dealing. Unconscionable dealing: Commercial Bank of Australia v Amadio (ctd) Reasoning Special disadvantage: the As were at a special disadvantage because of their reliance on their son, their mistaken understanding as to the financial position of their son’s business, their limited English skills, their age and their lack of business experience. Knowledge: CBA was aware of the special disadvantage (Mr A’s comment about the duration of the guarantee revealed that he had misunderstood the document). Unfair advantage: Rather than advise the As to seek legal advice, Mr V allowed the As to sign the guarantee contract. Affirmation: the Amadios had not affirmed the guarantee contract.
