Unconscionable conduct
The Banking Royal Commission shone a spotlight on the conduct of banks and uncovered numerous examples of misconduct in the financial services sector.
Recently, the President of the Victorian Court of Appeal spoke about what level of moral reasoning existed in the sector and questioned whether lawyers ought to better advise clients about their legal obligations to not act unconscionably.
While these comments were in connection with the financial services sector, they apply equally to all participants in Business.
What is unconscionable conduct?
At general law, ‘unconscionable’ conduct can take many forms. It involves concepts of unfairness, unreasonableness and protection of a vulnerable party from exploitation by the strong.
The 3 most important elements involved in unconscionable conduct are:
One of the parties to a transaction is at a special disadvantage as against the other party;
The other party knows, or ought to know, of the special disadvantage and unfairly exploits it;
The weaker party’s will is overborne and cannot properly judge what is in their best interests.
If these elements are met, then the burden of proof falls onto the stronger party to establish that there has been no improper exploitation of the weaker party’s vulnerability.
Various legislation in Australia adds to the general law position regarding unconscionable conduct. The most obvious is the Australian Consumer Law (ACL), however, that Act intentionally leaves the term vague to encourage businesses to err on the side of caution.
The cases about what constitutes unconscionable conduct are varied. Typical examples include where a weaker party is taken advantage of because of their inexperience, ignorance, lack of familiarity with the language, illness, financial distress, emotional dependency or lack of age. Personal guarantees are often the subject of complaints of unconscionability.
Factors which commonly appear in unconscionable dealings are where there is an inequality of bargaining power, contract terms exist which far exceed what is required to protect a party, the imposing of pressure on a party, the making of misleading representations, non-disclosure of important matters and an inability to negotiate contract terms.
Application to your business
It may be that you:
Are vulnerable to accusations of unconscionable dealings by the way you contract and negotiate with third parties;
Are or have been accused of engaging in unconscionable conduct;
Have suffered from unconscionable conduct in your business dealings with third parties;
in which case we can help you.
It may be appropriate to conduct a review of your day to day practices so that they pass the relevant tests of fairness and reasonableness. It may also be appropriate to gather and preserve evidence about transactions or assert rights in litigation. For example, you may have remedies available such as setting aside a contract, injunctions, claims for loss and damage and compensation claims.
Please feel free to contact Tony Scoglio or David Tooth on (07) 3833 2100 or info@scogliolaw.com.au if you have any questions.