In Australia, unconscionable bargains occur where one party unconscientiously takes advantage of another party’s disadvantage and leaves them in a position where they are unable to retain the benefit of the bargain. This is referred to as either ‘unconscionable conduct’ or ‘unconscionable dealings’.

The doctrine of unconscionable conduct generally attempts to avoid one party exploiting the vulnerability of another party. Unconscionable conduct typically applies when a party to a transaction was under a special disadvantage, and another party knew and took advantage of this special disadvantage.

Difference Between Undue Influence and Unconscionable Conduct

One of the judges in the case of Commercial Bank of Australia Ltd v Amadio explained the distinction between a cause of action in undue influence and a cause of action in unconscionable dealings:

‘Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party…. Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.’

Elements of Unconscionable Conduct

The three elements of unconscionable conduct are as follows:

• Element 1

There must be a special disadvantage between the parties

• Element 2

There must be an unconscientious taking of that advantage

• Element 3

 
The defendant is unable to establish that the transaction was fair, just and reasonable

Element 1 – Special Disadvantage

There must be a special disadvantage or disability between the parties. The condition must be one which ‘seriously affects the ability of the innocent party to make a judgement as to his own best interests’. The courts have provided some examples of what may constitute a special disadvantage, including: ‘poverty or a need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary’.

Element 2 – Unconscientious Taking of Advantage

There must be an unconscientious taking of the advantage by the dominant party. Actual or constructive knowledge by the advantaged party is sufficient to establish this element. The knowledge possessed by the advantaged party further relates to the question of whether the disadvantaged party has been victimised by the advantaged party as a result of this knowledge.

In the High Court case of Louth v Diprose, the High Court held that the appellant, Louth, had victimised the respondent, Diprose, by taking unfair advantage of his affections for her. In this case, the appellant told the respondent that she was about to be evicted from her home and that she would commit suicide if this occurred, thereby convincing the respondent to buy the house the appellant was living in and put the house in her name at her insistence. In reality, the appellant was under no threat of eviction, and she later refused to transfer the property to the respondent when their relationship subsequently broke down.

The High Court held that the respondent suffered from a weakness relating to his affections for the appellant, and that the appellant was aware of this and used this emotional dependence to influence the respondent’s actions and decisions to her own advantage.

Element 3 – Fair, Just and Reasonable

If the transaction in question was fair, just and reasonable, a cause of action in unconscionable dealings will fail. The onus is on the dominant party to show the transaction was fair, just and reasonable. To establish this, the courts will usually look at whether independent advice was given to the disadvantaged party in relation to the transaction. If the defendant is unable to prove the transaction was fair, just and reasonable, it can generally be established that there has been an equitable breach through unconscionable dealings.

Action

If you believe you have been subject to unconscionable conduct, it is important to seek advice promptly. You may need to gather evidence of the special disadvantage and the conduct of the other party. Consider consulting with a legal professional to explore your options and take steps to protect your rights.

Cases

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14

• This case established principles of unconscionable conduct, focusing on the vulnerability of a party and the exploitation of that vulnerability by another party.

Louth v Diprose [1992] HCA 61

• This case highlights the exploitation of emotional weakness and how the High Court recognised the unfair advantage taken by one party over another in an unconscionable dealing.

Seeking Advice

If you suspect that you have been involved in a transaction characterised by unconscionable conduct, Fox Piper is ready to offer advice. Make a booking for a comprehensive consultation to discuss your situation and explore your legal options.

Conclusion

Understanding unconscionable conduct is crucial for protecting yourself from unfair practices in transactions. If you find yourself in a position where you believe you have been taken advantage of, seeking legal advice is essential. Fox Piper is here to assist with navigating these complex issues and to ensure that your rights are upheld.