Contract Unjust Enrichment And Unconscionability

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Contract Unjust Enrichment And Unconscionability

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Contract Unjust Enrichment And Unconscionability

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Question:
Discuss about the Unconscionability and How it May Mean A Contract Cannot be Enforced.

Answer:

With the ever increasing number of consumers, there has been a need to find ways to redress according to the statutory provisions of law and also according to common law. This need arose due to the fact that a large number of consumers were disadvantaged as a result of unfair that this is adopted by the businesses (Paterson, Robertson and Duke, 2009). In the present research paper, the changes that have taken place in statutory law as well as the common law on the basis of the outcome of the legal dispute that was decided by the court in commercial Bank of Australia Ltd. v Amadio (1983). Therefore in the present assignment, the impact of unconscionability on the contracts created between the parties will be evaluated. It needs to be mentioned in this context that Amadio can be described as the first case in which the court had relied upon unconscionable conduct and therefore this case is considered as the driving force behind the introduction of the amendment of unconscionability related with the law of contract in Australia (Grantham and Rickett, 2001). At the same time, there has been an increase in the consumer protection legislation that has been introduced with a view to provide justice to the consumers and enforcing the “unconscionable conduct” clause in case of contractual relations between the parties (Kremer, 2001). Generally the ownership of a particular business transaction lies with the trader and therefore, also the responsibility to make sure that the transaction between the parties is fair and reasonable.
As a doctrine of contract law, unconscionable conduct has been designed in the beginning for the purpose of upholding equity and fair play (Paterson, Robertson and Duke, 2009). In this regard, the term unconscionable conduct is related with the behavior where relief can be provided to the other party by the court. The High Court had relied upon this doctrine in the case of Blomley v Ryan (1956). However, the applicability of this doctrine was further strengthened when the court relied upon this doctrine while deciding commercial Bank of Australia Ltd. v Amadio (1983).

Before proceeding further, it will be helpful to briefly discuss the facts of Amadio case. In this case, an elderly couple, who had migrated from Italy, Mr. and Mrs. Amadio had stood as guarantors for the loan taken by the company owned by their son from Commercial Bank of Australia. In this case, the bank manager was in close contact with their son, Vincenzo Amadio. The bank manager had good understanding regarding business realities, and he was also aware of the fact that probably the son had misrepresented the facts in order to prepare his parents to stand as guarantors for the loan taken by him. Later on, the construction business of the company of Vincenzo Amadio failed and as a result, the bank tried to enforce the guarantee given by the elderly couple by mortgaging the building that was owned by them.
The issue that had to be decided by the court in this case was if the Amadios were bound by the transaction and therefore the contract of guarantee can be enforced against them under the circumstances in which they have signed it. It needs to be noted in this regard that the migrant couple from Italy had very little understanding of English language. Before entering into the contract, the elderly couple was not given any professional and independent advice regarding the contract. At the same time, although the manager of the bank, Mr. Virgo had knowledge regarding the business situation of the company of their son, Vincenzo Amadio but he failed to advise the Amadios that we should seek independent advice before entering into the contract.
When the mortgage was being executed by the elderly couple, the bank had some knowledge regarding the unstable financial condition of their son and at the same time, it was also aware of the fact that probably the Amadios were not aware of this fact. Moreover, in this case it was assumed by the Amadios that their liability will be restricted to $50,000 while the bank failed to inform the elderly couple that no limit was present on their liability as the guarantors for their son. Therefore, while deciding the case, Manson J, had stated that the manager of the bank was aware of the special disability of the elderly couple and still he failed to take any steps in order to ensure that they fully comprehended the nature of transaction they were going to enter. As a result, it can be said in this case that the bank had taken an advantage of the opportunity that was present before it and this in itself can be described as unconscientious. The court stated that this is the underlying bases on which the clause of unconscionability relies upon.

As a result of the decision given by the court in this case, a new concept has been added to the common law and the contract law. At the same time, these changes were also introduced in the statutory law of Australia. There are two ways to distinguish the term unconscionability. First is the procedural unconscionability, which is related with the disadvantage that has been suffered by a weaker party during the negotiations. In such a case, an advantage is taken by the stronger party of the fact that the consumer is either lacking sufficient knowledge or understanding regarding the contract or the consumer is not in a position to make an independent decision regarding the transaction (Concrete Constructions (NSW) Pty Ltd v Nelson, 1990). In such a case, the trader fails to point out to the consumer that there are avenues for getting help to clearly understand the terms of the contract. Therefore in such a case, it can be said that the trader has taken an advantage of the lack of understanding on the part of the consumer for his own benefit (Louth v Diprose, 1992).
On the other hand, substantive unconscionability is related with the unfairness of the terms of the contract or its outcome. At the same time, it may also indicate that undue influence or coercion was present in case of a particular contract. In such a case, the consumer is unable to make an independent decision due to the recent that undue influence is present on the consumer. Generally it has been seen that the court will not go into the question. If a party has achieved a good bargain are bad bargain, but it will see if such a party had a chance to properly decide what was in their best interests while entering into the contract. Due to reason that generally in case of unconscionability, there is an imbalance in the bargaining power of the parties, individuals and small companies can easily make an allegation of unconscionability against the large corporations.
In this way, the doctrine of unconscionability has been introduced with a view to make sure that the stronger party should be aware of the disadvantage suffered by the other party. The decision given in Amadio case suggests that in case the stronger party is successful in establishing and the court that a fair, just and reasonable contract has been created between the parties, the court may not impugn the transaction.

A number of developments have also taken place in this territory law of the decision given by the Court in Commercial Bank of Australia v Amadio (1983). These includes the changes made in the earlier Trade Practices Act, 1974, the Corporations Act, 2001 and the ASIC, 2001 and also the different codes of conduct that were applicable in the industry. For example, reforms were introduced in case of the financial services sector on first July, 1990. As a part of these changes, the prime responsibility has been given to the ASIC to deal with the issues concerning consumer and small business protection in the financial sector. The respective application of the above mentioned the types of unconscionable conduct provisions to the contracts related financial services is decided by considering the particular exclusion clauses and the definitions provided by the ASIC Act in section 12 CA, CB and CC. Even if the financial services and products have been defined clearly by the ASIC, 2001, the provisions related with the unconscionable conduct under this legislation reflect the provisions that were present in the Trade Practices Act, 1974, and as a result, equivalent compliance obligations are present for the businesses when they are dealing in financial services.
In this regard, certain remedies are available to the consumers provided by the Australian Competition and Consumer Commission. The law provides the ACCC to take administrative or court action against any individual or business if it suspects that it is involved in unconscionable conduct that is in breach of the law the action that will be taken by the Commission. In such a case will depend on the priorities of the ACCC and on the nature of the conduct. There are several forms in which administrative action can be taken by the Commission. For instance, a request can be made by the ACCC that someone should stop particular conduct or to change particular trading practices. In case of some serious examples, the Commission may accept an enforceable undertaking from the individual or the company concerned and make these public. Written undertakings can be enforced by the courts on the basis of an application made by the Commission. On the other hand, if a particular matter cannot be resolved by taking administrative steps, which is available to the Commission to take court action. The law allows the ACCC to seek injunctions or other orders from the court against the business. Similarly, the commission can take a decision on behalf of the consumers and represents the consumers. If they are going to lose something in a particular transaction due to the unconscionable conduct of the other party that is in contravention of the law.

The Financial and Consumer Rights Council, Victoria is the apex body for financial counselors in Victoria. The Council provides resources and support to the financial counselors and promotes the needs of the consumers who are facing financial problems (Beatson and Virgo, (2002). The Council also provides support, information and advocacy to the consumers in Victoria who are facing financial difficulties in Victoria. The FCRC works, along with the community sectors and its services are confidential, independent and free for the consumers. The main purpose behind providing these services is to advocate for the vulnerable consumers in Victoria, who are facing financial difficulties and for this purpose the Council supports the financial counselors and also helps through stakeholder relationships for creating a systemic change. In the same way, the financial counseling sector is supported by the Council through advocacy, case work and law reform and by adopting and maintaining best practices.
In this regard, consumer advocacy can be described as providing a voice to the consumers. This view has been supported by a review of the history of consumer advocacy in Australia, the literature in which the term advocacy was considered and by examining the mission statement of different organizations that describe themselves as the advocates of the consumers. It is important that the consumer advocates should act as a voice for this purpose, keeping in view the, long-term interests of all the consumers. The various consumer organizations have to be effective despite the presence of significant constraints of resources and therefore generally they work “smarter and harder” as compared to the voices that they are opposing and stretch their resources beyond the seemingly natural constraints. Of course this is different from claiming that consumer advocacy has proved to be effective for the consumers. The present arrangements for consumer advocacy in Victoria are less effective than required. It is widely believed that the voices of the consumer are not heard (or heard sufficiently) in Victoria as is the case with other parts of Australia and other countries.

References
Beatson J and Virgo, G J (2002) ‘Contract, Unjust Enrichment and Unconscionability’, 118 Law Quarterly Review 352
Carlin, T.M., (2002) ‘The Rise (And Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia’, UNSWLawJl 4
Grantham R and Rickett, C (2001) ‘On the Subsidiarity of Unjust Enrichment’, 117 Law Quarterly Review 273
Kremer, B (2001) ‘The Action for Money Had and Received’, 17 Journal of Contract Law 93.
Paterson, Robertson & Duke, (2009) Contract: Cases and Materials, Lawbook Co, 11th ed.
Paterson, Robertson & Duke, (2009) Principles of Contract Law, Lawbook Co, 3rd ed.
Case Law
Blomley v Ryan (1956) 99 CLR 362
Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 461
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Kakavas v Crown Melbourne Ltd [2013] HCA 25
Louth v Diprose (1992) 175 CLR 621

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