The Law To Know

Equity · Australia · about 4 minutes

Unconscionable conduct

The seesaw and the push

← The hardest concepts in Australian law

In one breath

In equity, a transaction can be set aside when one party was under a special disadvantage that seriously affected their judgment, and the stronger party knew of it and took advantage of it. A statute also forbids unconscionable conduct in trade or commerce, and it operates alongside the equitable rule.

The picture

The seesaw and the push

On a seesaw, a heavy child and a light child do not balance, and nothing is wrong with that: people of different weights play together every day. The wrong occurs when the heavy child knows the light child is stuck high with feet off the ground, and jumps off. The harm comes from two things together, the light child’s helplessness and the heavy child’s knowing use of it.

The doctrine asks both questions. First, was the weaker party under a special disadvantage that seriously interfered with their ability to look after their own interests? The standard examples are illness, age, infirmity, intoxication, illiteracy, lack of explanation where it was needed, or emotional dependence so great that they could not judge. Second, did the stronger party know of it, or know facts that would alert a reasonable person, and take unfair advantage by pressing on? If both are shown, the transaction can be set aside on terms. If only the first is shown, or the deal is simply a hard bargain, the law leaves it alone.

Where the picture stops working

A seesaw is a simple game with a push or no push, whereas the law deals in degrees and looks at the whole transaction: its fairness, the explanation given, the advice available. The picture also does not cover the statute, which applies to business conduct in trade or commerce and may reach conduct that a court of equity would not set aside.

How it really works

  1. 1Place the rule. The equitable doctrine is general law and the same in every State. The statutory prohibition is in the Australian Consumer Law, which applies as a Commonwealth law and as the law of each State and Territory.
  2. 2Identify the transaction and the weaker party.
  3. 3Ask about special disadvantage. Did a condition or circumstance of the weaker party seriously affect their ability to judge their own best interests? Mere inequality of bargaining power is not enough.
  4. 4Ask about knowledge and exploitation. The stronger party must have known of the disadvantage, or known facts that would alert a reasonable person, and then taken advantage of it by proceeding. Unconscientious advantage-taking is the core.
  5. 5Move the burden. Once special disadvantage and an improvident transaction are shown, the stronger party must show the transaction was fair, just and reasonable. The usual remedy is setting the transaction aside on terms.

Why people get it wrong

  • Equating unconscionability with unfairness. A harsh bargain alone is not enough.
  • Thinking the stronger party must have set out to cheat. Knowing exploitation is enough.
  • Mixing it up with undue influence, which turns on a relationship of influence, not on a special disadvantage.
  • Believing the statute simply copies equity. It operates alongside it and in trade or commerce.
  • Ignoring the role of independent advice, which can show that the weaker party’s judgment was not overborne.

A worked example

The facts are invented

Mr Okafor, who is eighty-two, hard of hearing and grieving, is visited by a salesman who knows from earlier conversations that he is confused. The salesman gets him to sign a contract to sell his only investment property to a company for a fraction of its worth, with no explanation and no time to consult anyone. The special disadvantage is clear, the salesman knew of it, and the transaction is improvident. A court can set it aside on terms.

Change the facts: Mr Okafor is sharp, understands the document and has a lawyer who advises against it, yet he signs anyway. There is no special disadvantage and no exploitation. Change them again: a large supermarket chain presses a small supplier hard. That may be harsh, but equity is not concerned with it unless a special disadvantage exists, although the statute may ask different questions.

Try it

A small shop owner agrees to a harsh supply contract with a large wholesaler. The owner is fit, experienced and had time to take advice. The terms are one-sided. Is there unconscionable conduct in equity?

Landmark authorities

Read the sources themselves; this list is a starting point.

  • Blomley v Ryan, (1956) 99 CLR 362
  • Commercial Bank of Australia Ltd v Amadio, (1983) 151 CLR 447
  • Louth v Diprose, (1992) 175 CLR 621
  • Kakavas v Crown Melbourne Ltd, (2013) 250 CLR 392

Where to go next

More hard concepts in Australia law

This page is an educational overview. It is not legal advice and not a substitute for the sources: the statute, the rule, the case itself. Australia is a federation: the Commonwealth, the six States and the Territories each make law, and the High Court is the final court for all of it. The common law, by contrast, is one law across the country. Each page says whether the rule is constitutional, federal or common law shared by every jurisdiction, or State-by-State legislation that varies, and flags where the States and Territories differ. Each page states the usual formulation of the rule and names landmark decisions; check the primary sources of your own jurisdiction before relying on any rule.