Unconscionability And How It May Mean A Contract Cannot Be Enforced.

Unconscionability

The Concept of Unconscionable and Why It means that the Contract is not enforceable

Unconscionable is a conduct of a person that does not obey the conscience rules. If a court realizes that there has been an unfair judgment, it might deny the person behind the conduct the benefits. Under a contract, it may mean that the contract is one-sided that it is not fair to one party and therefore annulled under Commercial law. It happens wherever there is a major difference in bargaining power between the parties. Inequality in bargaining power under the English law has the same meaning as unconscionability. Such inequalities can be further divided into cases of the influence of the weakness, duress, and unjustified exploitation. When there is a dispute or claim and the court finds that the contract is unconscionable, the jury will usually decide to annul the contract (Angelique, n.d). In such cases there will be no awarding of specific performance or damages; however, the parties will get relieved from the obligations of the contract. In businesses, a contract that favors the seller may protect them from being sued by the purchaser, damages, and disclaim of a warranty.

The leading cases of unconscionable conduct are in transactions between the stronger and weaker parties. It is therefore partially connected to duress and unwarranted influence. It is common where a superior party manipulates the weaker party with special disabilities such as old age, lack of education, illiteracy and much more (Wallwork & White, 2011). The transaction is also oppressive and harsh to the weaker partner. It is also common in business contracts where there are provisions that limit damages against the seller, prevents the rights of the buyer to seek court help against the seller, among others. Additionally, it is also found in acts of deceit and fraud. It is whereby one party deliberately misrepresents a fact that deprives an individual of an expensive possession.  

The main reason why such laws exist in the business world is being used to prevent the dominant parties from unjustly manipulating the weaker parties in business contracts. It is meant to reduce exploitation of the consumers who are poorly educated, less fortunate, and cannot be able to get the best price available in the competitive trade. On the other hand, it prevents the undue influence, whereby one party practice unreasonable authority to make the other party sign the contract (Wallwork & White, 2011). Additionally, it used in business to prevent the use of threat to make other parties agree to the contract. Furthermore, it prevents the dominant party from limiting their liabilities to breach of contract.

Characteristics of Unequal Bargain that Indicate Unconscionability

There are various characteristics of the unequal bargain that indicates unconscionability. Such characteristics may include duress, limiting warranty, unfair surprise, undue influence, and imbalanced bargaining power (Berman, 2010). Firstly, duress is a situation in which a powerful party uses threats on the weaker one to make him or she accept the contract conditions. The threat could be physical or in any other form. For example, a dominant supplier may decide not to release goods until the weaker append his or her signature on the contract. Secondly, limiting warranty is another characteristic of unequal bargaining power whereby one party tries excusing himself from the liabilities he incurred after breaching the contract and paying the damages.Thirdly, unfair surprise also a feature associated with uneven bargaining power. It happens when one of the party’s in-charge of creating a contract adds another term in the contract without the expectation and knowledge of the other party (Mccullough, 2016). Fourthly, Undue influence is a situation whereby one party applies irrational pressure to make the vulnerable party sign the contract. It occurs when one party uses weaknesses of another party on one way or the other. Lastly, imbalanced bargaining power happens one party has an unfair benefit over the other. It is a situation whereby one part knows so well that the other party failed to under the contractual terms. Moreover, the primary characteristic of an unconscionable contract is when one appends their on the contract because of being forced, illiterate, misled, and lack of education (Cornell, 2016).

Characteristics of Unequal Bargain that Indicate Unconscionability

The Legislations that supports Unconscionability

One of the legislation that supports the principle that a contract may be so unfair that it is unenforceable is the Australian Consumer Law (ACL). Section 2-2 of this legislation bars unconscionable behavior. It provides an equitable principle of unconscionable behavior that extends various remedies available for parties affected by such unfair conduct. Additionally, this legislation also prohibits the concept of unequal bargaining power above the one known in equity and dependable by all parties, but not the listed companies that obtain or deliver goods and services in business. Section 20(1) of the Australia Consumer Law forbids the unconscionability employed by a company within the equitable principle of the unconscionable behavior (Australiancontractlaw.com., 2013).

 Section 21 forbids unconscionable conduct in line with the trading of goods or services. The intention is that it should not get limited by the written law in connection to unconscionable behavior and pertinent factors that extend past deliberation of the situations connecting to the creation of the contract to the terms of the contract (Australiancontractlaw.com., 2013). To know that a person has violated section 21(1); first, the court must not have regard to any situations that were not sensibly predictable at the time of the suspected breach. Secondly, the court might have regard to situations existing before the beginning of this part. Section 21(4) states that the intention of the Parliament is to ensure that this section is not restricted by the written law connecting to unconscionable behavior and that this section is able to apply a pattern of conduct, whether or not a certain person is recognized as having been underprivileged by a conduct.

Moreover, section 22 of the ACL provides a variety of factors that court may reflect on when deciding whether a conduct is unconscionable or not. Without restricting the matters to which the court may have regard for the purpose of knowing whether a supplier has breached sec 21 in relation to the supply of goods and services to a customer, the jury may have regard to the relative strengths of the bargaining positions of supplier and the customer (Australiancontractlaw.com., 2013). Section 22(1) (b) states that the court may regard whether the result of the conduct the supplier engaged in needed the customer to comply with terms that were unreasonable necessary for the protection of the supplier. On the other hand, under section 22(1) (c) the court may observe to know whether the customer was able to understand the documents in connection to the supply of goods and services. Moreover, under section 22(1) (d) the court may know whether the undue pressure got exerted against the customer by the supplier in connection to the supply of the goods and services (Australiancontractlaw.com, 2013). Besides, the above-stated sections and sub-sections, there are other subsections that address the issue of unconscionability under Australia Consumer law such as section 22(2). Furthermore, under Trade Practices Act section 51AA (1) states that a company must not, in business, engage in a behavior that is unconscionable in the sense of the unwritten law (Australiancontractlaw.com, 2013).

The Effects of Banks and Other Larger Institutions Concerning Court Reluctant to Enforce Unconscionable Conducts

Because the courts have become reluctant in tackling the issues regarding the unequal bargaining power between the bank and the consumer, it has been in favor of the banks and other larger institutions. In the past various courts have ruled cases in favor of the bank because of the contract term and conditions. However, where the courts have looked entirely at the written document to determine the rights of each party, the bank, prevails (Landrum, 2014). In many cases contract regulations have not succeeded in providing debtors with enough remedies against the unfair conduct of the banks However, the real significance of debtors win is in the recognition of some courts, for example, the Australian Part 2B of the Victorian Fair Trade Act 1999 that has tried to hold the banking industry to high values of good faith and conduct (Winter, 2008).On the other hand, Part 2B of Victoria Fair Trade Act nullifies any term in a customer contract that is inequitable. In banks, if a contract term that imposes a cheque and discredits fees are unfair according to Part 2B of the Fair Trading Act, it will be invalidated, which is fairly different from whether it is unenforceable or not as a fine under the law (Rich, 2004). Section 32W of the Fair Trade Act shows that in a consumer contract a expression can get observed as unfair if, “contrary to the necessities of good faith and in all the conditions, it causes a significant imbalance in the parties’ rights and obligations emerging under the contract to the detriment of the consumer” Additionally, article 32X also presents instructions as to whether a condition or a term may get considered unfair. Therefore, it can be said that Part 2B renders dishonor charges unenforceable by financing institutions against customers. Banking sectors are still entitled to recover defaulter’s cost, but they are not entitled to use penalty fees when recovering the cost they have incurred due to customers who have defaulted. Under Part 2B of the Victoria Fair Trading Act, penalty fees might be annulled as unfair (Australiancontractlaw.com., 2013).  Being that banks are not disclosing the accurate cost of the customer defaults, it will remain difficult for both the regulatory authorities and customers to conclusively or accurately make an assessment of whether dishonor fees are penalties or liquidated damages. However, given the complexities that an individual customer may face, especial the low-income consumers, in trying to stop penalty fees charged on their accounts by banks, it is, therefore, essential that the regulatory authority should be in charge. The regulatory authorities should imperatively take steps in protecting the customers and stop the financing institutions from stressing their customers by charging lawfully unenforceable fines.

The Legislations that supports Unconscionability

Interesting Commentary on Unfair Agreements

One of the interesting commentary cases on the unfair agreements was Australia Commission and Consumer Commission (ACCC ) v Dukemaster Pty Ltd. In this case, a landlord wanted unreasonable rent payment for the renewal of a shop rent and sought for a tight time line for the tenant to respond to his suggested rental offer (Consumer Action, 2013). His unfair act involved small traders with no education background, therefore, were not able to read or speak English and the landlord knew about this inability. The landlord also did not comply with the Victorian law that governs retail leasing, and also threatened to evict some tenants. The court held that the landlord’s behavior was an act of unconscionability because he acted recklessly by showing no concern for conscience and also such acts were conflicting with what was reasonable (Consumer Action, 2013).

The Role of the Consumer Advocate Groups

The roles of the consumer advocate groups regarding unfair agreement are:

(1) To support the vulnerable Victorian customers who are facing financial difficulty.

(2) Sponsoring the financial counseling sector by using its casework, law reform, and advocacy, to take up and uphold best practice.

(3) Working with the government, utilities, debt collection, banks and other stakeholders to advance the approaches to financial problems for defenseless customers 

After doing my research I found that there are other similar groups to Financial and Consumer Rights Council (FCRC) – Victoria. Some of such groups may include:

• Consumers’ Federation of Australia (CFA).  This group comprises of health rights groups, public interest groups, legal centers and law reform.
• Consumer Credit Legal service Western Australia (CCLSWA), that offers advice and representation to consumers in Western Australia.
• Not Good Enough (NGE), which is an Australian customer feedback assisting customers in resolving a disagreement with corporations. it publishes the feedback of consumers in relation services, goods, and help companies listen and act in response to their customers.
• Australia Service of Social Service (ACOSS), which is known to be speaking on behalf of the low-income and underprivileged customers in matters regarding economic and social principles.
• Consumers’ Federal of Australia. This group’s role is to forward the view its member organizations to industry and government and are supporters of consumers.
• Financial and Consumer Rights Council (FCRC) – Victoria, which is a non-profit organization that lobbies for policy development through discussion with caseworkers performing financial counseling services, among others.

Furthermore, one particular issue in Australia that I would characterize as unconscionable is the case between ACCC and Lux Distributors Pty Limited. The ACCC on 4^th March 2013 appealed the judgment by Justice Jessup. The court dismissed ACCC’s accusations that Lux got involved in unconscionable behavior in connection with the sale of vacuum cleaners to five women who were over 81 years of age. The claim was that Lux breached section 51AB of the Trade Practices Act by unfairly selling the vacuum cleaners. ACCC also, alleged that they contravened section 21 of the Australian Consumer Law (Jade.io, 2013).

References

Agenique, S n.d., ‘Alternative Dispute Resolution- Arbitration must be enforced unless underlying contract unenforceable’, Michigan Lawyers Weekly, Regional Business News, EBSCOhost, viewed 28 May 2017.

Australiancontractlaw.com. (2013). Australian Contract Law | Julie Clarke. [online] Available at: https://www.australiancontractlaw.com/law/avoidance-unconscionable.html [Accessed 28 May 2017].

Berman, J 2010, ‘Bargaining power — the grey area between freedom of contract and unconscionable conduct’, Keeping Good Companies (14447614), 62, 1, pp. 43-46.

Consumer Action.(2013). Australian Consumer Organisations – Consumer Action. [online] Available at: https://consumeraction.org.au/help-for-consumers/who-else-can-help/australian-consumer-organisations/

Cornell, N 2016, ‘A Complainant-Oriented Approach to UnconscionabilityAnd Contract Law’, University Of Pennsylvania Law Review, 164, 5, pp. 1131-1175,

Jade.io. (2013).BarNet Jade – Find recent Australian legal decisions, judgments, case summaries for legal professionals (Judgments And Decisions Enhanced). [online] Available at: https://jade.io/article/300107

Landrum, S 2014, ‘Much ado about nothing?: What the Numbers Tell us about how State Courts Apply the Unconscionability Doctrine to Arbitration Agreements’, Marquette Law Review, 97, 3, pp. 751-812.

Mccullough, C 2016, ‘UnconscionabilityAs A Coherent Legal Concept’, University Of Pennsylvania Law Review, 164, 3, pp. 779-825.

Rich, N. (2004). Unfair fees: A report into penalty fees charged by Australian banks.

Wallwork, F, & White, G 2011, ‘Bolstering consumer protection nationally against unfair terms in standard form contracts’, Keeping Good Companies (14447614), 63, 5, pp. 295-298.

Winter, CS 2008, ‘The Rap on Clickwrap: How Procedural Unconscionability is Threatening the E-Commerce Marketplace’, Widener Law Journal, 18, 1, pp. 249-292