AA unconscionable-conduct - Structure of an answer - Equity - With Case Summaries PDF

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Exam Answer - Structure of an answer - unconscionable-conduct - Equity - With Case Summaries...

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Unconscionable Conduct – Structure of Answer ***UNDUE INFLUENCE LOOKS AT CONSENT OF WEAKER PARTY WHEREAS UNCONSCIONABLE DEALING LOOKS TO THE CONDUCT OF THE STRONGER PARTY (Commercial Bank of Australia v Amadio) 1. Equity exercises jurisdiction to set aside a contract that can be described as being unconscionable. Relief on the ground of unconscionable conduct will be granted when unconscientious Advantage is taken of an innocent party whose will is so overborne so that it is not independent and voluntary or is unable to make a worthwhile judgment as to what is in his best interests.(Mason J in Commercial Bank v Amadio)" 2.

The elements of unconscionable conduct are: 1. one party is at a special disadvantage – situational; (Blomley v Ryan) 2. Knows about the special disadvantage (CBA v Amadio) 3. And takes advantage of it (CBA v Amadio) ELEMENT 1 - “Special disadvantage” has been described as: a. one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party (Amadio) b. An absence of any reasonable degree of equality between them Amadio. c. Seriously affects the ability of the person subject to it to make sensible decisions in their own best interests: d. Can be more than one disabling fact Amadio i. included elderly couples age, lack of English, lack of assistance and advice, and trust in son’s business. e. Common characteristics: i. poverty of any (kind financial need, Micarone v Perpetual Trustees Australia Ltd) ii. sickness iii. age iv. sex v. infirmity of body or mind vi. drunkenness (not mere drunkenness, but where it was known by choosing that day, could make a case, taking rum to a drunk as in Blomley v Ryan) vii. illiteracy viii. lack of education ix. lack of assistance or explanation where assistance or explanation is necessary (Blomley v Ryan) x. inflatuation (Louth v Diprose) xi. strong emotional attachment (Bridgewater) xii. Emotional dependence (Kakavas v Crown Melbourne Ltd) a. Leads to an inability to make rational decisions (Louth v Diprose) xiii. Lack of knowledge (about nature of transaction) or experience (ignorance/inexperience) a. Corporations (S 21 ACL) ELEMENT 2 - Knows about the special disadvantage It is also an element that the unconscionable party (name) had known or ought to have known of this disadvantage. The disability was sufficiently evident to (unconscionable party) by way of (how disadvantage became known), making this disadvantage prima facie unfair (Commercial Bank of Australia Ltd v Amadio). A reasonable person in the position of

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(unconscionable party), invested with the knowledge of (weaker party)’s disadvantage would have known or ought to have known of (disadvantage) due to the conduct displayer by the stronger party and in furtherance of that, the actions of (relevant reactions to parties disadvantage) were taken by (unconscionable party), (Blomley v Ryan). Answer - If there is a third party, need to determine whether the third party had knowledge – this may be where need to qualify/distinguish against Amadio, or Bank of NSW v Rogers. 4. ELEMENT 3 EXPLOITATION And takes advantage of it (CBA v Amadio) a. The third factor that of unconscionable dealing is that this special disadvantage must have been exploited by (unconscionable party). This has been done through (conduct of unconscionable party), without the consent of (the weaker party) because the stronger party (knew or ought to have known) of (the weaker party)’s disadvantage of (state disadvantage) to which (Unconscionable party) has taken advantage in order to further their interests in the transaction (Commercial Bank of Australia Ltd v Amadio) Answer - Certainly in this case, X claimant’s (insert special disability) was exploited as (eg finished bottle of rum before signing mortgage contract). (Y defendant would need to demonstrate that no advantage was taken of X claimant in the (eg signing of mortgage contract)) 3.

The onus is on the P for the first two elements, and then the onus shifts to the D for the last to show that the transaction was fair, just and reasonable. (Fry v Lane) Answer - Evidence of / no evidence of above; Unlikely that Y defendant could rebut the presumption of unconscionable conduct in this case.

4.

Defences The defendant (unconscionable party) will have to show that the bargain was fair, just and reasonable. Here (unconscionable party) may challenge all limbs of this accusation by a reversal of proof a. Provision of Independent Advice – Amadio b. Lack of Improvidence – c. Laches - as in Bester v Perpetual Trustee. – d. Acquiescence - Allcard v Skinner - most likely ground for defense is to rebut the argument that the transaction was unfair or that the special disadvantage was exploited.  Laches (an unreasonable delay by the plaintiff in bringing the claim) OR acquiescence (when one party gives legal notice to a second party of a fact or claim, and the second party fails to challenge or refute that claim within a reasonable time), Orr v Ford - Witnesses – independent legal advice – Anna’s solicitor – she is dead. Solicitors evidence was valuable but is lost due to the delay. Answer - if X claimant proceeds without delay, there will be no equitable defence upon which Y defendant may rely

5.

Remedies a. b. c. d.

Total rescission (Amadio) Partial rescission to the extent of the unconscionability (Amadio Injunction to prevent unconscionable exercise of rights under contract Right might be lost in certain circumstances, such as: 1. affirmation 2. delay in seeking rescission 3. 3rd party interest in subject matter; or 4. impossibility of restituio in integrum.

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e. If the right to rescission is lost, court may still order equitable compensation (Hill v Rose). Equitable compensation (Nocton v Lord Ashburton) 6.

Unconscionability under Statute a. s 51AA TPA: prevents a corporation from engaging in unconscionable conduct within the meaning of Amadio b. s 51AB TPA: prevents a corporation from engaging in unconscionable conduct in supplying goods or services c. s 51AC TPA: same as 51AB but in business transactions d. FTA mirrors the TPA (s 39). e. The only remedy under the TPA and FTA is rescission (s 87 TPA/100 FTA). f. No damages are available under statute (Berbatis Holdings).

Burden of proof: • If P can prove elements 1 and 2 (special disadvantage and knowledge) • Then there is a rebuttable presumption that the transaction was an unconscionable exploitation • So the burden of proof shifts to the D to prove that he / she did not exploit / take advantage of the P’s weakness Rebutting Presumption: • •

The defendant must prove that the transaction was ‘fair, just and reasonable’ How? – Independent legal advice – Steps to remove the disadvantage – Paying a fair price Applying to Facts The common characteristics to identify special disadvantage are listed in Blomley, however infatuation Louth and strong emotional dependence or attachment have been included Bridgewater It does not appear that (Cathy) has any of the characteristics listed in Blomley. However special disability can include an absence of any reasonable degree of equality between them Amadio. In this case the Bank (Sam) is in a superior position as he holds the information, whereas Cathy does not. She was sent documents but never read them, and Sam did not inform her of the transaction. D’s Knowledge of Special Disadvantage P’s special disadvantage must be sufficiently evident to D to make it prima facie unconscionable or unfair for the other party to take the benefit of the transaction: Amadio. D must have actual knowledge or be in a position where he ought to have known of the disability Amadio; Louth; Kakavas Amadio – majority: actual knowledge was not essential. It was sufficient the bank knew of the facts that would raise the possibility of disadvantage in the mind of a reasonable person. IF P CANNOT ESTABLISH D HAD REQUIRED KNOWLEDGE OF DISABILITY THEN P CANNOT SUUCEED Tessman P was elderly, in poor health, and suffered a reduced concentration span; however, no disability was obvious to the lender, and in fact no allegation was made that the lender had knowledge of Ps condition. Claim failed. Apply to facts P’s special disadvantage must be sufficiently evident to D to make it prima facie unconscionable or unfair for the other party to take the benefit of the transaction: Amadio D must have actual knowledge or be in a position where he ought to have known of the disability: Amadio; Louth; Kakavas

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Examples (Sam, although aware of Cathy’s reluctance for the transaction) may not have known that (Cathy has not received the documents he sent). Arguable (he) was wilfully blind by his actions (he merely smiled and took the docs). He (should ask Cathy if she had any questions about the transaction or if she had received the documents) Remedies • • •

Usually rescission And (where appropriate) delivery up and cancellation of documents NB Third party liability for the unconscionable conduct of another is also possible – where the benefit was taken with notice of the unconscionability. Setting aside of the transaction, either by an order for rescission, or through a refusal of specific performance. • •

In Amadio Deane J – setting aside part of transaction that was unconscionable Dalrymple Shepherdson J loan agreement affected by unconscionable conduct be construed in such a way the unconscionable terms of the agreement be deleted, leaving the rest of the agreement on foot

Summary: A P wanting a court to set aside a transaction on the ground that it constituted an unconscionable dealing has to show that: 1. That the plaintiff was under a special disability in dealing with the other party; 2. The special disability was sufficiently evident to the other party to make it prima facie unconscionable or unfair for the other party to take the benefit of the transaction . o If the P succeeds in showing these two things, the onus falls on the D to show that the transaction was fair. o Showing that the consideration given for the transfer was adequate may help, but it is not decisive. o Better to show that steps were taken by the D to remove the disability Factors: • “The jurisdiction of courts of equity to relieve against unconscionable e dealing (extends to) circumstances in which a. a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them; i. AND b. that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procures, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed an onus is cast on the stronger party to show that the transaction was fair, just and reasonable

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Blomley v Ryan Facts: R was alcoholic 78yr old, unintelligent and uneducated. After negotiations conducted over bottle of rum (supplied by B), R agreed to sell property for less than its worth. No independent legal advice. P sued for specific performance. Common law: contract was fine, R was not so drunk as to be legally incapacitated. Equity: not prepared to permit someone to take advantage of the old age and alcoholism of another to buy property cheaply. Court denied specific performance, allowed R to rescind contract on basis of equitable doctrine of unconscionable dealing. Held: Doctrine of UD is raised whenever: – one party to a transaction is at a special disadvantage in dealing with the other and – the other party unconscientiously takes advantage of the opportunity placed in his hands. – ‘The circumstances adversely affecting a party which may induce a court of Equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty and 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 are necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis a vis the other.’ CBA v Amadio A’s migrants, unfamiliar with English with some limited commercial experience. Not poor. Son appeared to be successful businessman – actually insolvent. V told bank his parents would provide a mortgage and he would explain it to them. Misrepresented nature of mortgage. Signed without reading. Held: Bank acted unconscionably in relation to granting mortgage, set aside. The Bank had failed to disclose a matter that it ought to have disclosed. - ‘there is a general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis a vis another And unfair or unconscientious advantage is then taken of the opp thereby created’ The disadvantage must be one which seriously affects the ability to make a judgement as to Their own best interests AND the other party must know (or ought to) of the existence of that disadvantage and of its effect on the innocent party Louth v Diprose D – lawyer infatuated with D (divorced mother of two, poor, did not return affection but tolerated him). Accepted many gifts from him during friendship. She moved from Tas to SA, he followed. L was about to get evicted and told D. Bought house for her. Held: trial judge found that she manipulated his affection for her to her best material advantage and had fraudulently manufactured an atmosphere of crisis. High Court found that D, the lawyer, was in a position of special disadvantage arising out of his infatuation with L and that she had taken advantage of his infatuation by creating an atmosphere of crisis, threatening suicide, in order to obtain the property in dispute. Bridgewater v Leahy Bill York, 80yo farmer sold farms (worth 700k) to his nephew Neil for disadvantage not readily evident. Neil ‘like son to him’.

150k. ‘Special

Held: • The majority judgment: – does not analyse this matter in much detail. – points that special disadvantage need not be the result of physical frailty. – Special disadvantage = any factor that renders one party subject to exploitation by another, such that the benefit of an improvident disposition by the disadvantaged party may not in good conscience be retained. – may stem from a strong emotional dependence or attachment

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• • •

the relationship between Bill and Neil was so close that Neil could effectively "have whatever he wanted". Bill's disadvantage was held to be his emotional attachment to Neil and his desire to keep the properties together under one manager. Bill had received no independent legal advice. Thus, according to their Honours, the inter vivos transaction was not "fair, just and reasonable".

Kakavas v Crown Melbourne • •

‘Equitable intervention to deprive a party of the benefit of its transaction on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind.’ Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned.’ But ‘wilful ignorance’, which is to be equated with actual knowledge, will suffice. Ie where the circumstances are such that the defendant ‘must have known’ (Amadio)

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 FACTS: • •

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Bank guilty of unconscionable conduct UC – where a party makes unconscientious use of his superior position or bargaining power to the detriment of the party who has a special disadvantage or is placed in a situation of special disadvantage Party unconscientiously takes advantage of their position It is a well known head of equity that taking advantage of a special disability will lead to recession The disabling condition is one which seriously affects the ability of the innocent party to make a judgement in his or her best interests – not merely a difference in bargaining power First question to ask is what knowledge did they have of the others special situation Bank knew of parents weaknesses or at least suspected and did not enquire further The facts of this case would raise doubts about their capacity to enter into the contract in the minds of a reasonable person Owen &Gutch v homon Lord Cranworth “ it must be safely stated that if the dealings are such as to fairly lead a reasonable person believe that fraud must have been used to obtain, he is bound to make enquiry and cannot shelter himself under the plea he was not called to ask, and he did not ask any questions on the subject. In such cases wilful ignorance is not to be distinguished in its equitable consequences from knowledge” Concept of fraud in equity not linked to common law deceit Son took advantage of parents confidence and reliance If a person is aware a situation of special disability may exist or is aware of facts that may raise that possibility and does not question, the result would be the same as actual knowledge The Respondents [Amadio] signed a mortgage for the Appellant [Bank of Australia] to secure loans for their son. They were not well informed about the details of the mortgage, and clearly had no idea what's going on. They were both Italian and spoke very little English, being pretty much illiterate. When the Appellant attempted to seize the house, the Respondents attempted to challenge the validity of the of the mortgage

HELD: •

By majority (Justices Mason, Wilson and Deane JJ) held the Amadio's suffered from a special disadvantage vis- a-vis the bank making it unconscionable for them to rely on the guarantee

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Bank of NSW v Rogers (1941) 65 CLR 42 FACTS: • • •

Mrs Rogers lived with her uncle Gardiner as a member of his family and was attached and grateful to him. In matters of business she relied upon and followed her uncle's advice without question. Gardiner’s business was in difficulty. Rogers charged all her property to secure his loans.

HELD: • • • •

established category as Gardiner stood in loco parentis towards Rogers. The bank knew they shared the same address, and had reason to believe that some special relationship did exist and might by reasonable inquiries have ascertained what that relationship was. It was for the bank to establish that the security given to it by the respondent was free from any undue influence and was the voluntary and well-understood act of her mind. The bank failed to do so. The bank was held to be put on enquiry as they knew of the relationship between the parties....