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Unconscionability breaks new ground - how the ACCC test cases affect banks - October 2001

In brief: New developments in unconscionability, good faith, and statutory reform of trade practices and financial services regulation make it easier to hold banks and other corporations accountable, writes Bryan Horrigan(view CV).

This paper by AAR consultant Bryan Horrigan was presented at an AAR client seminar in October 2001.

Executive summary

New developments in unconscionability, good faith, and statutory reform of trade practices and financial services regulation make it easier to hold banks and other corporations in the private and public sectors accountable in general and to overturn or rewrite contracts and securities in particular. In brief, the statutory and non-statutory forms of unconscionability (as a distinct ground of relief) are undergoing revision and expansion simultaneously across all of these dimensions or alternatively in conjunction with these related developments:

  1. Potential expansion of the special protection for spouses under the doctrines in Garcia and Yerkey v Jones1 to include other relationships based on trust and confidence, in both family contexts (eg husbands2, ex-spouses3, de facto partners4, in-laws5, siblings6, children, extended family, friends etc) and commercial contexts (eg employer-employee relationships);
  2. Expansion of the notion of "special disadvantage" for the purpose of unconscionability under the general law and cognate provisions in the Trade Practices Act 1974 (Cth) and the Australian Securities and Investments Commission Act 1989 (Cth) to include situational disadvantage arising from a party's legal and financial circumstances or from an informational disadvantage7, as well as from personal characteristics and circumstances (eg illiteracy, age, and language difficulties);
  3. Potential use of doctrines of duress, undue influence, and unconscionability by corporations as victims to avoid obligations like contracts (eg corporate guarantees) with third parties (eg banks), not just generally but also through the unconscionable and unfair treatment or the special disadvantage of a major corporate officer (eg a controlling director) being sheeted home to the company to the third party's detriment8;
  4. Expansion of the indicia of unconscionability for the purpose of section 51AC of the Trade Practices Act beyond the conventional indicia of unconscionability under the general law, potentially widening the range of corporate and commercial conduct subjected to this section;
  5. Growing divergence between the Trade Practices Act's market-based focus on anti-competitive and anti-monopolistic behaviour in Part IV and its fairness-based focus on unfair and unconscionable behaviour elsewhere;
  6. The recent spate of ACCC test cases on unconscionability in the retailing, franchising, banking, and medical services sectors;
  7. Expansions in "good faith" jurisprudence in a range of commercial contexts, not limited to government tendering, and the yet to be explored interaction between good faith under the general law and good faith under section 51AC of the Trade Practices Act 1974 (Cth);
  8. Recent cases testing the outer boundaries of liability for legal advisers who wrongly advise or facilitate trade practices breaches, or who wrongly advise personal or corporate guarantors or alternatively financiers9; and
  9. The House of Lords' recent decision in Royal Bank of Scotland v Etridge10 is the third landmark appellate decision in the common law world in the last decade on spousal guarantees, after Barclays Bank v O'Brien and Garcia v NAB, and will become a benchmark for the balance of responsibilities between banks and solicitors advising guarantors as well as for the areas of advice for solicitors undertaking this advisory role.

The judicial and legislative development of sections 51AA, 51AC, and 52 of the Trade Practices Act 1974 (Cth) mirrors that Act's transformation from an Act primarily regulating anti-competitive conduct and abuse of market power to one which equally regulates commercially unfair, self-interested, and opportunistic conduct whatever its impact on competition and markets. The recent extension of unconscionability to embrace "situational" disadvantage11 based on a party's legal and financial position as well as "constitutional" (or inherent) disadvantage arising from a person's health or lack of understanding has as much potential to interrupt corporate and commercial dealings as the expansion of indicia of statutory unconscionability and ACCC test cases on its scope.

In a banking context, this means that unconscionability-based and fairness-based grounds for busting personal guarantees now include: (i) unconscionability under the general law, including but not limited to (a) Yerkey v Jones protection for guarantor wives, and (b) situations of special disadvantage, where a stronger party knowingly and unconscientiously exploits the special disadvantage of a weaker party; (ii) statutory unconscionability under the Trade Practices Act, including the expanded Berbatis sense of special disadvantage arising from personal, legal, financial, or informational disadvantages as well as expanded unconscionability criteria beyond those applicable under the general law; (iii) other non-statutory grounds based on undue influence, duress, misrepresentation, negligence, breach of contract etc; and (iv) other legislation like consumer credit laws and unfair contracts laws.

In addition, there are important recent developments in the law of unconscionability and personal guarantors which affect not only the liability of solicitors who advise guarantors or financiers, but also the assumptions of banks and their officials and lawyers about who can rely on Garcia principles in terms of not receiving a benefit from the transaction and being regarded legally as a volunteer. For example, can a wife who guarantees her husband's business debts be a "volunteer" capable of invoking the Garcia doctrine if she is a director and secretary of the business whose debts are secured, the loan is paid into a joint account but funds are immediately diverted elsewhere, they receive the benefit of the discharge of another liability, and there is some beneficial impact on their standard of living?12 Clearly, the expansion of the categories of people beyond wives who can invoke the Garcia doctrine and the loosening of the criteria for being characterized as a volunteer in ways disadvantageous to banks are significant twin developments which reinforce each other.

In addition, a range of post-CLERP developments continue to affect corporate financing and security arrangements, including dealings between state corporatised entities and outsiders like financiers and contractors. Anomalies in the law of directors' and officers' duties, ultra vires, indoor management assumptions, and dealings with outsiders across the Corporations Law13, the Commonwealth Authorities and Companies Act 1997 (Cth), and state corporatisation Acts regulating government business enterprises in New South Wales and Queensland affect the liability of corporate officials as well as the assumptions of those who deal with them. In both banking and commercial contexts, this critically affects an outside financier's or contractor's capacity to maximize reliance on legal "indoor management" assumptions as well as other safeguards like directors' resolutions and shareholder approval.

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Regulating unconscionable and unfair business and governmental conduct

In common parlance, you can be at risk of having the law say you are acting in bad faith, unfairly, or unconscionably if:

  • Your conduct amounts to more than simply striking a hard bargain and more than just "sharp" conduct, but falls on the wrong side of the latter;
  • You engage in or facilitate (as a professional adviser) sharp business practices which do more than strike a hard bargain and exploit other parties in some way;
  • You set up reasonable expectations and don't meet them;
  • You have someone over a commercial barrel and you make them an offer they can't really refuse;
  • You say you'll do one thing and then do another;
  • You diverge from announced procedures and guidelines in a way which discriminates against an individual within a group;
  • You show favouritism towards people with whom you prefer to deal, and you do so without good reason;
  • You treat some people differently from others without good reason;
  • You use your stronger bargaining position to extract a concession which is commercially valuable to you but which is either commercially irrelevant to the particular transaction or else relevant but "over the top";
  • You exercise a legal right or discretion which you clearly have but you do so with an ulterior motive (eg exercising a contractual right of termination expressed in very general terms in a capricious and unreasonable way, such as cancelling a contract and taking over the work without calling on the contractor to show cause or otherwise satisfy the principal14);
  • You act in a way which won't put you in breach of contract, strictly speaking, but which is designed to cause another party to terminate or fail to renew the agreement because you want to be rid of them;
  • You "stack the deck" against someone in commercial decision-making;
  • You are involved in a joint enterprise with others and set up guidelines or criteria which look neutral on their face but which will really disadvantage one of the parties involved in the joint enterprise;
  • You set someone up for a fall;
  • You refuse to negotiate at all over your standard terms and conditions; or
  • You have knowledge which, if the other party knew it too, would make them think twice about signing up.

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Limits on self-interested commercial conduct

On one level, the worthwhile focus on human rights and social capital in modern scholarship and public debate about corporate regulation and corporate responsibility clouds a wider development. A number of statutory and non-statutory developments combine to limit abuse of corporate and public power and self-interested behaviour by corporations and governments in ways which might not have been imagined a decade ago. Particular interest focuses on procedural fairness, unconscionability, good faith, and other fairness-based arguments as well as rights-based arguments, in situations where the law enhances the legal imperative for one party - often a governmental or business organization wielding significant public or commercial power - to take account of the interests of another party.

There are clear implications here for directors and their advisers. Until recently, the law has adopted an orthodox and politically liberal laisse faire approach to corporate and commercial self-interest, stepping in only at the extremes to prevent clear abuses of power which result from a stronger party acting in their own economic self-interest, as in conventional situations of unconscionability involving a stronger party taking advantage of a weaker party's illiteracy, stupidity, language difficulties, drunkenness, need for advice, or other personal indicia of being under a "special disadvantage" a la Amadio15. However, the introduction of qualitatively different statutory indicia of unconscionability in section 51AC of the Trade Practices Act, together with the recent expansion of the notion of "special disadvantage" for the purpose of section 51AA to include situational unconscionability stemming from a weaker commercial party's legal and financial circumstances as well as the recent spate of ACCC test cases on unconscionability in the retailing, franchising, and banking sectors, all mean that corporations face new trade practices risks when they effectively hold someone over a barrel and extract a commercial concession. The gap between sharp conduct and unconscionable conduct has narrowed in the last 12-18 months, as outlined below.

Consider, for example, these scenarios:

  • Does a government body conducting a public tender have a legal obligation to treat all tenderers fairly by sticking to announced tender guidelines and treating all conforming tenderers equally in matters not covered by those guidelines, because of the public interests and public funds at stake, and can that obligation simply be avoided as a matter of contract in all cases by putting something suitable in the tendering guidelines to let the tendering body do whatever it likes?16
  • Do the obligations of good faith and fair dealing implied into tender process contracts for government tenders also have application to tender process contracts or other commercial contracts in the private sector?17
  • Will an obligation of good faith and fair dealing be implied and prevent one controlling joint venturer setting up a national sporting competition from setting entry criteria which would make the opportunity for entry illusory for a participating joint venturer, resulting in their exclusion from the competition (ie effectively setting them up for a fall)?18
  • Is unconscionable conduct limited to Amadio-like and Garcia-like situations involving big banks and little old migrant grandmothers without any reading glasses and business acumen who are ripe for personal bullying or exploitation, or can it extend to commercial transactions between commercial parties, including transactions between statutory corporations and non-government corporations as well as transactions between corporations and banks?19
  • Can someone invoke a Garcia defence in a banking context even if they are a director of the company receiving financial support and even if the monies advanced are deposited into a joint account?20
  • Can a commercial party ever be in a position of special disadvantage for the purposes of unconscionability laws if their position is solely due to the combined effect of their commercial and legal circumstances and they are suffering from no personal disability or disadvantage like illiteracy, unsoundness of mind, intoxication, language difficulties etc?21
  • Is it unconscionable for a landlord of a shopping center to refuse to renew and assign a lease unless the tenants agree to drop proceedings against the landlord, if the landlord knows that the tenants need to sell to obtain finance to look after their sick relative and negotiations with a potential buyer have just fallen through, and will it make any difference if the tenants are receiving legal advice or if the landlord's letting agent but not the landlord knows of the tenants' personal circumstances?22
  • Is it also unconscionable for a landlord of a shopping centre to refuse to renew a lease unless the tenants agree to drop proceedings against the landlord, if the tenant is in arrears for rent and is not looking to sell the business, or if a third party is prepared to pay more for a tenancy which is coming up for renewal?23
  • Is it unconscionable for a lessee of food stalls in a food plaza to give a lessee exclusive rights to sell particular foods and then not police that covenant, or to impose a minimum price requirement on a lessee for its dishes while allowing other lessees to sell those dishes at a lower price and keeping the lessee to its promise under threat of terminating the lease?24
  • Is it unconscionable for a landlord of commercial premises to require a tenant to pay a large sum to obtain assignment of a new lease from one of the landlord's companies, in circumstances where: (i) the tenant took possession of the business premises just before the lease ran out; (ii) the tenant paid a significant amount for the goodwill and the goodwill depended largely on the location of the business; (iii) the tenant was aware of the due date for exercising an option to renew and failed to exercise that option on time through their own fault and tried to exercise it a fortnight later; and (iv) the landlord initially decided to resume possession and informed the tenant but agreed to this alternative arrangement after the tenant threatened legal action?25
  • Does the ACCC have a good strike rate in its unconscionability test cases and does it always get what it wants because it picks the right targets?26
  • Can legal advisers be liable as accessories or otherwise for being "knowingly concerned" in trade practices contraventions, even for simply giving legal advice?27

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Unconscionability provisions

Section 51AA(1) of the Trade Practices Act 1974 (Cth) says:

A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

The clear policy objective behind the introduction of this addition to consumer protection laws is not so much to create a new head of consumer protection but rather to extend the significant Trade Practices Act remedies to conduct which the common law and equity treat as "unconscionable"28.

The same drafting technique more recently appears in section 12CA(1) of the Australian Securities and Investments Commission Act 1989 (Cth):

A corporation must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories29.

The same drafting technique is also used in the recently changed fair trading legislation in Victoria. Section 7(1) of the Fair Trading Act 1999 (Vic) says30:

A person must not, in trade or commerce, engage in conduct which is unconscionable, within the meaning of the unwritten law, from time to time.

The orthodox view of section 51AA is that it made amenable to Trade Practices Act remedies conduct which was unconscionable in the sense described in Commercial Bank of Australia Ltd v Amadio31. On this view, the scope of unconscionable conduct regulated by the section would be confined to the equitable notion of unconscionability founded on one party to a commercial transaction being under "a special disability" or "a special disadvantage" and the other party taking advantage of that unconscientiously. Ongoing debate about the scope of section 51AA has troubled courts as well as the ACCC32. Federal Court decisions have opened up the possibility that the scope of unconscionable conduct under section 51AA might extend beyond Amadio and Yerkey v Jones contexts and apply also to conduct between commercial parties who might usually be thought to be operating at arm's length.

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Unconscionability developments

The judicial and legislative development of sections 51AA, 51AC, and 52 of the Trade Practices Act 1974 (Cth) mirrors that Act's transformation from an Act primarily regulating anti-competitive conduct and abuse of market power to one which equally regulates commercially unfair, self-interested, and opportunistic conduct whatever its impact on competition and markets. The recent extension of unconscionability to embrace "situational" disadvantage33 based on a party's legal and financial position as well as "constitutional" (or inherent) disadvantage arising from a person's health or lack of understanding has as much potential to interrupt corporate and commercial dealings as the expansion of indicia of statutory unconscionability and ACCC test cases on its scope.

A number of related developments are simultaneously producing the expansion of unconscionability and its resulting anomalies. Crystallising them provides an overarching framework for the detailed analysis which follows. Inherent personal difficulties relating to language difficulties, infirmity, and other hardships which characterise the link between unconscionability and notions of special disability or special disadvantage in landmark cases like Blomley v Ryan34 and Commercial Bank of Australia Ltd v Amadio35 do not exhaust unconscionability's reach in banking and commercial contexts36. That reach extends to conduct between commercial parties, including corporations which are in a disadvantageous position relative to governments and government business enterprises37. While the immediate concern after Garcia is whether the familial relationships of trust and confidence which might attract unconscionability's intervention in financing and security contexts extend beyond wives to include husbands, heterosexual and homosexual co-habitees, and extended family and friends, a wider concern is whether unconscionability can strike at commercial relationships involving trust and confidence (eg banker-customer, landlord-tenant, and employer-employee relationships)38. As outlined below, there is also the possibility that corporations might avail themselves of doctrines like unconscionability, undue influence, and duress.

The sense of unconscionability under the general law and section 51AA of the Trade Practices Act which curbs unconscientious use of superior bargaining power to take advantage of someone suffering from a special disability or special disadvantage now includes a wider class of commercial conduct, in light of the expansion of the notion of "special disadvantage" recently to cover "situational" disadvantage arising from the matrix of legal and commercial circumstances rather than from any inherent infirmity or inadequacy39. In Louth v Diprose, Toohey40 J emphasised that courts are "exercising an equitable jurisdiction according to recognised principles" and "are not armed with a general power to set aside bargains simply because, in the eyes of the judges, they appear to be unfair, harsh or unconscionable". In the landmark 2000 Federal Court decision in ACCC v CG Berbatis Holdings Pty Ltd41, French J indicated that unconscionability has a primary meaning as the central principle underlying much of equity law as well as a secondary meaning as a distinct ground of equitable relief, most often associated with the notions of unconscionable dealing and specially disadvantaged parties (as in Amadio). French J also decided that unconscionability as a ground of relief can embrace "situational" unconscionability arising from differences in the legal and financial positions of parties as well as "constitutional" (or inherent) unconscionability stemming from inherent personal features like language difficulties, illness, drunkenness, illiteracy, need for explanation, and so on. Berbatis and subsequent cases discuss the application of s51AA and/or s51AC to contexts like retail leasing, franchising, and banking.

On 27 June 2001, the Full Federal Court overturned French J's finding of unconscionability under section 51AA TPA against a landlord for unconscientious exploitation of tenants whose circumstances put them in a position of "special disadvantage"42. This is one of the few unconscionability test cases lost by the ACCC in recent times. Unless the matter is reversed in the High Court, this decision now makes it harder but not impossible to find unconscionable conduct in landlord-tenant dealings as well as other commercial dealings.

Recall that French J decided for the first time in Australian law that "special disadvantage" could be "situational", arising from the parties' legal and financial circumstances, as well as inherent/personal circumstances in the Amadio sense of being drunk, illiterate etc. He also decided that the particular matrix of circumstances involving one of three sets of tenants led to them being under a "special disadvantage" in the situational sense. He decided that the tenants were in a vulnerable position vis-à-vis the landlord because they needed a new or extended lease to maximize the sale price, they needed to sell so that they could look after their sick daughter, they were unable to look after their own financial interests because of their preoccupation with their daughter's illness, the landlord and its agents knew all of this, and so making an extension or renewal of the lease conditional on the tenants' abandonment of genuine claims in ancillary proceedings against the landlord amounted to extracting an irrelevant commercial concession from parties effectively "over a barrel" and hence was exploitative. The Full Federal Court simply reached a different view on the facts about the latter aspect. The Court said nothing directly about the new idea of "situational" disadvantage.

In short: while the appeal decision will make it harder to characterise landlord-tenant conduct as unconscionable, it does not directly counter the idea that unconscionable conduct can arise between commercial parties because of "situational" disadvantage. So, it will still be necessary to consider this form of unconscionability in relation to extracting commercial concessions, settling disputes, etc. In addition, the case was fought on the basis of s51AA and not s51AC (which was not operative at the time), and s51AC clearly is wider in scope than Amadio-type unconscionability and clearly extends to "situational" disadvantage arising from the matrix of commercial and legal circumstances of the parties.

Strong judicial support exists for extending unconscionability in section 51AA beyond its conventional equitable boundaries, with clear potential application to a broad band of commercial conduct beyond Amadio-like situations and to dealings between corporations in the public and private sectors43. That development has implications for cognate unconscionability provisions like those in the Australian Securities and Investments Commission Act 1989 (Cth). The relocation of unconscionability in relation to "financial services" from the Trade Practices Act to the Australian Securities and Investments Commission Act is incomplete and also unclear in its application to loans, guarantees, mortgages, and "securities" of that kind.

The constitutional validity of section 51AA (and, by implication, cognate unconscionability provisions like section 12CA of the Australian Securities and Investments Commission Act 1989 (Cth)) has been raised and settled judicially, at least for the time being44. The expanded indicia of unconscionability in section 51AC clearly extend unconscionability even further beyond its orthodox equitable boundaries and its meaning in section 51AA45. Moreover, the linkage between good faith and what goes beyond a party's legitimate interests as indicia of statutory and non-statutory forms of unconscionability has some resonance with the latest judicial thinking on implied terms of good faith, with strong implications for novel arguments about the outer boundaries of contractual and non-contractual causes of action46. The unconscionability provisions in State and Territory Fair Trading Acts are generally more limited in scope than those in sections 51AA and 51AC of the Trade Practices Act, and the High Court has effectively precluded any application of unconscionability under the latter provisions to the States for their governmental or business activities47. Finally, while contemporary legal philosophies like postmodernism question the legitimacy, value-neutrality, and contingent assumptions of laws and the legal system as a whole, here is an area of law whose content is ideally amenable to refashioning in terms of contingent assumptions about commercial and legal power and their connection to statutory and non-statutory doctrines.

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Wider implications for directors, MNCs, and GBEs

Of course, there are already wider implications of these developments for directors, even if the High Court never refashions the notion of unconscionability in the way outlined above. If, as Commonwealth Bank v Ridout Nominees accepts, "to a limited extent a corporation may itself suffer from a 'special disadvantage' and "what might in shorthand be referred to as 'Amadio' unconscionability will be available in respect of a corporation in some circumstances"48, there will be flow-on consequences for directors' duties49 as well as the capacity of outsiders (especially lenders) to enforce contracts (especially corporate securities) with corporations in reliance on the statutory "indoor management" rules in the Corporations Law50. As Justice Wheeler concluded in Ridout Nominees51:

As I have noted, the Garcia principles, and - it might be added - cases dealing with presumptions of undue influence, are grounded in the usual relations of natural persons, so that there are both practical and conceptual difficulties in applying them in respect of corporations. However, in the present case, all of the natural persons who were directors and shareholders of these two corporations were subject to the types of relationships of influence with which those cases are concerned. I am therefore prepared to find that each of these corporations was in a position of special disadvantage, in relation to companies controlled by George, for the purpose of the principles governing unconscientious use of superior bargaining power.

This could be a concern in the case of controlling and domineering conduct by internal directors in a corporation, common directors in a corporate group who exert power over a subsidiary's directors, or even outsiders (eg lenders) who bring significant pressure to bear upon a corporation's directors52.

If, as ACCC v Berbatis accepts, the notion of "special disadvantage" in the statutory and non-statutory forms of unconscionability extends to commercial parties if one of them is in a position of situational disadvantage relative to the other due to the matrix of surrounding legal and financial circumstances, commercial parties (and their officers and advisers) - including Crown and non-Crown GBEs - who extract commercial concessions from parties in a weaker bargaining position will be more exposed to this form of liability and must ensure that the concessions are relevant and reasonable53.

As the Trade Practices Act has extra-territorial application54, the rise of transnational corporate activity combines with these expansions of unconscionability to pose a potential threat of liability to corporations which wield decision-making powers over Australian business operations in these ways. This will be another surprise to some overseas corporate officers and advisers who are familiar with international competition and anti-trust regulation but who already express wonder that they can be liable (eg under trade practices law for misleading or deceptive conduct) even if their corporate conduct is not monopolistic, anti-competitive, or negligent. Many of them would be equally incredulous if told that trade practices liability might attach to dealings between two well-advised commercial parties if the stronger party is able to extract a commercial concession from the weaker party because they have them over a barrel, at least if certain factors (eg situational disadvantage) are present.

Given the recent expansion of unconcionability under the Trade Practices Act to include situational disadvantage and its implications for commercial conduct, as well as that Act's applicability to Commonwealth Government business activities, new opportunities arise for litigation against GBEs. Today, governmental business conduct which is misleading or in bad faith might also be unconscionable.

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Some key references

D. Loxton, "One Step Forward, One Step Back: The Effect of Corporate Law Reform on Procedures in Dealing with Companies Borrowing or Giving Guarantees" (1999) 10 Journal of Banking and Finance Law and Practice 24

B. Horrigan, "Busting Guarantees! - New Developments in Challenging Corporate and Personal Third Party Securities" (1998) National Law Review 7

S. Corones, "Implied Good Faith at Common Law and Unconscionable Conduct Under the Trade Practices Act", Queensland Law Symposium, 2-3 March 2001

A. Guirguis and D. Preston, "Unconscionability Under the Trade Practices Act: Does It Undermine Commercial Certainty?" (2001) 75:2 (March) Law Institute Journal 52

J. Dietrich, "The Meaning of Unconscionable Conduct Under the Trade Practices Act 1974" (2001) 9 TPLJ 141

S. Corones, "Implied Good Faith and Unconscionability in Franchises: Moving Towards Relational Contract Theory" (2000) 28 ABLR 462

S. Pallavicini and D. Bluth, "Trade Practices: Small Businesses in Big Wins Under the Trade Practices Act" (2000) 38 (11) LSJ 64 (also available via the Internet at the NSW Law Society Journal Online)

W. Duncan and S. Christensen, "Section 51AC of the Trade Practices Act 1974: An 'Exocet' in Retail Leasing" (1999) 27 ABLR 280

R. Buckley, "Sections 51AA and 51AC of the Trade Practices Act 1974: The Need for Reform" (2000) 8 TPLJ 5

J. Edwards, "Negotiating Parties and Equitable Estoppel: Is There a Duty of Good Faith?" (1999) 27 ABLR 300

Sir A Mason, "Contract, Good Faith and Equitable Standards in Fair Dealing" (2000) 116 LQR 66

Sir A. Mason, "The Impact of Equitable Doctrine on the Law of Contract" (1998) 27 Anglo-American Law Review 1

B. Horrigan, "Teaching and Integrating Recent Developments in Corporate, Public, and International Law and Practice", Annual Australian Corporate Law Teachers Conference, Melbourne, February 2001

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References
  1. Yerkey v Jones (1940) 63 CLR 649; and Garcia v National Australia Bank Ltd (1998) 194 CLR 395.
  2. Eg see, in relation to undue influence, CBA v Longo [2001] VSC 191 (15 June 2001).
  3. Eg Westpac Banking Corporation v Paterson [2001] FCA 556 (14 May 2001).
  4. Eg State Bank of NSW v Hibbert [2000] NSWSC 628 (6 July 2000).
  5. Eg NAB v Starbronze Ltd [2000] VSC 325 (16 August 2000).
  6. Eg Equuscorp Pty Ltd v Worts [2000] VSC 179 (10 May 2000).
  7. Murphy v Overton Investments Pty Ltd [2001] FCA 500 (2 May 2001) at [158] and the cases cited there showing that "there is support in the authorities for the contention ... that an imbalance of information, together with other factors, may constitute special disadvantage" for unconscionability purposes.
  8. The possibility of corporate use of one or more of these grounds is assumed or discussed in: Brooks v Sunlife Properties Pty Ltd (unreported, WA Supreme Court, Scott J, 21 February 1996); NZI Capital Coproration Ltd v Fulton (unreported, Full Federal Court, 10 June 1998); HECEC Australia Pty Ltd v Hydro-Electric Corp (1999) ATPR 46-196; Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37 (28 February 2000); and C. Hammond, "Can a Company be the 'Victim' of Undue Influence and Unconscionability?" (2001) 19 CSLJ 74.
  9. See, for example: (i) the inititial inclusion of legal advisers as parties allegedly involved in trade practices breaches in the litigation in ACCC v Samton Holdings Pty Ltd [2000] FCA 1725; (ii) the recent assessment of the liability of a solicitor advising a party in connection with third party securities in Teachers Health Investments v Julian [2001] NSWSC 231 (5 April 2001); and the actions against legal advisers in connection with corporate financing and security arrangements in Maronis Holdings v Nippon Credit Australia Ltd [2001] NSWSC 448 (7 June 2001).
  10. [2001] UKHL 44 (11 October 2001).
  11. ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 (ie "Berbatis No 3").
  12. Bylander v Multilink [2001] NSWCA 53 (14 March 2001).
  13. Now the Corporations Act.
  14. Eg see: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903; and J. Paterson, "Duty of Good Faith - Does it Have a Place In Contract Law?" (2000) 74:6 Law Institute Journal 47.
  15. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
  16. See: Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1; but cf Re Refugee Review Tribunal; Ex parte Aala [2000] HCA 57 (16 November 2000).
  17. See: Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310; South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; and Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703. While the Hughes Aircraft case concerned government tenders, obligations of good faith and fair dealing are increasingly ripe for implication into franchising contracts and other commercial contracts in the private sector, including possibly tender process contracts in the private sector. Unconscionability and misleading/deceptive conduct can also be relevant actions, even in theabsence of a formal tender process contract, so not everything can be solved simply by clever drafting or exclusion of commercially troublesome contractual terms.
  18. See: South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541 (3 November 2000), appealed in South Sydney District Rugby League Football Club Ltd v News Ltd [2001] FCA 862 (6 July 2001).
  19. See: ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 (Berbatis No 3) (26 September 2000); HECEC Australia Pty Ltd v Hydro-Electric Corp (1999) ATPR 46-196; Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37 (28 February 2000); ACCC v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365 (22 September 2000); and ACCC v National Australia Bank (consent orders, Federal Court, 5 June 2001).
  20. See: Bylander v Multilink [2001] NSWCA 53 (14 March 2001).
  21. See: ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376.
  22. See: ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376; but see, on appeal, CG Berbatis Holdings Pty Ltd v ACCC [2001] FCA 757 ("Berbatis No 5").
  23. See: ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376; and also Berbatis No 5.
  24. See: ACCC v Leelee Pty Ltd [1999] FCA 1121 (20 August 1999).
  25. See: ACCC v Samton Holdings Pty Ltd [2000] FCA 1725 (29 November 2000).
  26. Yes and no: see the orders sought by the ACCC in ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1893 (Berbatis No 4); ACCC v Lux Pty Ltd [2001] FCA 600 (24 May 2001); and Berbatis No 5.
  27. In one of the recent unconscionability test cases, ACCC v Samton Holdings Pty Ltd [2000] FCA 1725 (29 November 2000), the ACCC initially instituted proceedings against the corporation's legal adviser for being knowingly concerned in trade practices contraventions, but that part of the claim was dismissed by consent early in the hearing. It is not yet clearly established that simply giving legal advice about the possibility of a contravention which is given in good faith but which turns out to be wrong will not attract accessorial liability. Lawyers will often have essential knowledge of the elements of a proposal or transaction and hence possibly knowledge of the essential elements and facts of a breach, but the question is whether "something more" is required for accessorial liability for lawyers: see Yorke v Lucas (1985) 158 CLR 661; NRMA v Morgan (1999) 31 ACSR 435 at 792-794 (trial); Heydon v NRMA [2000] NSWCA 374; and L. Huet, "Could You Be an Accessory?: Uncertainty and Risk for Lawyers" (2001) 75:2 Law Institute Journal 49.
  28. Cf R. Miller, Miller's Annotated Trade Practices Act, 19th ed, LBC Information Services, Sydney, 1998, at p261, paragraph [755.10].
  29. Section 12CA was inserted into the Australian Securities and Investments Commission Act 1989 (Cth) by the Financial Sector Reform (Consequential Amendments) Act 1998 (Cth).
  30. Of course, any fatal constitutional objection to such provisions at the Commonwealth level because of the federal separation of powers enshrined in the Australian Constitution might not be duplicated at the State level.
  31. (1983) 151 CLR 447.
  32. ACCC, Unconscionable Conduct in Commercial Dealings - A Guide to Section 51AA of the Trade Practices Act.
  33. ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 (ie "Berbatis No 3").
  34. (1956) 99 CLR 362.
  35. (1983) 151 CLR 447.
  36. See: Yerkey v Jones (1940) 63 CLR 649; Garcia v National Australia Bank Ltd (1998) 194 CLR 395; Bridgewater v Leahy (1998) 194 CLR 457; ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 2 (14 January 2000) ("Berbatis No 2"); and ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 (26 September 2000) ("Berbatis No 3").
  37. Eg HECEC Australia Pty Ltd v Hydro-Electric Corp [1999] FCA 822 at [42]-[43].
  38. The orthodox treatment of such relationships under presumptions of undue influence might differ from their treatment under revitalised notions of unconscionability. See: Barclays Bank plc v O'Brien [1994] 1 AC 180 and Smith v Bank of Scotland (House of Lords, 12 June 1997) (spouses and co-habitees); Garcia v National Australia Bank Ltd (1998) 194 CLR 395 (wives and perhaps husbands and co-habitees); Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 (employers and employees); State Bank of New South Wales v Hibbert (wives and husbands); and National Australia Bank v Starbronze Ltd [2000] VSC 325 (brothers-in-law).
  39. ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 1376 (26 September 2000) ("Berbatis No 3").
  40. (1992) 175 CLR 621 at 654.
  41. [2000] FCA 1376 (26 Sep 2000).
  42. CG Berbatis Holdings Pty Ltd v ACCC [2001] FCA 757 (27 June 2001) (ie Berbatis No 5).
  43. For recent discussion, see: Pritchard v Racecage Pty Ltd (1997) 142 ALR 527; HECEC Australia Pty Ltd v Hydro-Electric Corp (1999) ATPR 46-196; ACCC v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365 (22 September 2000); ACCC v CG Berbatis Holdings Pty Ltd [2000] FCA 2 (14 January 2000) ("Berbatis No 2"); Berbatis No 3; and GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Ltd [2000] FCA 875 (29 June 2000).
  44. See: ACCC v CG Berbatis Holdings Pty Ltd [1999] FCA 1151 ("Berbatis No 1"); Berbatis No 2; Blacker v National Australia Bank Ltd [2000] FCA 681 (25 May 2000); and ACCC v Samton Holdings [2000] FCA 1725 (29 November 2000); but cf Re Colina; Ex parte Torney (1999) 166 ALR 545.
  45. See: Berbatis No 3; ACCC v Simply No-Knead (Franchising) Pty Ltd [2000] FCA 1365 (22 September 2000); ACCC v Leelee Pty Ltd [1999] FCA 1121 (20 August 1999); and .
  46. See: Berbatis No 3; TPA sections 51AC(3)(b) and 51AC(3)(k); and South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541 (3 November 2000).
  47. See: Bass v Permanent Trustee Co Ltd [1998] HCA 9 at [23]-[24].
  48. Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37 at [55] and [61].
  49. For example, will a director of a corporation whose legal susceptibility to influence or pressure is sheeted home to the corporation, enabling it to claim the benefit of unconscionability or even undue influence or duress, be in breach of their directors' duties or relieved of that liability in these circumstances? In addition, how will this development impact upon judicial relief from liability for directors under provisions like section 1317S and 1318 of the Corporations Law?
  50. For example, what degree of notice, knowledge, or bad faith will disentitle the outsider (eg lender) from avoiding the consequences of unconscionability, above and beyond the exception to the statutory assumption of compliance with duties owed to the company (Corporations Law sections 128 and 129), which now focuses upon knowing or suspecting that the assumption is wrong? Moreover, does the statutory assumption of compliance with duties owed to the company pick up all statutory and non-statutory directors' duties for this purpose? What must lenders and other outsiders do to guard against this threat to enforceability of corporate securities and contracts?
  51. Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37 at [212].
  52. On these points, see also: C. Hammond, "Can a Company be the 'Victim' of Undue Influence and Unconscionability?" (2001) 19 CSLJ 74.
  53. In ACCC v Berbatis, for example, a demand to cease ancillary proceedings against a landlord in exchange for renewal of a lease or consent to its assignment was characterized as a concession which was irrelevant to the terms and conditions of the lease, at least in relation to parties suffering from a special disadvantage. On appeal, however, the Full Federal Court in Berbatis No 5 disagreed with the trial judge's characterization of this as being unconscionable in the circumstances, but the wider principle arguable remains on foot: exploitative conduct between unequal commercial parties, including extraction of irrelevant commercial concessions, might cross the line. The appeal court accepted that "(a) distinction can be drawn between parties who adopt an opportunistic approach to strike a hard bargain and parties who act unconscionably". Of course, recognizing and drawing that line in practice is the key.
  54. Eg Trade Practices Act 1974 (Cth), sections 5 and 6.

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