Unconscionable contract

A unilaterally advantageous contract obtained by a stronger party by means of exploitation of the other party’s weakness (which may include financial need, illness, ignorance, inexperience, impaired faculties, language difficulties, etc).

Unconscionable contracts are created where unconscionable conduct played a role in the formation, and/or unconscionable clauses exist within the contract itself.

Unconscionable conduct can be actioned in equity or using statute.

In the case of Commonwealth Bank v Amadio [1983] HCA 14, equity was engaged to prevent the Commonwealth Bank from enforcing a loan guarantee against the Amadios, because the bank did not take the proper steps to ensure that the couple (who were elderly and spoke little English) properly understood the terms of contract. The contract was therefore taken to be unconscionable, as the Commonwealth Bank had exploited the Amadios’ vulnerability in executing the contract.

At a statutory level, sections 20, 21 and 22 of the Australian Consumer Law protect against unconscionable contracts.

Section 20 protects the operation of the equitable doctrine of unconscionable conduct where section 21 does not apply, while section 21 protects consumers in relation to the supply of acquisition of goods or services from a person. Section 22 details a number of considerations the court must take into account when classing conduct as unconscionable.