Commercial Bank Of Australia V Amadio In Lloyds Bank Ltd V. Bundy

Unconscionable contract refers to an agreement entered into against the dictates of good conscience. Such contracts are prohibited in Australia. Under the new Australian Consumer Law (ACL), businesses are prohibited from engaging in unconscionable conduct against other businesses or their customers. Section 21 of the ACL deals with unconscionable conduct pertaining to the acquisition or supply of goods or services. Section 21(2) lists the factors, but non-exhaustive, relevant in determining whether the contract is unconscionable, which includes the following: bargaining power of both parties, whether the consumer understood the terms in the contract, and whether undue influence or pressure was applied.
In Commercial Bank of Australia v Amadio
1, an elderly couple (Mr. and Mrs. Amadio) migrated to Australia forty year ago, without formal education and without a mastery of English, were persuaded by their son, Vincenzo to guarantee and mortgage to the bank a property they owned as security for the overdraft of their son’s company to the bank. They were misled into thinking that the liability was limited to $50000 and for half a year. When their son’s company failed, the bank tried to exercise power of sale under mortgage. The liability eventually turned out to be significantly higher because the guarantee was a continuing “all monies” guarantee which was not limited in time. The couple claimed that they would not have entered into the contract if they had known about the dire financial position of their son’s company. Furthermore, the bank did not ask them to obtain legal advice prior to the signing of the contract. The majority of the High Court held that the mortgage ought to be set aside due to unconscionable conduct on the part of the bank. In the Amadio case, Deane J set out three criteria that should be met in claims of unconscionable dealing:
1. The weaker party was in a situation of special disability.
2. The stronger party knew about the weaker party’s special disadvantage.
3. The stronger party took unfair advantage vis-à-vis weaker party disability. Likewise, Alan and Bridget have no formal education and have limited command of English, suffer from some special disability or are in some special position of disadvantage in understanding the contract. In Blomley v Ryan 2, Fullagar J provided some examples of special disability which include lack of assistance or explanation where assistance or explanation is necessary. On the night where the signing of the contract took place, Bruno made no attempt to explain the contract to the couple. The bank acted through Bruno was aware of their situation and has taken unfair advantage of its own superior bargaining power to place the other party (Alan and Bridget) in a position of disadvantage. It is clear that in this case, it has fulfilled all three criteria set out by Deane J in order for the unconscionable conduct to be applicable.
In Lloyds Bank Ltd v Bundy 3, Bundy secured the debts of his son's business on his farm.
In the past, both the father and son had many transactions with the bank and relied on the advice given by the bank. The son’s company also banked at the same branch and the bank knew its financial status. Subsequently, the son’s company required more collateral, and the only solution was by using Bundy’s house as collateral. Bundy was told to sign the document of guarantee and mortgage and he was not given the opportunity to consider or to seek legal help. Five months later the bank foreclosed on the house when the money was not repaid. The court found that there was a relationship of trust and confidence between Bundy and the bank manager giving rise to a presumption of undue influence. As a result, the mortgage and guarantee were therefore set aside. Similarly, the relationship between the Bruno and his clients (Alan and Bridget) was more than an ordinary business relationship; the couples have known Bruno since when he was a child. The relationship of trust and confidence between Alan and Bridget and Bruno has affected their judgement vis-à-vis signing the
contract.
In Garcia v National Australia Band Ltd 4, the high court pointed out that unconscionable conduct can be avoided if the bank has explained the guarantee to the guarantor or ensure that the guarantor has sought legal advice. In Alan and Bridget case, Bruno did tell the couples to think over the contract for several days and to seek professional advice before signing the contract.

B Misleading and deceptive conduct
Section 18 of ACL: A person must not, in trade or commerce, engaged in conduct that is misleading or deceptive or is likely to mislead or deceive.
Consumer, business entity or any organisation or person affected by the misleading or deceptive conduct can bring a case for breach of s.18.
In Weitmann v Katies Ltd 5 the term “mislead” was held to mean to “lead astray in action or conduct; to lead into error, to cause to error” and “deceive” was held to mean to “cause to believe what is false”. Thus, conduct will only be misleading or deceptive if it induces, or is capable of inducing error. It has been held that the word “deceptive” requires the person making the statement to have an intention to deceive, in other words it has an element of fraud. (Brewster & Robinson, 2005) In this case, Bruno’s silence may account to ‘engage in conduct’ which could be misleading that leads to ‘error’, and Bruno is mostly quiet during dinner rather than explaining contract terms to Alan and Bridget. In addition, Bruno, the maker of the statement, knows that the statement is untrue, and the statement he made with the intention of deceiving the consumers, Alan and Bridget, to believe the statement is true, which apply to fraudulent
misrepresentation.

In Hinton v Commissioner for fair trading (2006) NSWADT 257, the consumers, Ellen and Derek have not been told that there was a murder by their real estate agent, Peter, or his agency company when they entered into a contract to purchase a property. Due to their silence, Peter and his agency staff have engaged in misleading and deceptive conduct and made a misrepresentation as to a material fact. The Tribunal found that a material fact was any fact that would influence a decision by a buyer to enter into a contract. (LexisNexis, p.146) In Bruno’s case, he knows the real intention of the contract is to take out a further mortgage when Carlos enters into the contract with his parents as guarantors. In fact, Bruno did not reveal the true statement to his clients, Alan and Bridge, regarding the real intention of the contract.