Unconscionable Conduct in Contract Law

Unconscionable conduct is any action not taken in good conscience and in the context of contract law the basis of unconscionable conduct refers to one party taking advantage over another. Unconscionable conduct in contractual negotiations results in one out of the six prerequisites being invalid for a legal and binding contract. There are legislations with provisions for unconscionability and courts can place orders for those who engage in this conduct.

For conduct to be considered unconscionable, there are three prerequisites – where one party must have had a special disadvantage in the knowledge of the stronger party (or assumed knowledge) and where the stronger party took the opportunity to take advantage of the special disability. When a weaker party has misunderstood a contract due to their special disability it may affect whether or not the party had given genuine consent to be held to the contract. As the requirement of a contract, the absence of genuine consent from a mistake gives rise to an invalid contract. ‘The unconscionable exercise of legal rights by a party who seeks to profit from another’s mistake may give rise to an estoppel if the party asserting its right contributed to or deliberately concealed the mistake’ therefore concluding any validity of a contract.

Schedule 2 of the Competition and Consumer Act 2010 sets out the Australian Consumer Law (ACL) which was included to encourage certainty in businesses and consumers. The ACL prohibits unconscionable conduct, provides remedies and empowers government bodies such as the ACCC to monitor conduct and issue infringement notices and as noted in the Act, contravention of unconscionable conduct provisions in financial services is overseen by the ASIC. The ACL and its provisions for unconscionable conduct reflect those of the Trade Practices Act 1974 however limits of unconscionability now apply to not only businesses but also individuals in contracts as well as monetary penalties for violation...