Vitiating factors - Unconscionable Bargaining

Elements of Unconscionable bargaining

1. Innocent party suffers a vulnerability

2. The vulnerability is known (directly or constructively) and exploited by the counter party

3. Outcome is a manifestly unfair bargain (or otherwise) to the innocent party

4. Rebutting the claim

1. Innocent party suffers a vulnerability

Particular (transactional) vulnerability including drug addiction, depression upon bereavement, poverty, mental or physical infirmity, illiteracy, lack of education, illness, age, stress or anxiety (Gustav) Innocent party may be required to show their deliberative capacities had been impaired so that they could not adequately assess the nature, quality and likely consequences of the bargain entered.  ‘an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests.(Kakavas v Crown Melbourne Limited (Australian HC)) Financial reliance (Thorne v Kennedy) Not simply unbalanced bargaining power but seriously affect the innocent parties ability to compute the consequences of the bargain and their best interests (Gustav).  Imperative to establish a link between vulnerability and entry into the impugned contract (Yedina v Yedin)

NOT a vulnerability

You have the ability to make your own decision (Kakavas v Crown Melbourne Ltd.) Not targeted at you specifically (Kakavas) Party is in a weaker position and they take advantage of that.  Rescue cases = Large charge for help - did not exploit you by creating the circumstance = victim of your own circumstances = Law ‘won’t save the foolish from their foolishness’ (Gustav)

The vulnerability is known (directly or constructively) and exploited by the counter party

Onus on the innocent party to show counter party knew about vulnerability and chose to exploit it. Constructive knowledge may be sufficient.  The counterparty cannot wilfully turn a blind eye if they reasonably believe that fraud has been used to obtain the advantage, they should inquiry. (Gutch v Homan) Agent + principals; acts of the agent are taken as acts of the principals - Agents knowledge is transferred to the principal.

Not knowledge:

Use of behavioural science because they aren’t using specific knowledge about your vulnerabilities to target specifically you.

Outcome is a manifestly unfair bargain (or otherwise) to the innocent party

Counter party to show that not withstanding the innocent party appearing vulnerable (+ having knowledge of the vulnerability) the innocent party was not exposed to transactional disadvantage. Transactional disadvantage = paying significantly more.  What is unfair to some, may actually give a benefit that someone otherwise would not have had (ASIC v Kobelt)

Not manifestly unfair when:

The activities in question take place in a commercial context in which the unmistakeable purpose of each party was to inflict loss upon the other party to the transaction. ([25] Kakavas v Crown Melbourne Ltd.)

Rebutting the claim

• Party didn’t suffer any weakness 

• They would’ve been able to seek advice from a lawyer

Counterparty is not aware of party’s vulnerability (Gustav & Co Lts v Macfield Ltd)

Additional Notes:

• UB = no need for relationship or persuasion

• Common law only intervenes when the process is unconscionable not just the price being a bit unfair.

Thorne v Kennedy (2017)

Facts

Ratio(s)

Mr Kennedy (67 Rich property developer) got his fiancée (Ms Thorne [36F, spoke little english, no assets of her own and poor) to sign a pre-nuptial agreement 4 days prior to wedding (Once her family had been flown out for it from Europe).  Gave her an ultimatum to sign or wedding is called off.  Thorne got independent legal advice - confirmed deal was unfair  - Lawyer thought Ms T was only signing because she was under significant stress because of the wedding and wanted it to go ahead.  Ms T signed it anyway.

Was a disadvantage: she was ‘powerless with no choice but to enter the agreements’ - finanancilaly reliant on Mr Kennedy. Ms T couldn’t take into account long term consequences [based on the short term consequences] Kennedy knew her disadvantage - partially created by him with the urgency to sign. When providing his ultimatum did not provide a way for her family to return to Europe.  Agreement was inappropriate and wholly inadequate.  Was an unconscionable bargain.

Gustav & Co Ltd v Macfield Ltd. [2007] NZCA 205

Facts: Mr. Parkison (sole director or Gustav) terminally ill (diagnosed in April - condition significantly worsening over time to the point where his own interests were severely diminished by October (due to pain + medication) Negotiated a deal in Nov 2003, $12 mil purchase of the ‘union centre’.  Kept working despite his illness. Offer was conditional on due-diligence, after it became unconditional Mr P died.  Gustav claimed the contract was unconscionable seeking to set purchase aside.    Done a lot of things that was unusual for him to do

Ratio: UB will not save the foolish from their foolishness. Aims to protect those under a significant disadvantage from exploitation. Agents were aware that he had terminal cancer -> factors suggest that Macfield ought to have made further inquiry of those associated with Gustav rather than simply accepting the confirmation  Was not any issue of UB at time of contracting   But in the circumstances it is not unconscionable for Macfield to insist on its strict legal rights. His mental impairment did cause poor decision making in entering the contract and did not take his reasonable care he usually would The property seller was unaware of his circumstances so not unconscionable acts

ustralian case of  Australian Securities and Investments Commission (ASIC) v Kobelt (2019) 368 ALR 1

ASIC v Kobelt

Facts; Poorly educated people (Aboriginals) couldn't arrange their affairs, Kobelt arranged a business where they could bring their information and money which would allow them to buy things with credit Used him as a means to purchase things.Would give them a voucher (kind of acted as a bank for them) Commerce commission thought he was cheating them due to the circumstances. He had their bank cards, so they couldn't buy from anyone else they had to buy from him. = eliminated his competition.

Ratio; Court: he gave them structure to economic life and arranged their affairs Gave them limits per day -> could not spend all money in one day Thus had not obtained a manifestly unfair bargain they got equal value from their transaction