Unconscionability - In equity and in statute

University of Tasmania

 Chief Justice Allsop AO^[*]  23 September 2019

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The word “unconscionable: or “unconscientious” directs one to the notion of conscience. Equity acted and acts in personam, often acting to prevent the person acting against conscience. It is a description of the element of many grounds of equitable interventions to refuse enforcement of or set aside transactions. The relief that Equity would give in those circumstances depends on the developed principles and doctrines that give form and structure to Equity as a coherent body and structure of law.

The historical importance of the word in Equity and its adoption by Parliament in important statutes dealing with commercial law in Australia make its meaning important.

That conduct or behaviour can be described as unconscionable is a conclusion drawn from a body of facts against a standard or norm of right behaviour. In Equity there were a variety of kinds of behaviour where this could arse. They included exploitation of vulnerability or weakness, abuse of a position of trust of confidence, an insistence upon rights in circumstances where to do so was harsh or oppressive, a denial of legal obligation in circumstances that would be seen as inequitable, and unjust retention of property.

One can see the notion of unconscionability as an operative expression of a standard of behaviour in the following areas of concern of Equity: undue influence, unconscionable bargains, relief from mistake or misrepresentation or duress, the imposition of the constructive trust, estoppel, penalties and forfeiture, abuse of trust or confidence, part performance, secret trusts, restitutionary orders, as the very foundation of the express trust and as the central idea of the notion of equitable fraud.

Equity developed and articulated its principles, doctrines and remedies in concrete factual circumstances that bore upon the relationships of the parties before the Court. It was the circumstances and behaviour of the relationship of the parties to an identified transaction or body of rights that was the concern. The determination of the application of the principles called for a technique suited to the application of principles to circumstances, not to the application of fixed defined rules. Hence in Jenyns,[1] Justices Dixon, McTiernan and Kitto referred to the technique of Equity as follows:[2]

A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case.

When we come to the modern statutes that are the subject of recent consideration, it is of the first importance to recognise that the word “unconscionability” is being used as the reference point for the content of conduct that is to be the subject of a penal consequence. Though the conduct sought to be characterised as unconscionable will generally arise in some transactional or relational way, it is not relief in the transaction that is sought by a denunciation of the conduct of the wrongdoer.

Let us spend a little time looking at Equity at work. Equity is a system of law, of principles and doctrines that should be lived and experienced. It is not a formless void of intuition and moral emotion, far from it: it is both a structure of rules and principles and a way of approaching human and legal relationships. It requires legal taxonomical analysis, but such taxonomy takes its place in a search for justice guided b principles derived from good conscience.

Before we examine some of the emblematic cases of the High Court in the 15 years from 1983 to 1998, let me tell you a story of my study of Equity in 1977. It is to be understood by absorption, by reading, by imagining, and thus by experiencing it; not by definitional analysis.

Taylor v Johnson (1983) 151 CLR 422

Johnson granted Taylor (or his nominee) an option to purchase approximately ten acres of land for $15,000. He exercised the option in favour of his children, and a contract of sale was entered into. The purchase price was again expressed to be $15,000. However, Johnson claimed that at all material times, she thought that the consideration expressed in the documents was $15,000 per acre. The trial judge accepted that she was so mistaken, but found that Taylor was unaware of this mistake. Specific performance was ordered. The New South Wales Court of Appeal reversed this latter finding of fact, holding that Taylor did indeed know of Johnson's mistake. They upheld Johnson’s appeal and set aside the contract of sale on equitable grounds.

Outcome

The High Court, by a majority, dismissed the Taylors’ subsequent appeal.

Mason ACJ, Murphy and Deane JJ

Found (although with some hesitation) that doctrine of unilateral mistake was applicable to cases involving a mistake as to the existence or content of an actual term of a written contract. Then considered the scope of the basis upon which relief in equity would be available.

Proposition of law: A party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware of the mistake (or of circumstances indicating the mistake) and deliberately sets out to ensure that the first party does not become aware of the mistake.[3]

Interpreted comment by Dixon CJ and Fullagar J in Svanosio as to a difficulty in conceiving circumstances in which equity could properly give relief by setting aside the contract unless there had been fraud or misrepresentation as referring to fraud in the wide equitable sense, which includes unconscionable dealing (which would align with the Earl of Chesterfield categorisation under the broad umbrella of “fraud”). Even if they were not doing so, the majority determined that the wider understanding was correct, with cases including Solle v Butcher already showing such breadth in application.[4]

Special circumstances will ordinarily need to be shown before it would be unconscientious for one party to a written contract to enforce it against another who was under a mistake as to its terms of subject matter.[5] For example, inducing mistake by material misrepresentation, or where one party knows of the mistake and lets the other remain under that delusion.[6]

What of justice? “[I]t is a principle which is best calculated to do justice between the parties to a contract in the situation which it contemplates.”[7]

Commercial Bank of Australia v Amadio (1983) 151 CLR 447

Mr and Mrs Amadio were Italian immigrants in their 70s, with limited English skills and formal education. While Mr Amadio had some limited business experience, Mrs Amadio had none. The couple had four sons. The second oldest was Vicenzo. Vicenzo appeared to be successful, with a construction company Amadio Building. His parents evidently trusted his business acumen, and relied on him for the management of their business affairs. In fact, Vicenzo was in significant debt. He was advised by the bank that he could obtain increased overdraft if security was given by his parents, after informing the bank he would change bankers (and falsely telling them this was on the basis of an approved mortgage by his parents). Vicenzo asked his parents to guarantee the account and provide security, claiming it was for around $50,000 and only for a period of six months. Mr and Mrs Amadio executed a guarantee and mortgage (as security for the guarantee) in favour of the appellant bank.

When the bank’s local branch manager visited Mr and Mrs Amadio’s home to obtain their signatures, he provided no explanation about the documentation being signed, although he did correct Vicenzo when he falsely said the mortgage was only for six months. Relevantly, the paperwork contained a mortgage of the Amadios’ property to secure any existing or future debt of Vicenzo’s company, and a positive promise (with no time limit) that they would pay the whole of such indebtedness when called upon to do so. Neither Mr nor Mrs Amadio read the document before signing.

Once the guarantee was made, the bank increased the overdraft of the son’s company from $189,000 to $270,000. Shortly thereafter the company went into liquidation. The bank demanded payment from Mr and Mrs Amadio.

The couple sued the bank in the Supreme Court of South Australia, seeking an order that the bank release them from their obligations under the guarantee and mortgage. The bank made a counter-claim for a declaration of the validity of the guarantee and mortgage, and an order for payment. The primary judge gave judgment for the bank on the counterclaim. The Full Court of the Supreme Court allowed the Amadio’s appeal. The bank appealed to the High Court.

Outcome

The High Court, with Dawson J dissenting, held that the instrument of guarantee and mortgage should be set aside unconditionally. Gibbs CJ held that the bank owed a duty to Mr and Mrs Amadio to disclose the unusual features relating to the overdrawn account, and that failure to do so amounted to misrepresentation. Justices Mason, Wilson and Deane (separately) focused more closely on the unconscientious taking advantage of the special disadvantage of Mr and Mrs Amadio.

Deane J

In Deane J’s judgment, one can see the method of equity. Justice Deane commences by detailing the facts, especially the relationships at play (between bank and Vicenzo, Vicenzo and loving proud parents, and bank and parents). Vicenzo’s company, Amadio Builders, had an unusual relationship with the bank. It was treated as one of the branch’s most important customers. It was also in a joint venture with a wholly-owned subsidiary of the bank, which financed many of Amadio Builder’s speculative construction projects. The bank would have considered it prudent to retain Amadio Builder as a client. Indeed, the hasty drawing up of this guarantee and mortgage was precipitated by Vicenze claiming he was moving banks, obtaining a higher overdraw limit, on the basis of a mortgage by his parents. Thus, the bank’s role in seeking Mr and Mrs Amadio’s signatures “was far from a disinterested one”.[8]

Justice Deane then discussed the jurisdiction of courts of equity to relieve against unconscionable dealing. He notes that the jurisdiction extends generally to circumstances in which there is a party to the transaction under a special disability in dealing with the other party such that there is an absence of any reasonable degree of equality between them, and the disability was sufficiently evidence to the stronger party such that accepting or procuring the weaker party’s assent to the transaction would be unconscientious.[9] Justice Deane emphasised that the circumstances which may constitute a special disability “are not susceptible to being comprehensively catalogue[d]”.[10] Here, its existence was shown by a careful examination of the inherent and also relational positions of the bank and the Amadios.[11]

The bank tried to argue that its agent Mr Virgo honestly and reasonably relied on a representation by Vicenzo that his parents knew and consented to the transaction. Deane J notes any evidence of this fact is “unimpressively sparse”[12] and “difficult to accept as reasonable”.[13] Nevertheless, Deane J went out of his way to stress that neither the bank nor its agent was guilty of any “dishonesty or moral obliquity” in its dealings with the Amadios.[14] This was even though Deane J found that Mr Virgo “knew that no one who might have rendered such advice and assistance to Mr and Mrs Amadio had even read the document to ascertain whether its terms imposed no greater potential liability upon Mr and Mrs Amadio than that which they were prepared to undertake.”[15] As to what they were prepared to undertake, the comment by Mr Amadio as to only having a six month duration on the guarantee ought to have notified Mr Virgo of the misinformed nature of the transaction.

In the circumstances of this case, the wilful ignorance of the bank was not to be distinguished in its equitable consequences from knowledge;[16] it was prima facie unconscientious of the bank to proceed with the transaction.

What of unconscionable dealing? It is underpinned by the idea that equity will intervene to prevent a stronger party to an unconscionable dealing acting against equity and good conscience by attempting to enforce or retain the benefit of that dealing.[17]

Mason J

Agreed with Deane J.

In one sense, although each have their peculiar requirements of fact and law, all of the grounds of fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct constitute species of unconscionable conduct by a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced consistently with good conscience.[18]

One cannot define what circumstance constitutes unconscionable conduct: “It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct.”[19] Any mentioned situations are no more than particular exemplifications of an underlying general principle.[20]

What does special disadvantage mean?[21]

I qualify the word ‘disadvantage’ by the adjective ‘special’ in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.

Here, the bank’s duty to disclose was limited. It did not breach it. But that has no bearing on the availability of equitable relief on the ground of unconscionable conduct.[22]

Legione v Hateley (1983) 152 CLR 406

A contract for the sale of land provided for payment of the balance of the price on 1 July 1979. Condition 5 of the contract stated time was of the essence, but a party could not enforce his rights and remedies under the contract unless he gave written notice of such intent with at least 14 days’ notice. The purchaser did not settle on the due date. The vendor served a notice specifying two defaults. First, failure to pay the balance of the price. Second, failure to pay interest at the rate of 14% pa. The purchaser was not in default as to the latter.

On 9 August, the purchaser’s solicitor phoned the vendor’s solicitor. He told a clerk that bank finance had been arranged and could be provided on 17 August. The clerk indicated they thought that would be alright but would need instructions. On 14 August, the vendor claimed the contract had been rescinded as from 11 August in consequence of the defaults not being remedied.

Outcome

Mason, Brennan and Deane JJ found that the vendor was not estopped from treating the contract as rescinded by the conversation on 9 August 1979. Brennan J held there was no basis for estoppel and no grounds for relief against forfeiture. Mason and Deane JJ were of the view that a representation founding an estoppel must be clear; not necessarily express but clearly implied from conduct. No such representation was made here. Nevertheless, the purchaser should be permitted to raise a claim of relief against forfeiture, an equitable claim to prevent an injustice arising from the fact that a house had been built on the property. They remitted the matter to the Supreme Court to determine this question. Gibbs CJ and Murphy J dissented, considering that the clerk’s statement was sufficient to give rise to an estoppel, but agreed with Mason and Deane JJ on the forfeiture question.

Note that while Mason and Deane JJ said there must be unconscionable conduct, Gibbs CJ and Murphy J were of the view relief may be granted because forfeiture would result in the exaction of “a harsh and excessive penalty for a comparatively trivial breach.”[23] The former focus on the quality of the vendor’s action (as statute does now) while the latter – in the words of Gauron J in Stern – “assimilated the consequences of that conduct to a penalty”.[24]

Mason and Deane JJ

Only Mason and Deane JJ touch on unconscionability. Mason and Deane JJ address the equitable jurisdiction to relief against forfeiture. They view it as being expansive, conforming to “the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct”.[25]

Generally no forfeiture where there is breach of essential term of contract.[26]

But if there be fraud, mistake, accident, surprise or some other element which would make it unconscionable or inequitable to insist on forfeiture of the purchaser's interest under the contract because he has not performed in strict accordance with its terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation.

Mason and Deane JJ noted an example of unconscionable rescission: Cheney v Libby. There, the contract was for sale of land and time was of the essence. The purchaser had been misled by the vendor’s conduct into thinking a certain form of payment would be accepted as it had been accepted before. Once he knew the vendor refused to accept the payment, the purchaser promptly tendered payment in cash, even though the due date had passed. Good conscience would not allow the application of the provisions of the contract where the cause of the failure to comply of the party seeking specific performance was due to the conduct of the other party.[27]

Chan v Zacharia (1984) 154 CLR 178

Mr Chan and Mr Zacharia were doctors. They worked as partners and rented premises as joint tenants. The tenancy was a fixed three year lease with an option to renew for a further two years. Zacharia invited Chan to jointly exercise the option to renew the lease, but declined to do so. After the partnership was dissolved but prior to it being fully wound up, Chan obtained a new lease of the premises in his sole name and to the exclusion of Mr Zacharia. He paid the landlord a premium of $10,000 to do so.

Outcome

The High Court held that by obtaining the new lease, Mr Chan had exploited his fiduciary position as co-partner. Murphy J dissented.

Deane J

Deane J emphasised the presumptions arising out of the fiduciary relationship:[28]

…there is an irrebuttable presumption that any right in respect of a new lease of [the property] were obtained by Dr Chan by use of his position as a trustee of the previous tenancy but there is a rebuttable presumption of the fact that any such rights were obtained by use of his position as a partner in the dissolved partnership whose assets were under receivership and in the course of realisation.

You can see the aim of preventing unconscientious behaviour in this conclusion.

Brennan J

Brennan J agreed with Deane J. He noted that a new lease with only Mr Chan could not be made unless the option was not exercised by the duo. Though Mr Chan was not bound to exercise the option with Mr Zacharia, “he could not take advantage of his refusal to secure the benefit of a renewal of the lease for the partnership in order to secure the benefit of a new lease for himself.”[29]

Muschinski v Dodds (1985) 160 CLR 583

Mrs Muschinski and Mr Dodds were an unmarried couple. They purchased land as tenants in common in equal shares. The land was bought with the purpose of Mrs Muschinski running an arts and craft centre there. Mrs Muschinkski paid the price of the land and agreed to have Mr Dodds on the title if he undertook the costs of renovating an existing cottage and paying for the erection of a prefabricated house. The intent had been that both party contribute an approximately equivalent amount. This did not occur due to the development not being approved in a manner suitable to the couple, and the ultimate deterioration of the relationship prior the renovation of the cottage or purchase of the prefabricated house. Instead, Mr Dodds contributed only 1/11^th. Mrs Muschinski claimed sole beneficial ownership of the land.

Outcome

The High Court split on the question. Gibbs CJ, Mason and Deane JJ held that the parties held their respective legal interests as tenants in common upon trust after payment of any joint debts incurred in improvement of the property, to repay to each her or his contribution and as to the residue for them both in equal shares.

Gibbs CJ came to this conclusion because the parties were jointly and severally liable to pay the price, and the woman having paid the whole of it was entitled to contribution for one half from the man.

Mason and Deane JJ held it was unconscionable after the failure of the joint venture between the parties for the man to assert his legal entitlement without recognizing the woman's payment.

Brennan and Dawson JJ dissented, holding that failure by Mr Dodds to fulfil his condition did not involve forfeiture of the beneficial interest in the property but rather a personal obligation to fulfil the obligation. Brennan and Dawson JJ did consider that Mrs Muschinski may have been entitled to compensation for non-fulfilment if such a claim were to be made.

Deane J

In the context of partnership in the commercial sense, if there is premature dissolution, the parties are entitled to be repaid their respective capital contributions minus the partnership debts. If a premium has been paid by one partner (who is not responsible for the premature dissolution), an equity court will order a refund (partial or whole) of the premium to the extent that retention by the other would be unconscionable.[30] In the circumstances, Mr Dodds is precluded from asserting or retaining his one-half ownership of the property, to the extent that it would be unconscionable for him to do so.[31]

What of justice and fairness? They remain relevant to the traditional equitable notion of unconscionable conduct which persists as an operative component of some of the fundamental rules or principles of modern equity.[32] The Court does not “indulge random notions of what is fair and just as a matter of abstract morality.”[33]

How do we determine if it would be unconscionable? Notions of what is fair and just are relevant, but only in the context of determining whether conduct engaged in should, by reference to legitimate processes of legal reasoning, be characterised as unconscionable for the purposes of “a specific principle of equity whose rationale and operation is to prevent wrongful and undue advantage being taken by one party of a benefit derived at the expense of the other party in the special circumstances of the unforeseen and premature collapse of a joint relationship or endeavour.”[34]

If the situation were commercial, it would plainly be unconscionable for Mr Dodds to try to retain the benefit towards which he had not contributed as planned. But the relationship was not merely commercial. The personal element provided the context and explains the content of the planned commercial venture. Looking at the personal context too, Mr Dodds’ conduct in trying to retain the one-half share was unconscionable.[35] The fact he was merely trying to take advantage of the original arrangement does not deprive the conduct of unconscionability.[36]

Baumgartner v Baumgartner (1987) 164 CLR 137

The parties to a de facto relationship pooled their incomes for living expenses and fixed commitments, including mortgage payments. The aggregate earnings were pooled in approximately 55% by the man and 45% by the woman. The couple obtained a house with a mortgage in the name of the man and with the proceeds of a unit owned by the man. They later separated and the man asserted the land bought was solely his property.

Outcome

The man held the house on trust for the parties in the proportion in which they had contributed earnings to its acquisition, subject to a charge in the man’s favour for the net proceeds of the unit.

Per curiam, the Court held the man’s conduct in trying to retain the proprietary interest as solely his own after the dissolution of the relationship was unconscionable.

Mason CJ, Wilson and Deane JJ

There was no common subjective intention to create a trust. However, the question of whether there is a constructive trust in the circumstances remains. Would a failure to recognise that the one or the other has a proprietary interest in the home be so contrary to justice and good conscience that a trust or other equitable obligation should be imposed?[37]

The plurality was of the view that the reference to conduct “contrary to justice and good conscience” was to be understood as conduct that is in all the circumstances unconscionable. The significance of this is that it asserts that the foundation for the imposition of the constructive trust in a case like this is a recognition that refusal to do so allows unconscionable conduct to go unchecked. The imposition of a constructive trust circumvents the unconscionable conduct.[38]

Seeing the case as one where the parties pooled their earnings for the purpose of a joint relationship and present and future security of accommodation for themselves and their child on the basis of this joint relationship, the assertion that the appellant owned the property to the exclusion of the respondent amounted to unconscionable conduct attracting the intervention of equity.[39]

Justice does also require some adjustments, though, to take into account the lump sum contribution of the appellant from the sale of his unit, the mortgage payments made after the termination of the relationship, and the furniture taken by the respondent when she left the appellant. The remainder of the property was divided based on the living contributions of the parties – 55:45.[40]

Gaudron J

Gaudron J agreed with the plurality but added some further comments on the imposition of trusts. She noted that if the initial contributions to the house had been made in proportions by the parties, a resulting trust would have arisen rather than a constructive trust. On this note, she added:[41]

Although the resulting trust arises by operation of equitable principle, it has its foundation in equity's aversion to that which is unconscionable. It would be unconscionable for one only of the contributors to the consideration for the purchase of an asset to hold that asset to the exclusion of any interest on the part of the other contributors in the absence of an intention, real or presumed, that the holder should take the entire beneficial interest.

Gaudron J’s judgment expressly recognises the non-financial contributions involved in domestic relationships, and how these may be relevant and taken into account.[42] As such, her Honour was of the view that the share actually contributed by the respondent ought to be increased by reference to the amount she would have contributed but for her absence from work during the later stages of her pregnancy and after the birth of the child. This aligns with what the plurality held, but was more explicit in recognising the non-financial contributions and financial sacrifices made by the female partner in this, and other, relationships.

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

In 1983, negotiations were opened between an owner of land and a company about leasing the land. The owner was to demolish a building and construct a new on to the company’s specifications. The contract was near finalised. Some amendments were made by the owner’s solicitor. On 7 November, the owner’s solicitor told the company’s solicitor that it was essential that the agreement be concluded within the next day or so in order for building supplies to be arranged prior Christmas. It was made clear that the owner did not wish to commence demolition until the parties were happy with the lease. The company's solicitor said that the company had notified him orally that the suggested amendments to the draft lease were acceptable but he would get formal instructions and would tell the owner’s solicitor the next day whether the company disagreed with any of them. He then sent the owner's solicitor a redrafted lease incorporating the suggested amendments. No objections were raised that day or at all. On 11 November, the owner’s solicitor forwarded to the company's solicitor an executed lease “by way of exchange”. The owner began demolition.

However, a week or so later, the company decided not to go ahead with the lease. The company’s solicitor informed them they were not bound to proceed unless parts were exchanged. The solicitor was instructed to “go slow”. Soon after, on 10 December, the company became aware that demolition had commenced. Nevertheless, there was no communication between the company’s solicitor and the owner’s solicitor between 11 November 1983 and 19 January 1984. The new building was about 40% complete in January 1984 when the company informed the owner it did not intend to proceed.

Outcome

Mason CJ, Wilson, Brennan, Deane and Gaudron JJ held that although no binding lease had come into existence, the company was estopped from denying it was bound. Mason CJ, Wilson, Brennan and Deane JJ held that the company was estopped from retreating from its implied promise to complete the contract because, knowing the owner was exposing himself to detriment by acting on the basis of a false assumption, it was unconscionable for it to adopt a course of inaction which encouraged that course. Gaudron J held that the company’s imprudence in failing to inform the owner that exchange might not occur caused the owner to act on a false assumption. It would be unjust and unfair to allow departure from that assumption.

Mason CJ and Wilson J

Merely failing to fulfil a promise is not enough for promissory estoppel.[43] But the creation or encouragement of an assumption that a contract will come into existence or a promise will be performed when the other party has relied on that assumption to his detriment to the knowledge of the first party, such that departing from that promise would then be unconscionable, is sufficient.[44] In this case, the inaction in all of the circumstances constituted clear encouragement or inducement. It was unconscionable for it to adopt a course of such inaction.[45] Promissory estoppel estopped the appellant from retreating from its implied promise to complete the contract.[46]

The judges make it clear that this role of unconscionability is at the core of equitable estoppel:[47]

One may therefore discern in the cases a common thread which links [the cases] together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has “played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it”: per Dixon J in Grundt; see also Thompson. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.

Brennan J

Brennan J asks what constituted unconscionable conduct and concludes that an exhaustive definition is both impossible and unnecessary, although the categories can be useful examples.[48]

Brennan J notes that courts had limited the remedy offered by promissory estoppel to the realm of existing legal rights.[49] He criticises this approach. He notes there is no logical distinction between a change in legal relationships effected by a promise which extinguishes a right and a change in legal relationships effected by a promise which creates one. Why should equity in this situation be only shield and not sword?[50] The solution to the problem is reached by:[51]

…identifying the unconscionable conduct which gives rise to the equity as the leaving of another to suffer detriment occasioned by the conduct of the party against whom the equity is raised. Then the object of the principle can be seen to be the avoidance of that detriment and the satisfaction of the equity calls for the enforcement of a promise only as a means of avoiding the detriment and only to the extent necessary to achieve that object. So regarded, equitable estoppel does not elevate non-contractual promises to the level of contractual promises and the doctrine of consideration is not blown away by a side-wind. Equitable estoppel complements the tortious remedies of damages for negligent misstatement or fraud and enhances the remedies available to a party who acts or abstains from acting in reliance on what another induces him to believe.

Deane J

Estoppel is a doctrine of substantive law and equity. There is no reason why it cannot be applied as effectively in relation to a representation or assumption of a future state of affairs as to one of an existing state of affairs. The retention of the executed lease by the company's solicitor and the company’s deliberate silence and inaction had caused the owner mistakenly to assume that a binding contract existed and to act on that assumption to his detriment.

Gaudron J

Assumptions as to future rights are capable of falling within the scope of that which promissory estoppel may protect.[52]

Stern v McArthur (1988) 165 CLR 489

A contract for the sale of land made in 1969 provided for the payment of the balance of the purchase price by monthly instalments together with interest. The vendors were entitled to the rents and profits until completion, and were to pay rates and taxes until then, when possession would be given. Default by the purchasers entitled the vendors to determine the contract and forfeit the deposit. On default in the payment of any instalment the balance of the price became due and payable. Notwithstanding the terms of the contract the purchasers went into possession and with the vendors’ knowledge built a house on the land and paid rates. In 1977 they defaulted in the payment of instalments. Some time afterwards, monthly payments were resumed. In January 1979 the vendor gave notice to complete which was not complied with, and the contract came to an end. The vendors offered to allow the purchasers the value of the improvements.

At this point, the land was worth much more than it had been at the time the contract was entered into, due to the erection by the purchasers of a house.

Outcome

Deane, Dawson and Gaudron JJ held that the purchasers were entitled to relief against forfeiture of their interest in the land. Mason CJ and Brennan J dissented.

Deane and Dawson JJ

Deane and Dawson JJ held that the provision for determination was by way of security for the payment of the price, and the contract as it was carried into effect was essentially an arrangement by which the vendors undertook to finance the purchase upon the security of the land. In those circumstances, it was unconscionable for the vendors to insist upon their strict contractual rights.

The legal position is not that there must be unconscionable conduct of an exceptional kind before a case for relief can be made out. Rather, the court will be reluctant to:[53]

interfere with the contractual rights of parties who have chosen to make time of the essence of the contract. The circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable – or, more accurately, unconscientious – conduct.

In considering whether intervention is required, great weight will be given to the bargain which the parties have made. It is in that sense that the conduct of one party must be exceptional to warrant relief, involving something such as fraud or mistake or accident. But these are not an exhaustive list:[54]

they are referred to in this context to emphasize that a strong case must be made out to warrant departure from the general approach, which is to hold the parties to their bargain. The general underlying notion is that which has long been identified as underlying much of equity's traditional jurisdiction to grant relief against unconscientious conduct, namely, that a person should not be permitted to use or insist upon his legal rights to take advantage of another's special vulnerability or misadventure for the unjust enrichment of himself …

The conduct of and benefit obtained by each party to the transaction is relevant and was considered in determining relief against forfeiture was appropriate.[55]

Gaudron J

The appellants argued that the relief identified in Legione was only available if the actions of the appellants were unconscionable, and that their conduct could not be so characterised. Gaudron J disagreed, holding it was unconscionable for the vendors to determine the contract when a decree of specific performance would secure all they had contracted for.

Gaudron J notes the difference between the two approaches in Legione: Mason and Deane JJ focusing on the conduct of the vendor and Gibbs CJ and Murphy J assimilating the consequences of that conduct to a penalty. Her Honour notes that where a contractual provision imposes a penalty or something resembling a penalty in substance, it is the provision and not the conduct of the vendor in exercising the contractual right, which should be disregarded for the purpose of determining the rights which Equity will treat as subsisting.[56]

However, Gaudron J concludes that regardless of what exactly is required as a minimum, since unconscionable conduct did exist here by the vendors asserting and insisting upon legal rights conferred by cl 15 of the contract, relief could be found. The concession by the vendors to pay the difference in value of the land referable to the erection of the house did not counter that unconscionability. This is for a number of reasons. For one, equity looks at all the circumstances, then and following. The concession was not made for some weeks and was conditional upon other factors.

Foran v Wight (1989)168 CLR 385

This case concerned a contract for sale of land. Time was of the essence. A special condition applied to the vendor. The vendor informed the purchaser two days before the settlement date that this special condition would not be able to be satisfied. Neither party attempted to settle on the due date. Two days later the purchasers gave the vendors a notice of rescission. The purchasers claimed for a declaration that they rescinded the contract and for the return of their deposit.

Outcome

The majority held that the purchasers' notice of rescission was not invalid and that the purchasers were entitled to the return of their deposit.

Brennan and Dawson JJ concluded this on the ground that although the purchasers were required to show that they were ready and willing to perform, the fact that the vendors had intimated that they were unable to settle relieved the purchasers of the need to show more than that they were not incapacitated from raising the necessary funds and had not resolved against doing so, and on the evidence they had discharged that burden.

Deane and Dawson JJ held the vendors were estopped by their solicitor’s implied intimation that the vendors did not require tender on the due date from relying on the purchasers' failure to tender.

Gaudron J held so on the ground that the date made essential for completion having passed and there being no waiver of essentiality, the contractual obligations came to an end.

Deane J

The vendor’s solicitor’s advice necessarily conveyed to the purchasers that it would be pointless for them to trouble to fulfil the condition of performance of their concurrent obligations within the timeframe initially set.[57]

The purchasers acted on the faith of that intimation that performance within the stipulated time would be futile and was unnecessary. They ceased their efforts to arrange finance with the consequence that they were neither ready nor able to complete the purchase within the time allowed by the contract.

In such circumstances, the law will not allow the vendors to depart from the state of affairs upon the basis of which they induced the purchasers to act.

Importantly, Deane J confirmed promissory estoppel extended to the future:[58]

…In any event, I am now prepared to take the step which I refrained from taking in Waltons Stores and to accept that the doctrine of estoppel by conduct extends, as a matter of general principle, to a representation or induced "assumption of fact or law, present or future" (cf. Moorgate Mercantile Co. Ltd. v. Twitchings). Once it is recognized that promissory estoppel is properly to be seen as no more than an emanation of the general doctrine of estoppel by conduct (see Waltons Stores), there remains no valid reason in principle why that general doctrine should not apply to a representation of future fact.

Gaudron J

In the present case the vendors, by their intimation that they were unable to settle on the day made essential by the contract, waived any benefit accruing to them from that essentiality and freed the purchasers from the obligation to tender settlement on that day. They cannot now claim the purchasers, by attempting to rescind, are at fault or should forfeit their deposit for acting on the assumption created by the vendor’s conduct.[59]

Gaudron J agreed with Brennan J that the deposit was recoverable as money paid for a consideration that wholly failed.

Commonwealth v Verwayen (1990) 170 CLR 394

A member of the Royal Australian Navy was injured when two warships collided while engaged in combat exercises in 1964. In 1984 he sued the Commonwealth for damages for negligence. By its defence the Commonwealth admitted liability, but the question of damages remained in issue. Both before and after it delivered its defence the Commonwealth stated that its policy in relation to claims arising out of the collision was not to contest liability and not to plead a limitations defence. Following a change in policy, in 1986 the Commonwealth obtained leave to amend its defence to rely both on the Limitation of Actions Act and to assert that it owed no duty of care to the plaintiff.

Outcome

The majority held that the Commonwealth could not dispute its liability because it (per Deane and Dawson JJ) was estopped from doing so or (per Toohey and Gaudron JJ) because it waived its right to do so. Mason CJ, Brennan and McHugh JJ dissented.

Deane J

Viewed the resolution of the case in the application of the general doctrine of estoppel by conduct. Largely agreed with Dawson J.

Once it is accepted that the general doctrine of estoppel by conduct extends to representations about future facts (including conduct), and that the operation of promissory estoppel in equity conforms with the operation of estoppel by conduct in law and equity, promissory estoppel should be accepted as but an emanation of the general doctrine of estoppel by conduct.[60]

The prima facie entitlement to relief based on the assumed state of affairs which one party is estopped from denying will be qualified in a case where such relief would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party. In such a case, relief framed on the basis of the assumed state of affairs represents the outer limits within which the relief appropriate to do justice between the parties should be framed.

Deane J specifically addresses unconscientious conduct.[61] He notes that the doctrine of estoppel by conduct is founded upon good conscience, not so that a person is saved from their own mistake but so that a person is saved from being victimised by others. Unconscionability in this sense is better described than defined.[62] At its core, what is unconscionable should be understood in the sense of referring to what one party ought no, in conscience, be allowed to do. This could involve insistence upon legal entitlement to take advantage of another’s special vulnerability or misadventure, in a manner unreasonable and oppressive, an affront to ordinary minimum standards of fair commercial dealing.[63]

Ultimately, the question whether departure from the assumption would be unconscionable must be resolved “not by reference to some preconceived formula framed to serve as a universal yardstick” but by reference to all the circumstances of the case. This includes the reasonableness of the conduct of the other party in acting upon the assumption, the extent of detriment sustained, and whether the other party knew or ought to have known of the mistake or inducement.[64]

Gaudron J

The substantive doctrine of estoppel permits a court to do what is required to avoid detriment and does not require the making good of the assumption on which it is founded in every case. Even so, it may be that an assumption should be made good unless it is clear that no detriment will be suffered other than that which can be compensated by some other remedy.[65]

A party to litigation will be held to a position previously intentionally taken with knowledge if, as a result of that earlier position, the relationship of the parties has changed, whether or not detriment is actually established.[66]

Mason CJ

There is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the other party has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness.[67]

A central element of the doctrine of estoppel is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid.[68]

Brennan J

Equitable estoppel yields a remedy in order to prevent unconscionable conduct on the part of the party who, having made a promise to another who acts on it to his detriment, seeks to resile from the promise.[69] The remedy is to effect the minimum equity needed to avoid the relevant detriment, i.e. detriment occasioned by reliance on the promise. While the relevant detriment does not consist in a loss attributable merely to non-fulfilment of the promise, in some situations, the minimum equity will not be satisfied by anything short of enforcing the promise.[70]

For Brennan J, the doctrines of waiver and election are distinct. A mere intention not to exercise a right is not immediately effective to divest or sterilize that right; only a knowing abstaining from exercising the right at the time for its exercise.[71]

Louth v Diprose (1992) 175 CLR 621

The respondent, Diprose, was a man of comparatively modest means. He was infatuated with the appellant, Louth. She, less so. He gave her $58,000 for the purchase of a house for occupation by herself and her children of a former marriage. Louth was registered as proprietor.

When the relationship between the parties soured, the man attempted to obtain rights to the property. The primary judge found he had been emotionally dependent on Louth, who as a result had great influence on his actions and decisions. The judge also found that Louth tolerated Diprose’s attentions because of the ensuing material advantages, manufactured an atmosphere of crisis about her ability to continue living in her rented accommodation, and did so in order to influence him to provide the money for the house. She was aware of the infatuation and manipulated it. Louth was ordered to transfer the house to Diprose. The Full Court of the Supreme Court upheld the judgment of the primary judge. Louth appealed to the High Court.

Outcome

The majority (Toohey J dissenting) held that the primary judge’s findings were supported by the evidence and led to the conclusion that Louth engaged in unconscionable conduct in obtaining and retaining the gift of money for purchase of property.

Deane J

Justices Dawson, Gaudron and McHugh agreed with Deane J’s judgment. It is not that equity intervenes to relief one party of the consequences of their foolishness; it is to prevent their victimisation.[72] Rather, the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which:

(i) one party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and

(ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or unconscionable that the other party procure, accept or retain the benefit of the disadvantaged party's assent to the impugned transaction in the circumstances in which it was procured or accepted.

Mason CJ

The appellant’s conduct was unconscionable in that it was dishonest and calculated to induce (and in fact did induce) the entrance into a transaction improvident for the respondent and conferring great benefit upon the appellant.[73]

Brennan J

Brennan J commenced by stating that the jurisdiction of equity to set aside gifts procured by unconscionable conduct arose ordinarily from the concatenation of three factors:[74]

1. a relationship between the parties which, to the knowledge of the donee, places the donor at a special disadvantage vis-a.-vis the donee;
2. the donee's unconscientious exploitation of the donor's disadvantage; and
3. the consequent overbearing of the will of the donor whereby the donor is unable to make a worthwhile judgment as to what is in his or her best interest.

It is similar to undue influence, but distinct in that undue influence relates to the quality of the consent whereas unconscionability can arise in situations where the will of the innocent party is independent and voluntary.[75] Yet the basis is substantially the same: “all the variety of relations in which dominion may be exercised by one person over another.”[76]

Brennan J looks at each of these three factors in this case. The relationship.[77] It is not a set of closed categories. The essence is weakness; physical, mental, emotional or otherwise. It is unnecessary to show that the donee contributed to that weakness. Exploitation of disadvantage.[78] Very apparent in this case. Donor’s judgment overborne.[79] An inference may be drawn if the first two limbs are satisfied that the third is too. But this is not a presumption arising by operation of law. It is an inference arising from the facts of the case. Brennan J does also state it is for the party impeaching the gift to show it is the product of the donee’s exploitative conduct: this is the “final and necessary link in the chain of proof of unconscionable conduct leading to a decree setting aside the gift.”[80]

Bridgewater v Leahy (1998) 194 CLR 457

Mr William York was a grazier. He was born in 1904 and died in 1989, having made his will in 1985. He owned substantial landholdings, which were, according to his will, to pass to his daughters subject to an option to purchase in favour of his nephew, Mr Neil York. The primary judge, noting the “fairly ungenerous” way in which Bill treated his wife and daughters, ordered a grant of probate of the will in solemn form. His Honour dismissed a claim that Neil unduly influenced Bill to obtain the will in this form.

That claim of undue influence was not pursued in the Court of Appeal. The principal issued which remained in the Court of Appeal (and then High Court) concerned the claims to have set aside three transfers dated 19 July 1988 of some of Bill’s land interests to Neil, and the forgiving by Bill of Neil’s debt of $546,811. The claim was that the transfers and deed forgiving the debt were procured by unconscionable conduct. The appellants also relied upon breach of fiduciary duty owed by Neil to Bill. Immediately prior making the transfers and executing the deed, Bill was examined by a doctor and found to be of sound mind and capable of making decisions about his personal affairs.

Outcome

The majority, constituted by Gaudron, Gummow and Kirby JJ, held that Bill’s strong emotional dependence upon and attachment to his nephew placed him in a position of disadvantage such that it was unconscionable for the nephew and his wife to retain the benefit of the deed of forgiveness. The relief required that account be taken of the uncle's desire to benefit his nephew in his will and that allowance be made for appropriate provision for his wife and daughters. Additional evidence could be adduced below, with leave, in order to enable the court to do practical justice in framing relief.

Gleeson CJ and Callinan J dissented. They held that the findings of fact to the effect that Bill was not under any special disability should not be disturbed. They held that if relief were to be granted, it should be to set aside the entire transaction and make an order for accounts.

Gleeson CJ and Callinan J

The claim was not that Bill lacked the mental capacity to understand what he was doing,[81] although his independence of mind and capacity to exercise judgment remained relevant even after the undue influence claim was swept aside.[82]

It was not contested or even in doubt that Neil and his wife obtained land from Bill at substantial undervalue. The mere unfairness to Bill’s wife and daughters is not to the point.[83] The issue is an alleged special disability on part of Bill and an unconscientious taking advantage of that special disability by Neil.[84]

So, what is the special disability? The trial judge, and the majority in the Court of Appeal, found there was none. The dissenters highlighted that “[t]he nature of the relevant disadvantage concerns the ability of the weaker, or victimised, party, to make an informed judgment as to his or her interests.”[85] There are many situations used as examples of special disability. Absence of independent legal advice, age, infirmity; they are all examples, but are not exclusive.[86]

In this case, there were concurrent findings that Bill was not subject to a special disability. The dissenters considered how to approach the issue then. They referenced Deane J in Louth v Diprose when he said that the Court “should not, in the absence of special reasons such as plain injustice or clear error, disturb such concurrent findings.”[87] Plain injustice or clear error was not established here.

Gaudron, Gummow and Kirby JJ

Although recognising that there was no claim that Bill was incapable of understanding the effect of the transfers and deed,[88] the plurality nevertheless concluded that unconscionable conduct did exist. The plurality posits that, contrary to the dissenters: “The challenge in this Court is not to concurrent findings of fact but to concurrent misapplication of principle to uncontentious primary facts.”[89]

The judges were of the view that the primary judge treated the fate of the unconscionability case as consequent on the failure of the undue influence case. This is not correct. They are distinct doctrines. The quality of consent is not determinative in the former.[90] The relationship and facts surrounding the transactions are what ought to be examined closely.

The position of disadvantage need not be one of impairment in the ordinary sense; physical o mental frailty, contrary to how the primary judge approached the matter.[91] It may stem from a strong emotional dependence or attachment.[92] It would be an oversimplification to claim that Bill was acting with his eyes open and a full understanding of what he was doing, and was therefore not the victim of unconscionable conduct.[93] Neil and Bill were very close: Bill had “enormous affection” for Neil.[94] There was a tendency of Bill to fall in with the wishes of Neil.[95]

Now, it was apparent that Bill had the goal of retaining the properties as an integrated farming enterprise under reliable and experienced management. His Honour found that this goal was important to him. The plurality found that the transfers and the deed, as a means to attain that goal, involved an improvident transaction which was neither fair nor just and reasonable.[96] They continued:[97]

The effect of the transfers and the deed was to dispose of a significant portion of Bill's assets not for their value of $696,811 but for $150,000. This transaction put it out of Bill's power to change his testamentary arrangements with respect to that portion of its assets. Further, for all his deep concerns that all his properties be kept together under the one manager, even at the expense of the interests of his children, the form of the transaction was such as to provide no certainty that this necessarily would follow for the remainder of Bill's life or after his death.

The relationship between Neil and Bill meant that when Neil raised the question of using the proceeds of sale of some of Bill’s land, they were meeting on unequal terms. Neil took advantage of this.[98] The fact that Neil sought to pay a higher price for the land does not remove the stain of unconscionability from the conduct. It is unconscionable for Neil and his wife to retain the benefit of the improvident transaction.[99]

Critically, the plurality make it clear there need not be predation involved:[100]

It is not an answer that there was no finding that Neil had pursued the initiative to its implemention [sic] in July and November 1988 with the motive or purpose of forestalling any change in Bill's testamentary intentions. The equity to set aside the deed may be enlivened not only by the active pursuit of the benefit it conferred but by the passive acceptance of that benefit.

Thompson v Palmer (1933) 49 CLR 507

This case turned on the circumstances upon which two mortgages were transferred by two co-trustees to the appellant in this appeal, Mrs Thompson.

The respondent, Mr Palmer, was the sole trustee of a settlement made in 1915. By this instrument, the settlor vested a fund of over £75,000 (chiefly consisting in mortgages) in his son Mr Fieldhouse and a Mr Farmer as trustees upon trusts in favour of the settlor’s wife, six daughters and three sons. During many years these two trustees invested moneys of the trust through a solicitor named William Carnegie Clegg. In 1931, Mr Clegg was arrested for misappropriation and was adjudicated bankrupt shortly afterwards. A large part of the fund had been lost through Clegg’s actions and extended to moneys belonging to the testamentary estate of the settlor (of which the son Fieldhouse was a trustee). In 1931, Fieldhouse retired from the trusts of the settlement. Mr Palmer was appointed in his place. Also in 131, Farmer – the other co-trustee – died. Mr Palmer remained as sole trustee.

The appellant Mrs Thompson’s husband was a client of Clegg’s. He had invested moneys in both his and his wife’s name, a little less than £5,000. In mid-1930, Mr Thompson request Clegg to call in his invested sum. This money had long disappeared, although Clegg did not let on this fact to the Thompsons. In order to satisfy the Thompsons’ demand for their money’s return, Clegg fell back upon the securities belonging to the trustees of the Fieldhouse settlement. The transfer was made in consideration of a sum of £600 for each mortgage (£1,200 total) and that these sums were payable to the trustees. It was registered. Dixon J notes that how Clegg was able to obtain transfers of these securities by the trustees is a question to which the evidence in these proceedings supplies no satisfactory answer.[101] Shortly after this occurred, Clegg was declared bankrupt.

The respondent claimed that he was entitled, as unpaid vendor, to enforce a vendor's lien. The mortgages and the certificate of title were in the appellant's possession.

Outcome

The Court unanimously held that:

1. The present trustee was entitled to a vendor’s lien over the mortgage security;
2. The lien was not waived or abandoned;
3. The present trustee was not estopped from asserting the lien.

The Court split on the question of whether the appellant was personally liable for payment of the sum the subject of the lien, with Rich, Dixon and McTiernan JJ concluding the appellant was not so liable (Starke and Evatt JJ dissenting).

Dixon J

The appellant in this case tried to rely on the ground that the trustees were estopped by their conduct from denying that the consideration money for the transfer of the mortgages was actually paid over or accounted for to them by Clegg. The conduct was two-fold: direct representations by Fieldhouse to the Thompsons, and conduct enabling Clegg to make representations.[102]

Dixon J discussed the object of estoppel in pais: “to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment.”[103] Similarly, liens are founded in what a person ought or ought not, in good conscience, be allowed to do.[104] Whether such a departure from the assumption is unjust depends on what role the departing party played in occasioning the assumption’s adoption by the other party.[105]

Johnson v Buttress (1936) 56 CLR 113

This case concerned a gift in the context of a fiduciary relationship. The gift was an allotment of land in Sydney by a Mr John Spencer Buttress, the father of the respondent in this appeal, to a Mrs Johnson. Mrs Johnson is a married woman whose husband conducted a photography studio. She had known Mr Buttress for more than 20 years, through his wife who had since passed. She kept up a familiarity with Mrs Buttress, paying frequent visits to her during her illness and obtaining for her medical advice.

After his wife’s death, Mr Buttress was 66 years old and had no work due to the suspension of operations at the quarries he had been employed by. In the words of Dixon J, “he was a man peculiarly dependent upon others”.[106] Mr Buttress was illiterate. He could not even write his own name. He was excitable and loudly emotive. He had a tendency to loud and disconnected talk. It seems many viewed him as an oddity. He fell out with his son after his wife’s death, and, accompanied by his stepson, executed a will in favour of the stepson’s child. This superseded a previous ill in favour of his biological son. He later made another will, in favour of his sister and niece. In early 1931, Mr Buttress apparently announced to Mrs Johnson on a visit to her husband’s studio that he wished to leave his property to her such that his son should get none of it. A few days later, the two went to her solicitors and prepared such a will. It was not until the will was made out that Mrs Johnson explained to the solicitor’s clerk Mr Buttress could not read or write. He executed the will as a marksman.

On 24 April 1931, Mr Buttress made the transfer now in question. He and Mrs Johnson went to the same solicitors. The witness asked if Mr Buttress understood the nature of the gift; that Mrs Johnson was not paying anything for it. Buttress answered he wanted her to have it; she had been good to his wife and he was fond of her. The transfer was done.

Mr Buttress lived the last three years of his life at the Johnsons’ land at Mount Victoria. He seems to have developed an antagonism towards the family: telling various people they wanted his Maroubra property but would not get it.

On his way to hospital, he gave his niece another will, recently made. In it, she was the sole beneficiary and executrix. The genuineness of this final will was contested by Mrs Johnson. The niece made over all her interest under it to Buttress’s son who successfully propounded it.

Outcome

The appeal was dismissed. Latham CJ, Dixon, Evatt and McTiernan JJ held that because a special relationship of influence arose on the facts, there was a presumption of undue influence. It had not been rebutted. Starke J held that the evidence justified the primary judge’s finding that the transfer was the result not of full and deliberate judgment but unfair and undue pressure.

Dixon J

The basis of the equitable jurisdiction to set aside such a transfer of property due to undue influence is:[107]

The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor's will or freedom of judgment in reference to such a matter.

When the parties stand in a relationship where one has authority or influence over the other, it is proper the other is protected. In such a situation, the stronger party cannot maintain title to the gift unless the Court is satisfied he or she did not take advantage of the donor.[108] A presumption to the contrary will arise,[109] even if it isn’t a clear-cut category of a fiduciary relationship, so long as the facts give rise to a relationship of the previously mentioned inequality.[110]

Adequacy of consideration can be a material question[111] (although not determinative).

Wilton v Farnworth (1948) 76 CLR 646

Mr Farnworth was a man of dull intellect, mostly deaf, and had little education. In 1946, he married Mrs Wilton. Mr Farnworth had given her all of his savings. Shortly after the marriage, the two separated. Mrs Wilton was murdered soon after that. She had no will, and thus under WA law, Mr Farnworth was to receive a sum of inheritance, which came to £1,800.

In January 1947, Mr Farnworth signed documents brought to him and explained to him by his stepson, Mrs Wilton’s son. In short, these documents gave all of the assets he had inherited from Mrs Wilton to Mr Wilton.

The primary judge found that Mr Farnworth did not understand the documents or what they did; he did not understand the share of assets to which he was entitled; and Mr Wilton did not attempt to explain the documents. Mr Wilton appealed to the High Court.

Outcome

The appeal was dismissed.

Rich J

Rich J (Dixon agreeing) stated no court of equity could allow the transaction to stand and held:[112]

But the jurisdiction of courts of equity is based upon unconscientious dealing. It has always been considered unconscientious to retain the advantage of a voluntary disposition of a large amount of property improvidently made by an alleged donor who did not understand the nature of the transaction and lacked information of material facts such as the nature and extent of the property particularly if made in favour of a done possessing greater information who nevertheless withheld the facts. In the present case the capacities of the plaintiff and defendant were quite unequal. The plaintiff was sufficiently handicapped by his defect of hearing in gaining an understanding of the facts relating to his wife's property, his interest therein and the transaction into which he was invited to enter. But his intelligence placed him in an even more unequal position… To all this the defendant must have been fully alive. We have here an improvident transaction entirely voluntary springing from no sensible motive. … very substantial reasons have been proved for the intervention of a court of equity. Voluntary alienation of his property to the defendant was neither fair nor righteous and in the view of a court of equity it must be regarded as unconscientious for the defendant to take the gift or retain it.

Blomley v Ryan (1956) 99 CLR 362

This case concerned a contract for the sale and purchase of grazing property. The vendor was elderly and claimed to be affected by alcohol. He tried to have the contract set aside on the basis of unconscionable bargain and constructive fraud. He did not succeed at primary instance. The appeal made its way to the High Court.

Outcome

McTiernan and Fullagar JJ held that the primary judge was justified in refusing the relief sought and in ordering instead that the contract be set aside upon the ground it was an unconscionable bargain such that a court of equity would not enforce. Kitto J dissented.

Fullagar J

Mere drunkenness cannot be a defence to resist a contract:[113]

a real ground for thinking that the judgment of one part was, to the knowledge of the other, seriously affected by drink … equity will generally refuse specific performance at the suit of that other, leaving him to pursue a remedy at law if he so desires. And, where the court is satisfied that a contract disadvantageous to the party affected has been obtained by 'drawing him in to drink', or that there has been real unfairness in taking advantage of his condition, the contract may be set aside.

This encapsulates the need for both (1) awareness of the incapacity or special disability of the other party, and (2) unfair taking advantage of that condition to procure or induce the transaction.

Consideration will be relevant but not determinative. If intoxication is the main disability relied upon, the sufficiency of consideration will play a greater role.[114]

Kitto J

In dissent, Kitto J went into detail on the facts of the case. By early-1953, Mr Ryan had been contemplating the sale of his land for about a year. When the Blomleys came to inspect it, he wanted either £9 per acre or a total of £30,000 for it (the evidence is unclear). Either way, the amount Ryan asked for was higher than the offered amount of £25,000. A few days later, My Ryan expressed a willingness to consider that lower amount. At this point, Mr Ryan had still been sober. It was the next day that he started his multi-day drinking bender. On Monday 20 April 1953, right after the bender weekend, the negotiations with the Blomley purchasers were renewed. All three of those who came to the land said they found the defendant sober although unwell, and one said he thought Ryan was hungover. Ryan claims to have been “sick with drinking” and professed to have no recollection of what he said except that he himself had said he wanted £9 per acre.[115] He does not remember apparently responding with £25,000 to the question of what his price for the land would be that day.[116]

Kitto J disagreed with the conclusion of the majority that Ryan’s mind was so muddled, in consequence of his recent excesses, and that the others must have seen this, that his words did not reflect reasoned or sensible decisions.[117]

The essence of this ground in equity is unconscientiousness, which needs:[118]

1. At the time of entering into the contract the defendant was in such a debilitated condition that there was not a reasonable degree of equality between the contracting parties; and
2. the defendant's condition was sufficiently evident to those who were acting for the plaintiff at the time to make it prima facie unfair for them to take his assent to the sale.

Kitto J was convinced that Ryan acted deliberately and was capable of judging his own interests. He was on equal terms with the purchasers. He was not pressured, and there was nothing in the conduct of the purchasers which amounted to over-reaching, sharp practice, or in any other way taking an unfair advantage of the defendant.[119] Rather, Ryan’s decision to accept a below-market price is more probably explained by him being in a bad mood, tired of managing the property, feeling his age, desiring the convenience and company of town life, and realising that £25,000 was ample for his needs.[120] It was only when, on Ryan’s own admission, he was told he had undersold the land (and made fun of for doing so) did he try to avoid the sale. In this situation, Kitto J saw no reason why a court of equity should not hold the defendant to his contract and require him to perform it.[121]

Director of Consumer Affairs (Victoria) v Scully (No 3) [2013] VSCA 292

This case concerned a scheme devised by the respondents to make it possible for people who could not raise housing finance from conventional sources to purchase their own homes. The scheme involved much financial benefit for the respondents while being very high risk for any customers. The primary judge found that the first respondent (and director of the company) made a “conscious decision” not to explain the complexity and unfavourable terms of the arrangement; and the third respondent deliberately withheld or misrepresented information from prospective customers. The second respondent did not authorise the third respondent’s conduct and so was not liable through wilful blindness.

The provision in question was s 8 of the Fair Trading Act 1999 (Civ) which is equivalent to s 21 in the Australian Consumer Law.

Outcome

The Court reaffirmed that mere unfairness or unreasonableness is not enough to make conduct unconscionable. I must have a “moral taint”.[122] It is apt to refer to that morally tainted conduct deserving of reproach as involving “moral obloquy”.[123] Note that this is criticised in PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446, below.

The Court did however emphasise that the focus of this section was on the conduct of the stronger party, not the consequences of that conduct or victimisation of the weaker party.[124]

PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446

The appellant and cross-respondent, PT, was the owner of a shopping centre. The respondent and cross-appellant occupied some premises in that centre. The main issues in the proceedings were whether PT had engaged in unconscionable conduct towards Spuds: PT had permitted the construction of kiosks on Level 4 of the Centre, portions of which obstructed the line of sight of patrons of the centre who were travelling towards Spuds’ premises.

The appeal was allowed.

Citing Santamaria JA’s observation at [49] of Scully that in all the cases, a noticeable feature has been that conduct that is held to be unconscionable is found to be unethical in some manner, Sackville AJA (McColl JA and Leeming JA agreeing) stated:[125]

While that may be so, a corporation can engage in what a reasonable observer might properly regard as unethical behaviour even though no individual officer or employee acts with conscious impropriety. Moral obtuseness can be one reason, but there may be many others, such as sheer inefficiency, discontinuity in decision-making or internal disagreements resulting in "collateral damage" to third parties. The ethical quality of a corporation's behaviour must be assessed by reference to the actions of the corporation itself. The honesty or good faith of the corporation's officers or employees is but one element in determining whether the corporation has engaged in unconscionable conduct.

In light of the findings at first instance – including that PT failed to enforce its own rules, took no action despite the complaint of an existing tenant, and used its superior bargaining power to adopt an uncompromising position in its negotiations with Spuds concerning removing sightline interference caused by the kiosks – the Appeal Panel was entitled to conclude that the conduct was unconscionable. In Sackville AJA’s terms, “this was a case of a powerful lessor using its superior bargaining power and unfair tactics to override the legitimate expectations held by a tenant as a consequence of the lessor's own actions.”[126]

While using the reference to moral tainting and obloquy, Sackville AJA emphasises that these are not definitional.[127]

Sgargetta v National Bank Australia Ltd [2014] VSCA 159

In 2007, NAB made a home loan to Mr Sgargetta. In 2012, NAB took proceedings in the County Court to recover possession of the property securing the home loan. In February 2013 the parties entered into a deed of settlement. There was then a dispute between the parties as to whether the appellant had complied with that deed.

In August 2013, NAB’s recovery proceeding went to trial. On 17 February 2014, Judge Cosgrave in the County Court made orders for possession in favour of NAB, ordered the appellant to pay NAB the sum of $440,441.19 together with interest accruing from 12 February 2014 at the rate of $64.81 per day, dismissed a counterclaim by the appellant, and ordered that the appellant pay NAB’s costs, including costs on an indemnity basis for the period after an offer of compromise had been made.

The trial judge dismissed the claim that the conduct of NAB regarding ‘the issue of the payout figure’ was unconscionable within the meaning of s 51AC of the TPA, or alternatively ss 21 and 22 of the Australian Consumer Law (the ‘ACL’) which is contained within Schedule 2 of the Competition and Consumer Act 2010 (Cth). He accepted that the conduct of NAB had been ‘unsatisfactory in a number of respects’ but, applying Director of Consumer Affairs Victoria v Scully, held that the conduct of NAB did not have about it ‘the degree of delinquency which can properly be described as “moral opprobrium”‘.

Outcome

The Victorian Court of Appeal (Whelan and Santamaria JJA) dismissed the appeal. They cited Spigelman CJ’s discussion of the narrow principle of unconscionability in equitable doctrine (apparently not distinguishing the equitable principle from the statutory one).[128]

The Court said there must be conduct deserving of reproach to which the term ‘moral obloquy’ may be aptly applied, and NAB, doing no more than relying upon the entitlement it had and which had been agreed upon by the parties, did not act unconscionably.[129]

Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; 329 FLR 149

APS made a claim against IPSTAR concerning the quality of its broadband equipment and its pricing of broadband purchased by APS for on sale to end users located principally in remote and regional Australia. APS incurred substantial cost as it funded the necessary service calls and replacement of faulty hardware with new, often similarly faulty, IPSTAR equipment. At the time, APS advised IPSTAR of these problems and its intention to seek indemnification through a contractual warranty or other statutory means. IPSTAR rejected all of APS’s claims and refused indemnification.

When the time came to renew the supply contract, IPSTAR sought to raise the charges to APS by 20% while keeping the charge for APS’s competitors at the same level.

APS proceeded to lodge a claim in the New South Wales Supreme Court for recovery of losses associated with the faulty equipment, as well as unconscionable conduct pursuant to ss 21 and 22 of the ACL in relation to the pricing of bandwidth services.

The primary judge found in favour of APS for both claims. His Honour found that IPSTAR acted unconscionability in raising its pricing for APS in order to recoup losses it anticipated it would suffer in fulfilling its statutory warranty obligations to APS. IPTAR appealed.

Outcome

The Court of Appeal upheld the unconscionability finding.

The New South Wales courts have been much less willing than the Victorian, it seems, to step away from the use of alternative terms and tests, like ‘moral obloquy’ or ‘moral tainting’. Bathurst CJ, with whom Beazley and Leeming JJA agreed, preferred the starting point of an understanding of acceptable and prevalent community values, norms and norms, and then simply asking the question: “has there been such a departure from those accepted community standards to objectively be seen as against good conscience?”[130]

Leeming JA similarly criticised the use of those phrases: “I have not found any assistance in asking whether Ipstar’s conduct involved a “high level of moral obloquy”, and I respectfully do not accept the submission, notwithstanding the use of that term by Spigelman CJ in … World Best Holdings …”[131]

In this case, IPSTAR had resolved to impose a price increase specifically calculated by reference to its exposure to the statutory warranty claims being made against it, in circumstances where it was still rejecting or refusing to consider those claims (even when it recognised some were valid).[132] IPSTAR’s agent did not give APS an honest and frank answer when asked about the price increase – it was intentionally kept secret, even when the agent knew that APS was reliant on IPSTAR for any supply of bandwidth to continue its business.

On its own, this may not have been enough. After all, business is business. However, to consider the price increase in isolation from the whole to the circumstances is an incorrect approach. In the whole of the circumstances, this conduct was unconscionable.[133]

Park v Murray Irrigation Limited [2018] NSWCA 166

Park was a farmer in New South Wales. Between 2002 and 2005 he obtained 2,845 water entitlements. Murray Irrigation is Australia's largest private environmental and irrigation water supplier.

Prior to 2007, WEs could not be transferred separately from an entitlement to delivery of water, known as a delivery entitlement (DE). In mid-2007, and as a result of recommendations made by the ACCC, Murray’s rules were amended to “unbundle” WEs and DEs. In April 2008, the Murray Board of Directors resolved that a member who transferred WEs would be required to terminate an equivalent number of DEs and pay termination fees.

In October 2008, the appellant sold 2,800 WEs for $1250 per WE. The sale contracts required the appellant’s solicitors to pay the termination fees (amounting to $931,139.60) to Murray out of the purchase price.

Park’s principal contention was that Murray unlawfully required him to surrender an equivalent number of “delivery entitlements” and to pay $931,139.60 in termination fees, thereby reducing the net sale price he received on the sale of the water entitlements.

Outcome

The appeal was dismissed. The unconscionability claim did not technically need to be determined because no loss or damage was proven pursuant to s 82(1) of the TPA.

82(1) A person who suffers loss or damage by an act of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person.

Nonetheless, Sackville AJA addressed it briefly (Bathurst CJ and Leeming JA agreeing). In doing so, Sackville AJA reiterated the position in NSW of the unhelpfulness of attempts to redefine the statutory concept of unconscionability.

ACCC v Medibank Private Limited [2018] FCAFC 235

The ACCC’s case at trial concerning s 21 of the ACL relevant to the issue of unconscionability related to the conduct of Medibank in terminating most of its Medical Purchaser Provider Agreements (MPPAs) with in-hospital pathology and radiology providers concerning pathology and radiology services (diagnostic services) without giving notice of doing so to all of its members.

The ACCC claimed that Medibank knew its members were unlikely to enquire or would have difficulty enquiring about the change, were likely to find out when at their most vulnerable, and were likely to incur costs for which they did not budget. Therefore, the ACCC claimed the conduct was unconscionable:

• Medibank knowingly exploited what was said to be a lack of understanding by its members of private health insurance (PHI);
• Medibank knew that its decision not to notify members would cause them harm; and
• Not notifying members was unethical because it breached industry norms, which were said to be enshrined in the Private Health Insurance Act 2007 (Cth) (PHIA) and the Private Health Insurance Code of Conduct (Industry Code), to provide consumers with current information about their entitlement to benefits.

Outcome

Appeal dismissed. The reasons on statutory unconscionability were given by Beach J, with Perram and Murphy JJ agreeing.

Beach J made fourteen preliminary observations as to statutory unconscionability (in excerpt attached).[134] He seems to think there can’t be an “amorphous characterisation of it as being against community values.” Rather, it will be characterised “as being against the statutory construct informed by the values [in s 22].”[135] Beach J does though note that any use of phrases like ‘moral obloquy’ is a “gloss on the statutory test”, adopting your analysis in Paciocco.[136]

Although, Beach J found there was no unconscionable conduct here, he agreed with the ACCC that the primary judge placed too much emphasis on the evidence of Dr Wilson (who claimed the communication strategy of Medibank was just business judgment). His Honour emphasised that:

In my view, the fact that conduct is engaged in on the basis of a “business judgment” does not entail that it cannot be unconscionable conduct. To focus only on the perspective of the alleged contravener and to classify its conduct as based upon a “business judgement”, as it may well have been, is too narrow a focus for the purposes of ss 21 and 22.[137]

Nevertheless, Beach J found that unconscionable conduct was still not established. The conduct may have been harsh and unfair but that is not enough.[138]

Permanent Custodians Ptd v Shannon [No 2] [2018] WASC 295

This case concerned unconscionability at general law and pursuant to s 12CB of the ASIC Act. The question at hand as to s 12CB was whether procuring the mortgage and loan was unconscionable conduct.

In 2006, Mr and Mrs Shannon purchased a home in which they have lived since. About a quarter of the total cost was provided by a loan from Mr Shannon’s mother, and the rest by bank loan. The documents signed by the defendants in relation to the loan were principally a loan agreement (Loan Agreement) with GEL Custodians Pty Ltd (GEL Custodians) and a mortgage in favour of GEL Custodians over the Land (Mortgage) as security for repayment of the loan (Loan).

GEL Custodians acted as the trustee and lender of record and mortgagee in respect of loans made under the ARMS III securitisation programme. Australian Mortgage Securities Ltd (AMS) had overall responsibility for the originating and servicing of loans under the programme. AMS appointed AFIG Wholesale Pty Ltd (AFIG) as its agent to exercise all of its powers, rights and functions. Yes Home Loans Pty Ltd (YHL) carried out functions under the ARMS III Programme, including originating and managing mortgages under the programme.

The Loan and mortgage loan insurance in respect of the Loan were procured by misrepresentations made by the South Australian manager of YHL, Mr Lock – a friend of the defendants – as to their employment, income, assets and liabilities.

The defendants failed to make required loan repayments on numerous occasions. In July 2011, they ceased to make payments. They were served with a notice of default. They did not remedy the default.

In 2016 GEL Custodians assigned all its rights and interests in the Loan Agreement and the Mortgage to the plaintiff, Permanent Custodians Ltd (Permanent Custodians). Permanent Custodians was subsequently registered as the proprietor of the Mortgage.

Permanent Custodians claimed the debt, and that they are entitled to possession of the property. The Shannons counter-claimed that YHL engaged in wrongdoing by introducing the Shannons to AFIG and GEL Custodians; by making misrepresentations about the Shannons; and that GEL Custodians acted unconscionably by the wrongful conduct of its agent YHL.

Outcome

Le Miere J found for Permanent Custodians and dismissed the counter-claim.

Le Miere J specifically addressed and applied the unconscionable conduct reasoning in Tonto Homes in a section of his judgment.[139] Looking at statutory unconscionability in the ASIC Act, Le Miere J at first appears to adopt the NSW approach espoused by yourself in Tonto and Paciocco and Bathurst CJ in Ipstar. That is, one that puts to one side the neat phrases suchas ‘moral obloquy’.

However, during consideration, Le Miere J retreats to consider ‘moral obloquy’.

In this case, YHL was the agent of GEL Custodians for the purpose of mortgage loan insurance application: its knowledge that the loan application had false information is attributed to GEL Custodians.[140] But YHL did not complete the loan application form or undertake the loan application process as agent of GEL Custodians.[141] So while that knowledge was imputed, Le Miere J found that was “not sufficient to meet the real degree of moral obloquy required for a finding of unconscionable conduct.”[142]

Le Miere J concluded the conduct of AFIG and GEL Custodians did not fall below acceptable norms, standards or values such as to warrant it being determined to be unconscionable. This was because YHL's dishonest conduct was directed at GEL Custodians rather than the defendants; induced GEL Custodians to enter into the Loan Agreement and the Mortgage, not the defendants; and the defendants knew that they had not provided any financial information to YHL and hence to GEL Custodians. The defendants formed their own assessment of their capacity to make the mortgage repayments unaffected by any conduct of YHL.

Although arguably the correct outcome, in line with your reasoning about how far unconscionability can go when transmuted to a statutory civil penalty provision (needing a requisite seriousness of conduct by the person alleged to have acted unconscionably (or their agent)), the reasoning adopted by Le Miere J seems (1) inconsistent and (2) to mistake the application of the statute by focusing overly on the conduct of the defendants as opposed to those allegedly engaging in unconscionable conduct.

---

* Chief Justice of the Federal Court of Australia.

[1] Jenyns v Public Curator (Qld) [1953] HCA 2; 90 CLR 113.

[2] Jenyns at 119, quoting Lord Stowell from the The Juliana (1822) 2 Dods 504 at 522; 165 ER 1560 at 1567.

[3] 432

[4] 430-431

[5] 431

[6] Examples given by Denning LJ in Solle v Butcher [1950] 1 KB at 692. See also Riverlate Properties Ltd v Paul [1975] Ch 133 at 145.

[7] 432

[8] 473

[9] 474

[10] 474

[11] 475-477

[12] 477

[13] 478

[14] 478

[15] 479

[16] 479 quoting Lord Cranworth LC in Owen and Gutch v Homan (1853) 4 HLC at 1035 [10 ER at 767].

[17] 480

[18] 461

[19] 461

[20] 462

[21] 462

[22] 464

[23] 429

[24]Stern at 538

[25] 444

[26] 447

[27] 448, 449

[28] 203

[29] 186

[30] 619-620

[31] 620

[32] 616

[33] 621

[34] 621

[35] 621-622

[36] 622

[37] 146-147, quoting Mahoney JA in Allen v Snyder [1977] 12 NSWLR at 706.

[38] 147

[39] 148

[40] 150

[41] 156

[42] 150

[43] 406

[44] 401

[45] 407-408

[46] 408

[47] 404. See also comment at 405 that “equitable estoppel has its basis in unconscionable conduct, rather than the making good of representations”.

[48] 419-420

[49] 426

[50] 425-426

[51] 427

[52] 459-460

[53] 526

[54] 526-527

[55] 529-530

[56] 540

[57] 434

[58] 435

[59] 458-459

[60] 432-435

[61] 440-441

[62] 440

[63] 441

[64] 445

[65] 487

[66] 483-485

[67] 413

[68] 413

[69] 428-429

[70] 429

[71] 424

[72] 639

[73] 626

[74] 626

[75] 627

[76] 627

[77] 628-630

[78] 630-631

[79] 631-633

[80] 633

[81] 465-466

[82] 469

[83] 469

[84] 469

[85] 470

[86] 470

[87] 471, Louth v Diprose (1992) 175 CLR 621 at 633-634.

[88] 475-476

[89] 476

[90] 472

[91] 491

[92] 491

[93] 491

[94] 492

[95] 489

[96] 492

[97] 492-493

[98] 493

[99] 493-494

[100] 493

[101] 530

[102] 546-547

[103] 547

[104] 537

[105] 547

[106] 127

[107] 134

[108] 134

[109] 135

[110] 135-136

[111] 136

[112] 655

[113] 405

[114] 405-406

[115] 418

[116] 419

[117] 420

[118] 428

[119] 429

[120] 429-430

[121] 430

[122] [48] per Santamaria JA, Neave JA and Osborn JA agreeing.

[123] [58] per Santamaria JA, Neave JA and Osborn JA agreeing.

[124] [39], [47] per Santamaria JA, Neave JA and Osborn JA agreeing.

[125] [110]

[126] [129]

[127] [103]-[107]

[128] [101]

[129] [101]-[103]

[130] [195]

[131] [275]-[278]

[132] [205]

[133] [210]

[134] [233]-[255]

[135] [238]

[136] [240]

[137] [267]

[138] [274]

[139] [156]-[168]

[140] [243]

[141] [243]

[142] [243]