Unconscionable conduct 

Unconscionable conduct addresses the stronger party's exploitation of a weaker party's special disadvantage. Where undue influence looks at whether consent was freely given, unconscionability looks at whether it was unconscientious to accept the benefit of the bargain.

It exists in two forms — equitable and statutory — and they are not the same.

The equitable doctrine

Three elements:

1. A special disadvantage affecting the weaker party's ability to judge their own best interests. It must be special, not merely the ordinary inequality of bargaining position: illness, age, illiteracy, lack of education, lack of assistance or explanation where it was needed, emotional dependence, or intoxication.
2. Knowledge of that disadvantage by the stronger party, actual or constructive.
3. Unconscientious exploitation — taking advantage of the disadvantage to obtain the transaction.

Where those are established, the burden shifts to the stronger party to show the transaction was fair, just and reasonable. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447¹ is the leading illustration: elderly, non-English-speaking parents who did not understand the true extent of a guarantee they signed had it set aside because the bank knew, or ought to have known, of their disadvantage and did nothing to ensure they obtained independent advice. ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51² marks the boundary from the other side: lessees who needed their lease renewed, and who gave up an unrelated legal claim against the lessor to get it, were in a weak bargaining position, but that was not a special disadvantage the lessor unconscientiously exploited.

The statutory prohibitions

Australian consumer legislation prohibits unconscionable conduct in trade or commerce, both in consumer and in business transactions. The statutory prohibition in s 21 of the Australian Consumer Law is broader than the equitable doctrine: it is not limited to the equitable elements, and the legislation sets out a non-exhaustive list of factors a court may consider — relative bargaining strength, whether conditions were reasonably necessary, whether the weaker party could understand the documents, undue influence or pressure, and the extent of good faith.

Because the s 21 statutory route does not require proof of a special disadvantage in the equitable sense, it is usually the stronger claim where trade or commerce is involved (s 20 adopts the unwritten law, so the equitable doctrine governs it, as explained below).

Remedies

In equity, the transaction may be set aside, on terms. Under statute, the court has the same broad remedial discretion that applies to misleading conduct — damages, variation, refusal to enforce, restitution — which is often more useful than rescission.

Relationship with the neighbouring doctrines

• Undue influence — the weaker party's consent; often pleaded together.
• Duress — illegitimate pressure rather than exploitation of disadvantage.
• Unfair contract terms — a separate statutory regime directed at the terms of standard-form contracts, not the circumstances of formation.

The statutory route is not one standard but two. Section 20(1) of the Australian Consumer Law³ prohibits conduct that is unconscionable "within the meaning of the unwritten law from time to time", so the equitable doctrine — and Berbatis — governs it. Section 21 is expressly wider: s 21(4) declares Parliament's intention that it "is not limited by the unwritten law relating to unconscionable conduct" and that it can apply "to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged". A conclusion drawn from the equitable cases does not transfer to s 21 without more.

The knowledge element has since been read narrowly. In Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392⁴ a unanimous Court held at [155] that Mason J "cannot be taken to have supported the importation of the concept of constructive notice" into Amadio, and at [156] that what he described was "wilful ignorance, which, for the purposes of relieving against equitable fraud, is not different from actual knowledge". So "ought to have known" here is not a duty to inquire.

Stubbings v Jams 2 Pty Ltd (2022) 276 CLR 1⁵ marks the limit of that. Kiefel CJ, Keane and Gleeson JJ accepted at [44] that findings the solicitor "should have known" did not "rise to an unequivocal finding of actual knowledge", and held such a finding was not essential — the question is whether the defendant's appreciation of the disadvantage amounted to exploiting it.

How far Kakavas reaches is not settled. In Nitopi v Nitopi [2022] NSWCA 162⁶ Bell CJ treated the difference between constructive knowledge and constructive notice as "of real significance", holding that "[c]onstructive notice, in the sense of being on notice of facts that might lead on inquiry to discovery of the existence of a special disadvantage, is insufficient". Keep the two apart.

The Court of Appeal has also warned against resting on Kakavas alone. In Wakim v Senworth Capital Pty Ltd [2024] NSWCA 102⁷, on an application to set aside a default judgment, Griffiths AJA (White JA and Basten AJA agreeing) held that the primary judge erred in relying on Kakavas at [161] alone, because the law "was not as settled by Kakavas as he believed": Kakavas was a dealing between a gambler and a casino, not one involving a third-party financier, and Thorne and Stubbings suggest that [161] "may require some modification". It is an interlocutory decision of an intermediate court. The question was whether a defence was reasonably arguable, the claim was not decided, and the matter went back for trial. In a guarantee or other three-party problem, do not cite [161] alone as if it settled the standard of knowledge.

Applying this in a problem question

1. Identify the disadvantage precisely, and say why it is special rather than ordinary.
2. Establish the stronger party's knowledge.
3. Identify the exploitation — what was taken advantage of, and how.
4. Run the statutory claim as well, and use its broader factors.
5. Consider which remedy actually helps the client.

Where the authority sits

Equity and Commonwealth statute, with the statutory provisions carrying most modern litigation. Address both, and do not assume the statutory test simply codifies the equitable one — it does not.