TOPIC 2

Undue influence and Unconscientious

Dealing
REVISED BY PROFESSOR SAMANTHA HEPBURN FOR THE UNIT TEAM

Contents
INTRODUCTION ........................................................................................................................ 1
OBJECTIVES ............................................................................................................................... 1
PRESSURE AS UNFAIRNESS AT LAW AND IN EQUITY ................................................................... 2
UNDUE INFLUENCE AND THIRD PARTIES.................................................................................... 4
SUMMARY ................................................................................................................................ 7
UNCONSCIENTIOUS DEALING .................................................................................................... 9
EVOLUTION OF THE DOCTRINE .................................................................................................10
INFORMATION IMBALANCE......................................................................................................10
EMOTIONAL DEPENDENCE .......................................................................................................12
KNOWLEDGE BY THE STRONGER PARTY ...................................................................................12
UNCONSCIONABLE CONDUCT AND STATUTORY PROVISIONS ...................................................13
DEFENCES: INDEPENDENT LEGAL ADVICE .................................................................................14
SUMMARY ...............................................................................................................................15
REVIEW QUESTION FOR TOPIC 2 ..............................................................................................16
FURTHER RESOURCES...............................................................................................................17

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Introduction
In this topic, we examine two principles we will be looking at on unfair dealing: undue
influence and unconscientious dealing.
Undue influence arose out of the deficiencies of the common law of duress. In many
situations, the coercion upon an individual to enter into a bargain was not sufficient to
constitute duress because it did not amount to a threat of ‘actual violence’. Nevertheless,
such coercion produced manifestly unfair results where the bargain was disadvantageous
to the party who had been pressured to enter it. The equitable jurisdiction gradually evolved
the principle of undue influence, which has two primary categories: actual and presumptive
influence. Under actual influence it is necessary to prove that one party actually coerced
the other to enter into a bargain. The coercion does not have to constitute a threat of actual
violence, and it includes economic pressure.
Presumptive influence automatically arises where a special relationship of influence exists;
this occurs where one party to the relationship reposes trust and confidence in the other;
relationships that are akin to fiduciary relationships generally raise a presumption of
influence. Once the presumption is raised, it is up to the defendant to rebut it. This can be
achieved only where the defendant proves that the plaintiff exercised free judgment and
acted voluntarily despite the influential relationship. In both categories of undue influence,
equity grants relief only after it is proven that the bargain into which the plaintiff entered
was actually disadvantageous to them and it was therefore unfair that they be held to it.
One of the most significant developments in undue influence in Australia today, lies in the
ability of third parties to have beneficial contracts set aside where it can be proven that they
are tainted by the undue influence apparent in the transaction. Third parties—especially
banks and credit providers, must be very careful to ensure that any suspicion of influence
is queried and that appropriate standards of behaviour are complied with during the process
of completing contractual arrangements in circumstances where there is a high risk that
influence has been exerted.
Unconscientious dealing is the second transaction fairness doctrine we examine in topic 2.
The unconscientious dealing doctrine is a separate equitable principle focusing upon the
unconscientious taking advantage of a recognised disability. It is the first transactional
fairness principle to exist entirely outside the contractual structure. It is raised whenever it
can be established that one party to a transaction has unconscientiously taken advantage of
a disability in the other party which equity is prepared to recognise. We consider how the
courts have applied unconscientious dealing, and its existence as a principle separate from
the notion of unconscionability generally.

Objectives
At the completion of this topic, you should be able to:
• understand why undue influence in equity arose, and how it differs from duress under
common law
• distinguish the two categories of influence that operate in equity: actual and
presumptive
• appreciate that actual influence in equity extends beyond common-law duress and that
presumptive influence is not recognised by common law
• appreciate the type of relationships in which a presumptive relationship of influence
arises and how the presumption can be rebutted

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• understand that, before any relief in equity is granted, the plaintiff must prove that the
bargain which they have been coerced to enter is manifestly disadvantageous to their
interests
• Appreciate that third parties obtaining a benefit from a contract tainted by undue
influence may have that contract set aside in circumstances where it can be established
that they have not acted in accordance with established and expected standards of
behaviour. In particular, consideration is given to recent High Court authority
considering the enforceability of a bank guarantee, securing an extended loan, in
circumstances where the guarantee has been entered into by the wife and husband,
and the bank or credit provider should have been aware of the possibility that the
husband exerted pressure on the wife to enter into the guarantee.

• distinguish between unconscientious dealing and undue influence

• understand the basic requirements for the unconscientious dealing principle to arise
• appreciate the adaptability of the doctrine in meeting new forms of unfairness.

Pressure as unfairness at law and in equity

Both common law and equity recognise the exertion of pressure over a person entering into
a transaction as a form of transactional unfairness, which should be protected against. The
requirements at common law are more stringent in nature, and consequently equity evolved
its approach in order to address the deficiencies within the law. Nevertheless, both equity
and the common law are concerned with the same unfairness: the unfairness of allowing a
party to obtain the benefit of a transaction that has been acquired by some form of coercion
or exertion at the expense of the other transacting party.
According to the common law, where the pressure is sufficient, it cannot truly be said that
both parties freely consented to the transaction. According to equity, it is unfair to allow
the party who has exercised the coercion to subsequently claim the benefit of the contract.
We will briefly consider the position at common law before going on to examine the
purpose and operation of equity in this area. If the common law has a concurrent
jurisdiction with equity in an area, it is important to be aware of its application in order to
understand the equitable principle. As noted in Part I, the purpose of equity is to embellish
the deficiencies of the common law. If the common law does not cover the area at all, then
the purpose of equity is obvious. If the common law does cover the area, an understanding
of its application makes clear the foundation of the equitable principle.

The position at common law: duress

Under the common law, this area is addressed under the principle known as ‘duress’. A
contract is voidable at common law if it has been made under duress. At one stage, the
concept of duress at common law was quite narrow. Duress could be established only if
actual or threatened physical violence or an unlawful constraint of the contracting party
could be proven. Obviously this approach was limited: it failed to give due weight to other
forms of illegitimate conduct or to threats that could have a coercive effect.

Undue influence in equity

We have already seen that the notion of fraud in equity is far broader than that which exists
under the common law. Naturally enough, this allows equity to assume a more flexible
approach to the issue of coercion. Under common law, the concept of duress is firmly

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attached to the conceptualisation of contract; it must be shown that the coercion actually
vitiates consent so that, in effect, no contract exists. Equity is not bound by contractual
principles, and consequently its approach is not governed by contractual principles: it
considers only the fairness of the circumstances.
Thus equity has provided relief against coercion under the more adaptable notion of ‘undue
influence’. Undue influence covers situations where an agreement has been obtained by
certain kinds of improper pressure, including those traditionally thought not to amount to
duress at common law because no element of violence to the person was involved. Undue
influence has been described as undue influence 'a muchused phrase, whose precise nature
remains a matter for dispute.’ This is because, ‘some authorities tend to treat the doctrine
as being concerned with "excessively impaired consent", whereas others treat it as
involving the improper abuse or exploitation of those whose consent has been impaired':
Sexton v Titiro Trustee Company Ltd [2008] NZHC 715; [2008] NZAR 312 at [56] per
Heath J.
The equitable principle of undue influence is generally divided into two categories:
situations where pressure can actually be established, and situations where pressure is
presumed in all the circumstances.

Reading
Please read TB 13.1–13.2

Actual pressure (Category 1)

In order to come within this category, it must be established that one party to the transaction
was actually pressured by the other to enter. Traditionally this category went further than
the common law because the common law was restricted to threats relating to physical
violence. Now that the common law has developed a more flexible approach to include a
broader range of threats, the similarity between duress and undue influence has increased.

Example
Both equity and the common law provide relief for an economic coercion; under the
common law it must be shown that the economic coercion has actually vitiated
consent, whereas in equity the emphasis is slightly different. The party who claims
relief in equity must show that such influence existed, that it has been exercised,
that the transaction resulted from that influence, and that the transaction was
manifestly to her disadvantage.

Presumed influence (Category 2A)

Some transactional relationships are presumed to have arisen from the undue influence
exerted by one party. In these situations, there is no need to show that undue influence
actually existed because equity presumes it has occurred. The dominant party then has the
onus of disproving the presumption of influence. The presumption is not, of itself, a ground
for relief. It absolves the claimant from having to show that the alleged influence actually
exists, but it does not absolve the claimant from the need to establish that the transaction,
which they seek to set aside, has resulted in some loss.
The presumption of undue influence arises out of particular relationships, including parent–
child, guardian–ward, priest–penitent, doctor–patient and solicitor–client. More generally,

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the presumption arises whenever one party occupies or assumes a position that naturally
involves influence over another.

Reading
Please read TB [13.2.2] esp the outline in TB [13.2.1] by Kaye J in Christodoulou v
Christodoulou.

Proven influence (Category 2B)

Where there has been no actual pressure exerted in a relationship and, the relationship does
not come within one of the category of ‘presumed influence’ relationships, it is possible
that the relationship may still be held to be one of ‘influence’ where it can be proven that,
in the circumstances, it was a relationship of trust and confidence which resulted in one
party being placed in a position of influence over the other. Whether a relationship can be
proven to be one of influence will depend upon a careful examination of the overall
character of the individuals involved as well as the circumstances of the relationship. If a
plaintiff successfully proves that a relationship is one of influence, the defendant must then
prove that any benefit received has been given over as a result of the free, consenting and
independent judgment of the plaintiff.

Independent legal advice

Independent legal advice may rebut influence. It will only be relevant if the person entered
into the transaction believing it to be something else. If the transaction was entered into
voluntarily but without reading specific provisions and would have been capable of
comprehending it, the lack of independent legal advice will generally not change anything.
The advice must relate specifically to the transaction, that is, it must provide a clear account
of the salient features of the transaction

Reading
Please read: TB [13.2.3] Please read the discussion of Johnson v Buttress in TB at
p210. S e e a l s o : Gillard J in Union Fidelity Trustee Co of Australia Ltd v
Gibson [1971] VR 573 at 575, ‘Courts of equity have never set aside gifts on the grounds
of imprudence, folly or want of foresight on the part of donors.’ In Thorne v Kennedy
the High Court held that the relationship between a man and woman about to get
married was a relationship of proven influence. Please read TB p.235-236.

Undue influence and third parties

Where undue influence has been exerted over an individual, compelling them to enter into
a transaction, the transaction may not only be set aside against the person who exercised
the influence, but also against any third party receiving a benefit from the transaction. The
most usual example of this is a bank guarantee. Where a guarantor has been unduly
influenced into entering into a guarantee for a loan, the bank will be unable to enforce that
guarantee against the guarantor. There are three separate principles applicable in this area.

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1 Third party agents

The first is that the third party cannot enforce the transaction where the person who has
exercised the influence is the agent of the third party. The agency situation may arise where
the third party has entrusted the ‘influencing’ party with the task of obtaining consent and
execution of the document. It must be established that the third party has actually requested
the influencing party to act on their behalf—merely sending the documents may be
insufficient. A third party may not give actual authority to an ‘influencing’ party, but rather,
give ostensible authority in circumstances where there is an external representation by the
third party that the ‘influencing’ party is permitted to hold himself out as being associated
within the third party’s business—and having ostensible authority to act on behalf of the
third party.

Reading
Please read TB [13.4.2].

2 Third party actual/Constructive notice

The second is where a third party receives actual or constructive notice that at the time the
transaction was executed, it was executed with undue influence; where this occurs the third
party cannot enforce the transaction; an equity will be raised against the third party. Actual
notice exists where the third party receives actual knowledge that undue influence has been
exerted. Constructive notice exists where the circumstances should have put the third party
on inquiry. It is unclear post Garcia v NAB whether constructive notice remains a ground
for third party undue influence in Australia (it forms the foundation of of the UK principle
– see below) because the High Court disapproved of the emphasis that Lord Browne-
Wilkinson gave to the doctrine of notice in this context in the UK House of Lords decision
of Barclays Bank v O’Brien [1994] 1 AC 180.

Reading
Please read Barclays Bank v O’Brien [1994] 1 AC 180 and Royal Bank of Scotland v
Etridge (No 2) [2002] 2 AC 773 in TB at [13.4.1].

3 Yerkey v Jones/ Garcia: Special Wives Equity

The third situation in which a third party cannot enforce the transaction is where the
guarantor is a wife and the third party bank or financier for the loan to the husband has not
taken the time to explain the full consequences of the guarantee to the wife. This is the
principle which was first established by Dixon J in Yerkey v Jones (1939) 63 CLR, the
validity of which has now been confirmed by the High Court in Garcia v NAB (1998) 194
CLR 395—the majority refusing to follow the earlier decision of the House of Lords in
Barclays Bank v O’Brien [1994] 1 AC 180, which disapproved of the Yerkey v Jones
principle.

The current position is that the Yerkey principle, as reinterpreted by the High Court in
Garcia represents good law. The essence of the Yerkey principle is, if a married woman’s
consent to become a surety for her husband’s debt is procured by the husband and, without
understanding its effect in essential respects she executes an instrument of suretyship which
the creditor accepts without dealing directly with her personally, the wife has a prima-facie
right to have it set aside.

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The principle has been recognised as having two levels. First, where the consent of the wife
to the instrument of suretyship is procured through actual undue influence by the husband,
the wife will be entitled to set aside the instrument against the creditor unless the creditor
can prove that the wife received independent legal advice. In this context, actual influence
must be established by the wife; undue influence will not simply be presumed from the
marriage relationship. There is no need to prove that the creditor knew of circumstances
surrounding the actual influence—proof that the creditor received constructive knowledge
of the marriage relationship is sufficient.

The second limb of the Yerkey principle will arise where, in the absence of actual undue
influence, the wife fails to fully appreciate the effect of the instrument of suretyship. In this
situation, the wife may set the instrument aside against the creditor unless the creditor took
steps to inform the wife about the transaction and reasonably believed that the wife knew
what she was entering into. It is not necessary for the creditor to prove that the wife was
independently advised, as long as the creditor is reasonably satisfied as to the wife’s
comprehension of the transaction.

Whilst it was clear that the husband and wife relationship was not one of influence, it could
not be divested of what Dixon J referred to as ‘equitable presumptions of an invalidating
tendency’. This may amount to no more than saying that the opportunities which a wife’s
confidence in her husband gives him of unfairly or improperly procuring her to become a
surety for his debts or to confer some other benefit is recognised by the court and taken into
account.
The majority of the High Court in Garcia reinstate the Yerkey principle as enunciated by
Dixon J, but in doing so, illuminate to a greater extent the relational basis of the rule. It is
implicit in the judgement of the majority in Garcia that their Honours felt that this level of
trust has not necessarily altered with the changing times and is just as relevant and needy
of protection today as it was when the Yerkey decision was handed down. Their Honours
felt that unlike the decision of the House of Lords in Barclays Bank v O’Brien, this
determination did not reflect an outdated view of the role of women in society and was not
‘gender biased’. In a strident dissent, Kirby J dissented with this opinion, feeling that the
special wives equity enunciated in the Yerkey decision was offensive, outdated and
perpetuated irrelevant discrimination. His Honour, did, however, conclude that the bank
could not enforce the guarantee on the basis of constructive notice principles.
So far in Australia, this category has been restricted to the husband/wife relationship
although there have been suggestions that the principle should be based on a broader rule
that extends beyond this category.

Reading
Please read Yerkey v Jones (1939) 63 CLR 649 and Garcia v NAB (1998) 194 CLR
395, and TB at [13.4.3]. See Permanent Mortgagees Pty Ltd v Vandenbergh
(2010) 41 WAR 353 for an example of the Garcia principle and its interaction with
unconscientious dealing. In Kranz v NAB (2003) 8 VR 310, Charles JA (Winnneke P
and Eames JA agreeing) concluded at [24] that the Garcia principle should not be limited
to the ‘most intimate of family relationships.' The High Court outlined the history of the
matrimonial status of wives in PGA v The Queen (2012) 245 CLR 355 at [44]-[52]. See
also the discussion of State Bank of NSW v Hibbert (2000) 9 BPR, 543 in TB at 250.

4 The English Position

The approach of the House of Lords in Barclays Bank v O’Brien indicates that the
English courts have assumed a different approach to the issue of third party liability—an
approach

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which is essentially founded in notice. Hence, a bank or credit provider may be placed on
constructive notice of potential undue influence where the transaction is, on its face, not to
the financial advantage of the wife and there is a substantial risk that the husband has
exerted pressure. This decision has been supported by subsequent English decisions:
Midland Bank plc v Massey [1995] 1 All ER 929; CIBC Mortgages plc v Pitt [1994] 1 AC
200. Please read the discussion on the English authorities in TB [13.4.1].
In Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, Lord Nicholls at 462 stated:
‘I do not think that in the ordinary course a guarantee of the character I have mentioned is
to be regarded as a transaction which, failing proof to the contrary, is explicable only on
the basis that it has been procured by the exercise of undue influence by the husband. Wives
frequently enter such transactions. There are good and sufficient reasons why they are
willing to do so, despite the risks involved for them and their families. They may be
enthusiastic. They may not. They may be less optimistic than their husbands about the
prospects of the husbands businesses. They may be anxious, perhaps exceedingly so. But
this is a far cry from saying that such transactions as a class are to be regarded as prima
facie evidence of the exercise of undue influence by husbands.’ In this case, Lord Nicholls
made it clear that the obligations of a bank should not be unreasonable. The furthest a bank
‘can be expected to go is to take reasonable steps to satisfy itself that the wife has had
brought home to her, in a meaningful way, the practical implications of the proposed
transaction. This does not wholly eliminate the risk of undue influence or
misrepresentation. But it does mean that a wife enters into a transaction with her eyes open
so far as the basic elements of the transaction are concerned.’

Reading
Please read Barclays Bank v O’Brien [1994] 1 AC 180 and Royal Bank of Scotland v
Etridge (No 2) [2002] 2 AC 773 in TB at [13.4.1].

Summary
1 Actual influence is based upon coercion of a physical, economic or other form. It must
be proven that one party to a transaction actually coerced the other party to enter into
a transaction to their disadvantage. The influence can come from the person directly
or from the surrounding circumstances.
2 Presumptive influence occurs where the parties to the bargain are in a special
relationship (the categories of which are not closed), which shows that one party is
superior because the other reposes trust and confidence in them; the type of
relationship in which a presumptive influence can be raised is akin to the
characteristics associated with a fiduciary relationship. Examples of such
relationships include solicitor–client and parent–child.
3 Proven influence may arise where a plaintiff can prove that the relationship is, in the
circumstances and given the overall nature and character of the parties, one of
‘influence’. Where this has been established, it will be up to the defendant to rebut the
presumption that any benefit received has been the result of the exertion of undue
influence.
4 Where a relationship of influence is established, it may be rebutted if the defendant
can prove that the plaintiff exercised free judgment and voluntarily entered into the
bargain. In order to prove this, the defendant must show that the plaintiff knew the
terms and consequences of the bargain which in turn, requires a detailed examination
of the overall character of the plaintiff and often, this can involve stereotyping.
Generally, where the plaintiff lacks business acumen, has a limited understanding of

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English or poor literacy, it will be very difficult to prove that the plaintiff has exercised
free judgment.
5 Third parties may also be affected by undue influence. Where a plaintiff has entered
into a bargain under the influence of a defendant, any person acting as an actual or
ostensible agent for a third party, or a third party who takes with actual or constructive
notice of undue influence may have their transaction set aside. This stems from the
broad application of equitable fraud. In such a situation, equity deems the third party
to be fraudulent because of the special position of knowledge they assume. Hence, for
a third party to rebut a presumption of influence, they must prove that they did all they
could to help the plaintiff exercise free will. One significant factor in this regard is
proving that the third party advised the plaintiff to obtain independent advice on the
matter.
6 The ‘special wives’ equity established in Yerkey and upheld in Garcia will result in
transactions being set aside against third-party creditors where those creditors have
not fully and properly explained the transaction/guarantee to the wife involved. At this
stage, the equity is restricted in its application to wives.

7 The conclusions of Lord Nicholls in Royal Bank of Scotland v Etridge make it clear
that a bank is not expected to eliminate all risk of influence. It must establish that it
has taken reasonable steps to inform her in a meaningful way of the implications of
the transaction and that is all.

8 Once undue influence is established, the usual relief sought is recission in equity so
that the parties can be placed, as far as possible, into the position they were in prior to
the tainted transaction.

Question 2.1
What is the difference between duress and undue influence?

Question 2.2
Why did the doctrine of undue influence evolve in equity?

Question 2.3
What sort of factors will influence the court in a determination of whether or not a
presumptive relationship of influence exists?

Question 2.4
What is the justification for holding third parties who have knowledge of a
relationship of undue influence under a presumptive relationship of influence?

Question 2.5
Do you think the majority decision in Garcia perpetuates an outdated discriminatory
perception of women? Is this a ‘needful’ discrimination that equity should be
protecting?

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Unconscientious Dealing
Outside the recognised categories of contractual unfairness, equity has developed a
jurisdiction to recognise dealings which can more generally be described as
unconscientious or unconscionable. Most of the transactional principles in which equity
provides relief can be described as unconscionable because they are all, technically, against
the conscience of the equity jurisdiction. Under the heading of unconscientious dealings,
we look more specifically at a category of situations which do not quite fit within the
established areas but which equity nevertheless regards as being against the ‘conscience’
of the court to such an extent that relief is warranted. The evolution of this head of relief
provides clear evidence of the adaptability of equity; it is also the clearest indication of the
ability of equity to provide relief ‘where justice requires it’.

Common law does not have an equivalent jurisdiction in this area, so in this sense,
unconscientious dealings are a part of the exclusive jurisdiction of equity. The basis of the
jurisdiction was appropriately described by Mason J (as he then was) in CBA v Amadio
(1983) 151 CLR 447:
Equitable intervention to set aside a transaction on the basis of unconscientious dealing
may be invoked ‘whenever one party by reason of some condition or circumstances is
placed at a special disadvantage vis-à-vis another and unfair or unconscionable advantage
is then taken of the opportunity thereby created.

Unconscientious dealing addresses the issue of disadvantage rather than influence.

Sometimes these two concepts overlap, because a person with a disadvantage may also,
because of the disadvantage, be described as being under the influence of another party. As
we will see, the notion of disadvantage or disability has been extended to cover a wide
variety of situations which undue influence cannot reach.
Whilst unconscientious dealing is very broad, it does not represent a panacea for all forms
of unfair dealing; it is still necessary to satisfy certain requirements in order for equitable
relief to be issued. These requirements can be summarised as follows:
1 It must be shown that a special disability exists. The categories of what constitutes a
special disability are not closed, although it would be advisable for the claimed
disability to have some identifiable objective criteria. The sort of considerations a
court examines in determining whether or not the particular circumstances reveal a
special disability include: gender and culture, literacy and familiarity with the English
language, knowledge of the circumstances, and whether or not independent legal
advice has been advised and/or obtained.
2 It must be established that the other party to the transaction has actually taken
advantage of the special disability. This can be proven where it is shown that the
transaction has a patently inadequate consideration or no consideration at all, or where
the other party obtains some obvious benefit from the transaction. It must be
established that the stronger party was aware or should have been aware of the special
disability in the circumstances.

Relief against unconscionable dealing is a purely equitable remedy. The concept underlying
the jurisdiction to grant the relief is that equity intervenes to prevent the stronger party to
an unconscionable dealing acting against the good conscience of the equity jurisdiction by
attempting to enforce or attain the benefit of that dealing. Equity does not intervene unless
it can be proven to be unconscionable. It is not so much the existence of a special disability,
which is, per se, unconscionable in this context; rather, it is the taking advantage of the
disability that equity considers unfair. It is critical that the plaintiff be vulnerable to

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exploitation and their ability to conserve their interests be affected by the condition: Tillett
v Varnell Holdings pty Ltd [2009] NSWSC 1040 at [49]-[54].

Evolution of the Doctrine

The common characteristic of all special disabilities is that they place the other party at a
serious disadvantage. It is not necessary to prove loss or detriment, but inadequacy of
consideration can be an important characteristic in the determination that a position of
disadvantage existed and that unfair use of that disadvantage was made.

Equity protects the person who ‘comes in the dark, and in fetters, without either the will or
the power to take care of himself, and with nobody else to take care of him’.
The modern doctrine of unconscionable conduct can be traced back to the comments by
Lord Selborne LC in Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 491 where he
states that unconscionable dealing exists:
if the parties meet under such circumstances as, in the particular transaction, to give the
stronger party dominion over the weaker; and such power and influence are generally
possessed, in every transaction of this kind, by those who trade upon the follies and vices
of unprotected youth, inexperience and moral imbecility.
A special disadvantage will ‘usually be associated with conditions that make people
vulnerable to exploitation and less able to conserve their own interests’ (Tillett v Varnell
Holdings Pty Ltd (2009] NSWSC 1010 at [53]. These conditions include: sickness, age,
infirmity, drunkenness, illiteracy, ignorance, lack of education, impaired faculties or
financial need.

Reading
Please read TB [14.1]–[14.3.1]. See: ASIC V Kobelt (2019) 368 ALR 1 in TB p255.
See also Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 – discussed in TB
at p 256

Information Imbalance
One of the first cases to recognise unconscionable conduct as a separate doctrine of
equitable relief was CBA v Amadio (1983) 151 CLR 447.

In Amadio, Deane J stated that unconscionable dealing (unlike undue influence, which
looks to the quality of the assent of the weaker party) looks to the conduct of the stronger
party in attempting to enforce or retain the benefit of a dealing with a person under a special
disability, in circumstances where it is not consistent with equity and good conscience that
they should do so. The adverse circumstances, which may constitute a special disability for

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the purposes of unconscientious dealing can assume a wide variety of forms and cannot be
comprehensively stated. Mason J stated that unconscionable conduct usually refers to the
class of case in which a party makes unconscientious use of their superior position or
bargaining power to the detriment of a party who suffers from some special disability or is
placed in some special situation of disadvantage. Mason J also felt that the situations in
which relief will be granted cannot be described definitively and are not exhausted.
The decision in Amadio represented a milestone for the equitable jurisdiction. For the first
time the courts categorically recognised the ability of equity to interfere, outside pure
contractual grounds, on the basis of a more fundamental notion of unfairness. Unfairness
in the context of unconscionable conduct is not based upon coercion or lack of consent, but
upon the unfairness apparent in the conduct of the stronger party in enforcing a contract to
their benefit against a person whom they know to have a special disability.
One of the vitally important factors in Amadio was that the bank knew or could be taken to
know that the elderly couple was unaware of the full consequences of the
mortgage/guarantee. This placed the bank in a superior position. By not advising the couple
to obtain independent legal advice and by going ahead with the transaction in the light of
its knowledge, the bank acted against good conscience, and the equitable jurisdiction
provided relief.
The primary elements of the action are superiority and disability. In the first place, one
party to a bargain is usually in a superior position. This superiority usually stems from the
fact that the other party is under a special disability. Special disability is not restricted to
relationships of influence; it can refer to any recognised weakness or deficiency, which the
other party is aware of and abuses. A person might be under a special disability if they have
insufficient information (information imbalance) , if they are physically or mentally
impaired in some way, or if they are influenced by the superior party in some way. The
mere existence of a special disability does not necessarily create an unconscionable
situation. It must then be established that the other party took unfair advantage of this
disability.
In this respect, actual or constructive knowledge of the disability by the superior party is
an important requirement. In order to take advantage of a disability, a party must be aware
of it; if not, then the party has not really engaged in unfair dealing. This does not mean that
all superior parties cannot transact with weaker parties; it simply means that they should
take further measures to ensure that the weaker party is fully apprised of the situation. A
superior party who is aware of a disability should properly advise the weaker party to seek
independent advice on the matter. A failure to suggest such advice or to fully inform the
weaker party generally provides further proof of the unconscionable behaviour of the
superior party.

Reading
Please read Commercial Bank of Australia v Amadio (1983) 151 CLR 447 TB 14.3.1.

Question 2.6
What is the difference between undue influence and unconscientious dealing?

Question 2.7
Why did equity need to evolve a jurisdiction to protect unconscientious
transactions?

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Question 2.8
What was the nature of the special disability in the Amadio decision?

Emotional dependence
The decision of the High Court in Louth v Diprose (1991) 110 ALR 1 is an interesting
one because it extends the boundaries of what constitutes a ‘special disability’ for the
purpose of the ‘unconscientious dealing’ doctrine.
On the facts it was alleged that Louth had manipulated the infatuation of Diprose so that he
would purchase the property for her because she knew he was ‘emotionally infatuated’
with her. King CJ concluded that Diprose was emotionally dependent upon Louth and she
had acted unconscionably by taking advantage of this. These orders were upheld by a
majority of the Full Bench of the Supreme Court and the High Court.

Reading
Please read Louth v Diprose (1992) 175 CLR 621, CB [9.65], and TB [14.3.2]. In the
subsequent decision of the Australian High Court in Bridgewater v Leahy (1998) 194
CLR 457, where the majority of the court concluded that a nephew had unconscientiously
taken advantage of his elderly uncle and his strong emotional attachment and dependency
when he sought to enforce a deed of forgiveness which the uncle had executed. Particular
importance was placed upon the ‘passive acceptance’ of the deed of forgiveness by the
nephew in circumstances where it was clear that the uncle was subject to a special
‘emotional’ dependency. In Thorne v Kennedy (2017) 263 CLR 85 the High Court held
that a financial agreement entered into prior to a marriage raised both undue influence and
unconscientious dealing. In Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 the
High Court held that the Crown had not exploited a known disadvantage by Kakavas. See
discussion in TB p259.
Knowledge by the Stronger Party
For unconscionable conduct to exist, the stronger party must have knowledge of the alleged
disability. Knowledge cannot exist where the stronger is unaware of any alleged disability
of the weaker party. It is, however, enough that the stronger party know or ought to have
known of the special disadvantage of the weaker party. Where this is the case, the stronger
party bears the onus of proving that the transaction was ‘fair, just and reasonable’ (per
Amadio at [474 per Deane J) .

Reading
Please read TB [14.3.2] for a discussion of the decision in Bridgewater v Leahy
(1998) 194 CLR 457.

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Unconscionable conduct and statutory provisions

The Australian Consumer Law, found in Schedule 2 of the Competition and Consumer Act
2010 (Cth) (ACL) provides detailed legislative provisions regulating unconscionable
conduct and undue influence in transactions coming within the application of the act. These
provisions replace ss 51AA, 51AB and 51AC of the Trade Practices Act 1974 (Cth) with
ss 20, 21 and 22 of the ACL.
Section 20 prohibits a person in trade or commerce from engaging in conduct that is
unconscionable within the meaning of the unwritten law from time to time. In this context,
unconscionability has been held to amount to conduct coming within the equitable
definition: CG Berbatis Holdings Pty Ltd v ACCC (2003) 197 ALR 153. In that case the
court concluded that merely taking advantage of a superior bargaining position did not
constitute unconscionability for the purposes of the ACL.

Section 21 prohibits a person in trade or commerce, in connection with the supply of goods
or services, from engaging in conduct that is, in all the circumstances, unconscionable.
Section 21(5) limits the operation of this section to the supply of goods or services for
personal, domestic or household use.
Section 22 prohibits a person in trade or commerce from engaging in conduct that is
unconscionable in connection with the supply or possible supply of goods or services to a
person other than a listed public company, or the acquisition or possible acquisition of
goods or services from a person other than a listed public company, for the purposes of
trade or commerce. The focus of this provision is to protect small traders against larger
corporations.
The court in ACCC v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 at [113]
provided a guideline for determining the scope of unconscionability in the context of the
TPA (now the ACL):
(a) The scope of s 51AC is wider than that of s 51AA. The meaning of
unconscionable for the purposes of s 51AC is not limited to the meaning of the
word according to established principles of common law and equity: per French
J in Australian Competition and Consumer Commission v C G Berbatis Holdings
Pty Ltd (No 2) (2000) 96 FCR 491 at [24] and [25] (p 503); per Sundberg J in
Australian Competition and Consumer Commissioner v Simply No-Knead
Franchising Pty Limited (2000) 104 FCR 253 at [31] (p 265); per Selway J in
Australian Competition and Consumer Commission v 4WD Systems Pty Limited
(2003) 59 IPR 435 at [183] (p 487) and per Jacobson J in Pacific National (ACT)
Limited v Queensland Rail (2006) 28 ATPR 46-268 (p 53,515) at [918] (p
53,527).

(b) The ordinary or dictionary meaning of unconscionable, which involves

notions of serious misconduct or something which is clearly unfair or
unreasonable, is picked up by the use of the word in s 51AC. When used in that
section, the expression requires that the actions of the alleged contravener show
no regard for conscience, and be irreconcilable with what is right or reasonable.
Inevitably the expression imports a pejorative moral judgment: per Heerey,
Drummond and Emmett JJ in Hurley v McDonalds Australia Limited (2000) 22
ATPR 41-741 (p 40,578) at [22] (p 40,585). This helpful articulation of the
meaning of the word when used in s 51AC was followed by Selway J in ACCC v
4WD Systems Pty Ltd (2003) 59 IPR 435 at [183]-[185] (pp 487-488) and by
Sundberg J in ACCC v Simply No-Knead Franchising Pty Limited [2000] FCA
1365; (2000) 104 FCR 253 at [30] (p 264); and

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(c) Normally, some moral fault or moral responsibility would be involved. This
would not ordinarily be present if the critical actions are merely negligent. There
would ordinarily need to be a deliberate (in the sense of intentional) act or at least
a reckless act: per Selway J in ACCC v 4WD Systems Pty Ltd (2003) 59 IPR 435
at [185] (p 488) .

The scope and nature of the statutory standards of unconscionab le conduct were
reviewed by the High Court in ASIC v Kobelt (2019) 368 ALR 1.

Reading
Please read TB 14.6 A detailed examination of the statutory provisions is
beyond the scope of the course.

Defences: Independent Legal Advice

Where it can be established that the weaker party has acted with fully informed and
independent legal advice, that advice will constitute a complete defence to both undue
influence and an unconscientious dealing claim. Where either the party subject to the
influence or, the weaker party, has received advice about the purport and effect of the
transaction from an independent legal adviser, the effect of the undue influence may be
negated. Where the weaker party, who is subject to exploitation, received advice about the
purport and effect of the transaction from an independent legal adviser, the disability may,
depending upon the circumstances, be negated. The effect of independent legal advice will
depend upon the circumstances: Bester v Perpetual Trustee [1970] 3 NSWR 30 (above) .

Reading Please Read TB 14.4

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Summary
1 Unconscientious dealing is an exclusive equitable action focusing upon the fairness
of transactional conduct. It is distinguished from undue influence because it is not
concerned in any way with the quality of the consent of the weaker party but rather
with the conduct of the superior party against the weaker party.
2 To establish unconscientious dealing it must be shown that the weaker party has a
special disability which the court is prepared to recognise and accept as a disability;
it must also be shown that the stronger party has unconscientiously taken advantage
of this weakness. The type of things the court has traditionally recognised as
amounting to a ‘special disability’ include: illiteracy, cultural differences (in particular
where this means the weaker party has a limited grasp of the English language), lack
of information or business knowledge and, most recently, emotional dependency. The
categories are not closed, but courts are careful not to extend them too far because of
the implications of commercial uncertainty. Proof that the stronger party has
unconscientiously taken advantage of the special disability is usually established
where it is shown that an advantageous benefit has been conferred on the stronger
party; for example, a beneficial contract, a lower consideration than usual, or a
beneficial transfer. It must be proven that the stronger party knew of the disability, and
took no action to address this weakness; for example, did not suggest or obtain
independent legal advice, or did not take all appropriate steps to make sure that the
weaker party understood the terms and implications of entering into the contract.
3 Unconscientious dealing is an area which is constantly developing and must adapt to
changing social conditions. Whilst the courts should be wary that they do not extend
unconscientious dealing too far, they must be prepared to recognise different and
developing areas of unfairness. At this point unconscientious dealing focuses entirely
upon unfairness associated with a particular dealing. The courts are not yet prepared
to set aside contracts, under the umbrella of unconscientious dealing which are fairly
entered into but have an unfair effect. Substantive unconscionability principles are
examined in subsequent chapters dealing with penalties and forfeiture.

Question 2.9
What are the basic requirements in establishing the doctrine of unconscientious
dealing?

Question 2.10
What is the difference between unconscionability as a general informing concept for
the equity jurisdiction, and the unconscientious dealing doctrine?

Question 2.11
How does unconscientious dealing differ from undue influence?

Question 2.12
How was unconscientious dealing made out in Louth v Diprose?

Question 2.13
What was the nature of the ‘special disability’ in the Bridgewater v Leahy decision?

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Question 2.14
Should unconscientious dealing arise in circumstances where the stronger party
reasonably believed that the weaker party had received independent legal
advice and had therefore acted willingly? Why did the court find unconscionable
conduct did not arise in ASIC v Kobelt (2019) 368 ALR 1?

Review question for Topic 2

1. In Louth v Diprose ‘the majority had to somehow fit a very different situation into the
‘unconscientious dealing’ doctrine. It was undeniable that Diprose was a middle-aged
middle-class, male lawyer, and that Louth was a ‘single mother’ on a social security
pension. In the circumstances, it was necessary for the majority to do some very fancy
footwork in order to construct him as the ‘weaker’ party and Louth as the ‘stronger’
party (L Sarmas, ‘Story-telling and the Law’, p 32).

How did the court achieve this ‘fancy footwork’?

2. Consider the following situation:

Alex is an only child, doted on by his parents. When he graduated from university, his
parents gave him a car and a house. Alex has always expected help from his parents, even
though they do not have a great deal of money and worked extremely hard to buy him the
generous graduation gifts. Alex entered into a business with his best friend of 20 years and
partner, Owen. Alex did not have a great deal of knowledge about business and relied
heavily upon Owen in this regard. Alex put in $20 000 worth of capital from money he had
saved. After about two years, the business started to go downhill; Alex and Owen were in
grave financial trouble.

Owen is aware of the close relationship Alex has with his parents and of their generosity.
He tells Alex that the only way they can get out of financial difficulty is with a $50 000 loan,
and they will get this only if they are able to use property as security for a loan. Owen tells
Alex that he should ask his parents because if he does not, the business will surely go
under. Alex immediately asks his parents; they are a bit wary, but after being assured by
Alex that it will only be a ‘temporary’ measure, agree to having the bank place a charge
over the family home. The $50 000 does not help Alex and Owen; the business goes under
and the bank wants to exercise its rights over Alex’s parents’ home.

Advise Alex and his parents of their rights, if any and against whom.

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Further resources
R. Bigwood, ‘Australian Competition and Consumer Commission v C G Berbatis Holdings
Pty Ltd - Curbing Unconscionability: Berbatis in the High Court of Australia’ (2004) 28(1)
Melbourne University Law Review 203
D Capper, ‘Undue Influence and Unconscionability: A Rationalisation’ (1998) 114(Jul)
Law Quarterly Review 479.
C. Chew, ‘Rethinking the Special Equity Rule for Wives: Post Garcia, Quo Vadis, Where
to From Here?’ (2008) 20(1) Bond Law Review 52.
T. Cockburn, ‘Garcia – A Softly, Softly Approach’ (2000) 4(2) Flinders Journal of Law
Reform 251.
T Cockburn, ‘Solicitors in Love’ (1995) 25(3) Queensland Law Society Journal 291.
J Getzler, ‘Unconscionable Conduct and Unjust Enrichment as Grounds for Judicial
Intervention’ (1990) 16(2) Monash University Law Review 283.
I Hardingham, ‘Unconscionable Dealing’ in Finn (ed), Essays in Equity (1985).
S Hepburn, ‘Equity and Infatuation’ (1993) 18(5) Alternative Law Journal 208.
J. Pascoe, ‘Women’s Guarantees and “All Moneys” Clauses’ (2004) 4(2) Queensland
University of Technology Law and Justice Journal 245
L Sarmas, ‘Story-telling and the Law: Louth v Diprose’ (1994) 19(3) Melbourne University
Law Review 701.
A Mason, ‘The Impact of equitable Doctrine on the Law of Contract’ (1998) 27(1) Anglo-
American Law Review 1.
J. Dietrich, ‘Bridgewater v Leahy: Unconscionability and the Flexibility of Equitable
Remedies in the High Court’ (1999) 73(2) Australian Law Journal 112.
P. Vines, ‘Challenging the Testator’s Mind by Challenging Lifetime Transactions:
Bridgewater v Leahy as Backdoor Probate Law?’ (2003) 10(1) Australian Property
Law Journal 53.
T. McKeand, ‘Economic Duress—Wearing the Clothes of Unconscionable Conduct’ (2001)
17(1) Journal of Contract Law 1.
A J Duggan, ‘Till Debt Us Do Part: A Note on NAB v Garcia’ (1997) 19(2) Sydney Law
Review 220.
B Fehlberg, ‘The Husband, the Bank, the Wife and Her Signature’ (1994) 57 The Modern
Law Review 467.
B Fehlberg, ‘The Husband, the Bank, the Wife and Her Signature: The Sequel’ (1996) 16
Legal Studies 368.
M Kirby, ‘Equity’s Australian Isolationism’ (2008) 8(2) Queensland University of
Technology Law and Justice Journal 444
D Otto, ‘A Barren Future? Equity’s Conscience and Women’s Inequality’ (1992) 18(4)
Melbourne University Law Review 808.
S Hepburn and R Haigh, ‘The Bank Manager always rings twice: Stereotyping in Equity
after Garcia’ (2000) 26(2) Monash University Law Review 275.

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G Santow, ‘Sex, Lies and Sureties – Touching the Conscience of the Creditor’ (1999)
10(1) Journal of Banking and Finance Law and Practice 7.
S Hii, ‘From Yerkey to Garcia: 60 years on Still Confused as Ever’ (1999) 7(1)
Australian
Property Law Journal 47.
H. Materne-Smith, 'All is Fair in Love and Remote Indigenous Communities: ASIC v
Kobelt' (2020) 41(1) Adelaide Law Review 325.
A Phang and H Tjio, ‘The Uncertain Boundaries of Undue Influence’ [2002] Lloyd's
Maritime and Commercial Law Quarterly 231.
Wong, ‘Revisiting Barclays Bank v O’Brien and Independent Legal Advice for
Vulnerable Sureties’ [2002] Journal of Business Law 439

P.W. Young, C. Croft and M. Smith, On Equity 2009 at [5.390].

Pauline Ridge, ‘Third Party Volunteers and Undue Influence’ (2014) 130(Jan)
Law Quarterly Review 112

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