Economic Duress and Unconscionable Conduct under Australian Laws - Essay Example

Duress, Economic Duress and Unconscionable Conduct under Australian Laws Answer to Part Duress Duress is said to happen when an assent or acceptance under contract is obtained from unlawful pressure exerted by one party on the other party (victim) where the victim is left with no other alternative and hence, his acceptance cannot be regarded as to be a voluntary one. In Seear v Cohen1 where a father was informed that there would be initiation of a criminal proceeding against his son if he refused to sign a promissory note for a specific sum which was alleged to have been swindled by his son. Thus, this threat tantamount to duress as observed by the court and hence, the father was released from honouring the promissory note signed due to duress. Duress can be exerted on individuals, on property and duress can be economic duress. A contract which is entered into between parties under duress is voidable, which means it is valid until it is held as illegal by a court and the aggrieved person can rescind the contract if there is duress. (Beale 2009:698) Economic duress The phrase economic term connotes to blackmail or pressure of a commercial, economic or financial nature that is having its repercussion in getting an acceptance or consent in a commercial or business contract. Nonetheless, it is common that commercial pressure is frequently made to make a business negotiation and hence not every example of commercial blackmailing or pressure will be recognised as economic duress. Demeanour that does not constitute to economic duress may still be rescinded on the ground as misrepresentation, fraud, unconscionable demeanour or undue influence. (Murphy 1970:51). In Australia and New Zealand [ANS] Banking Group v Karam2, a bank advanced a credit facility to the defendant company and due to an unexceptional scenario, the company failed to honour its commitments. The trial judge observed that the appellant bank engrossed in unconscionable demeanour within the context of Australian general law and had exerted economic coercion or duress. However, this finding was turned down on appeal. Thus, the verdict in ANZ v Karam is also vertically pertinent to the elucidation of the unconscionable demeanour provisions, which is available under the Australian Securities and Investment Commissions Act 2001(Cth) and in the Trade Practices Act, 1974 which imposes the general law dogma of unconscionability. (Vout 2009:172). In C.G. Berbatis Holdings Pty Ltd v ACCC (2001) FCA 209, Mr. and Mrs. Robert who were tenants of a Farrington Fayre, a shopping centre raised complaints against their landlord and alleged that the landlord had indulged in coercion and compelled their tenants to discard some claims against their landlord for the renewal of their leases, which infringed Section 51AA of the Trade Practices Act. It was found that landlords of Farrington Fayre were indulged in unconscionable demeanour as regards to one of the tenants namely Roberts, who wanted to dispose their business. The concerned tenant wanted to dispose their business to take care of his ailing daughter which the owners of the Farrington Fayre knew well about that and forced them to sign a release deed for some claims against the owners of the Farrington Fayre. The owners also knew that the tenant was at their mercy as unless the lease deed is renewed, they could not dispose their business. The court of the view that the pressure and influence exerted by the landlord on the Robert to discard his litigation rights under the present lease agreement was nothing but involving in unconscionable demeanour. Thus, Justice French in this case was of the view that pressure exerted by the landlord for the inclusion of release as a precondition for the award of a new lease and an assignment thereof was considered by the court as unconscionable. (Hanks & Williams 2001:163) However, the landlord appealed to the Full Federal Court against the decision of Justice French. The Full Federal Court observed that the landlords were under no commitment to extend or renew their lease. However, Roberts had to decide whether to continue the legal proceedings against the owner and lose their chance to dispose off their business or discard their privileges and derive the gain in disposing off their business. The Full court observed that though it may have been a tough bargain but viewed it as not an unconscionable and viewed that the tenant cannot treat the expiry of the lease as a special shortcoming. Thus, the Full Court was of the view that the Justice French was wrong in finding that the Robert was under a unique inconvenience such that the agreement signed into were unconscionable. Finally, the Full Court was of the view that there was no demeanour that could be described as unconscionable under the law and hence there was no infringement of section 51 AA. However, this case was again appealed to the High Court against the decision of Full Federal Court. In Cole v Challenge Bank Ltd (2001) FCA 1425, the Western Australian Federal Court was to consider whether the demeanour of a party in declining to advance further finance was amounting to an unconscionable demeanour under the Section 51AC. In this case, the appellant Cole alleged that the defendant involved in unconscionable demeanour by insisting on the provision of further financial information, declining to offer further financial assistance, declining to restructure the financial arrangement in a style which would facilitate the appellant to continue the business and declining to offer the appellant the required chance to get an injunction of equity or alternative financial assistance. The defendant bank refuted all these claims and submitted that they maintained usual relationship with the customer as any other banker will do the same in the said scenario. The court was of the view that the Cole case was not maintainable as all the allegations against the defendant by the plaintiff are not capable of resulting to the unconscionable demeanour within the context of Section 51 AC. (Ross & Fox 2002). Hurley v McDonald’s [2001] FCA 209 case was relating to “McMatch and Win” sale promotion scheme organised by fast food retailer namely McDonald’s. In this case, it was argued by the appellant that McDonald had infringed the provisions of section 51AC in turning down their claims. However, it was held by the court that for a demeanour to be unconscionable under section 51 AC, the applicant should demonstrate that such demeanour tantamount to grave misbehaviour or unreasonable or unfair. It was pointed out by the court that the appellant could not claim that McDonald had functioned unfairly in turning down her claim when her right to claim happened under an agreement which was in turn subject to McDonald’s discretion. Thus , the court of the view that to declare an action as unreasonable , immoral ,unfair , unconscionable or wrong ,there should be some scenario other than just the provisions of the contract .(Latimer 2012:307). Answer to the Question Part II Australian contract law presumes that there should be balance of authority between the contracting parties. However, in real life, this does not always hold true as in the majority of cases, one party to a contract always kike to dominate or to have dominant bargaining authority and may be able to exert pressure on the other to enter into an unconscionable or harsh contract. Thus, the demeanour that is unconscionable is the demeanour that should not be carried over in good conscience. If it can be demonstrated that one party has assumed unfair benefit than that of the other, the affected party may approach a court to annul such an unconscionable contract. Under Australian law, if the demeanour of a party to a contract shows no respect for conscience, and the particular conduct can comprise how a contract is to be executed or how it is bargained, then, it will be regarded an unconscionable contract . Under the Australian common law, a court can consider the rebuttal to negotiate, making alterations in terms retrospectively and inflicting unpredictable costs on small business and declare such contracts as unconscionable. Australian courts seldom interfere in any commercial dealings and do not hesitate to intervene where one party has capriciously exerted or endangered to exercise their privileges in a style which may be construed as unconscionable. In Olex Forcas Ply Ltd v Skodaexport Co Ltd , where a customer having bank guarantee threatened to use them in utter unassociated scenario in tune with asking about one-fourth discount in charges from the supplier had been held as unconscionable demeanour. Under Australian common law, the court has authority to infer whether any unconscionable demeanour is there in any commercial dealings as regards to the following issues: Variations in bargaining status between suppliers and customers. Inflicting conditions and terms, which are unreasonable Any unfair business strategy employed in the business Whether any big business not divulged any looming risks to the other party which are apparent. Declining or not willing to negotiate the conditions and terms. Having one-sided authority to alter or vary contracts. Australian Competition and Consumer Commission {ACCC] v Lux Distributors Pty Ltd 3is an important case law on unconscionable demeanour as in this case there had been a definition about when one’s demeanour can be regarded as against the conscience or unconscionable and the Full Court has employed a litmus test of the conditions and norms of the contemporary period instead of a moral verdict. Sales representatives of the defendant company were able to gain entry to the residences of consumers on the guise of offering a free maintenance check-up of their vacuum cleaners whereas their main intention was to market a new product. In this case, three elderly customers were approached by the sales representatives of the defendant company and were spent good time in marketing the advantages of a new vacuum cleaner. The Full Court observed that there existed a relative bargaining advantage between the defendant and the consumers, and the defendant’s deceptive marketing strategy demonstrated that the marketing was being carried over due to pressure tactics. The Full Court found this deceptive marketing strategy of the defendant company as unconscionable. The Full Court paid special attention to the following two aspects of Defendant Company’s demeanour. Non-adherence of door-to-door marketing strategies Marketing was footed upon deception Lux case has been considered as a significant case as the findings of the Full Court about the high magnitude of culpability or moral fault, which is not always needed to prove the unconscionable demeanour and could be of specific importance for small business in Australia where the features of morality may well be arduous to extend. However, a contrary to acknowledgeable norms of commercial business dealings or an objective, unfairness may broaden the ambit of the new laws in this area. Due to the above, business in Australia has to be more cautious that they can offer adequate explanation about their conduct. It is to be observed that the frontiers of unconscionable demeanour in business transactions are still very arduous to explain, but both the Australian courts and ACCC are trying to develop the law in this area. Thus, it is important for the business to be proactive in reconsidering their systems and should impart updated training to their staffs in this area. (Clayton UTZ 2013). The case law Australian Competition and Consumer Commission {ACCC] v Lux Distributors Pty Ltd is an important mile stone in Australian consumer protection initiatives as the case developed an expanding doctrine of unconscionable conduct which will definitely make the doctrine of economic duress irrelevant in the coming days. List of References Beale, H. (2009). Chitty on Contracts. London: Sweet & Maxwell. Clayton UTZ. (2013). A New Approach to Defining Unconscionable Conduct? ACCC wins Lux Case on Appeal. [online] available from < http://www.claytonutz.com/publications/news/201308/19/a_new_approach_to_defining_unconscionable_conduct_accc_wins_lux_case_on_appeal.page>[accessed 25 January 2014] Hanks, F., & Williams, P. L. (Eds.). (2001). Trade Practices Act: A Twenty-five Year Stocktake. Sydney: The Federation Press. Latimer, P. (2012) Australian Business Law .Sydney: CCH Australia Limited. Murphy, C. (1970). Economic Duress and Unequal Treaties. Va. J. Intl L., 11, 51. Ross , B & Fox P. (2002).Trade Practices Act –Unconscionability Update.[online] available from [accessed 25 January 2014] Vout, P T. (2009).Unconscionable Conduct. Sydney: Thompson Reuters Australia Limited. Read More