The Unconscionable Conduct of Australian Financial Institution - Essay Example

The landscape for business in Australia has been dramatically altered in recent years by the legislative prohibitions of misrepresentation, undue influence, and, in limited cases, unconscionable conduct.

Lord Denning - "Unconscionable contract"Unconscionable contract was first developed by Lord Denning. Followings are circumstances that diverge from his thinking and the concept of conscionability needs to be taken into consideration. In the court case Lloyd's Bank Ltd v Bundy [1975] QB 326,336 Lord Denning was attempting to identify an underlying "unconscionability" principle based on inequality of bargaining power. Lloyd's Bank Ltd v Bundy [1975] QB 326,336 is a case, in which an elderly father gave the family farm as security for operating a business under the son's management.

However the father did not know the business was in serious trouble, and the bank manager did not disclose this information to Mr. Bundy while he obtained Mr. Bundy's signature. Mr. Bundy, a long-time customer of the bank, naive and tractable in financial matters and anxious to stand behind his only son, looked to the manager for advice and assistance. The farm had been in Mr. Bundy's family for generations; it was his only significant asset, and very important to him. The bank manager, completely aware of Mr.

Bundy's situation did not entirely disclose the risks involved in the transaction, and thus Bundy suffered the disadvantage as a result of inequality of bargaining power between the bank and a customer. Lord Denning stated in that case: "By 'inequality of bargaining power', the English law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair or transfers property for a grossly inadequate consideration, when his bargaining power is grievously impaired because of his own needs or desires, or by his ignorance or infancy, coupled with undue influence or pressures brought to bear on him by or for the benefit of others"Denning believed in conscionably and had based his decision in favor of Mr.

Bundy on a broader principle than that adopted by the other members of the Court of Appeal. However, his approach had not been followed and indeed was specifically disapproved by Lord Scarman in National Westminster Bank v Morgan (1985). The above case disclosed that the courts will set aside a contract, or transfer of property when the parties involved in the contract have not met equally; which means that when one is so stronger in bargaining power and the other so weak, the concept of inequality of bargaining.