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Contract Law

Vitiating Factors

Unconscionable Dealing

An equitable rule exists to protect a party who, at a clear disadvantage, enters a contract. There are three categories of unconscionable dealing:


  • Intoxication and mental incapacity: A party is not too badly effected to intend to be legally bound. But they are affected, and under the influence or manipulation of the counter-party.

  • Emotional dependence: A contract is formed where the personal relationship between the parties is so highly emotional that control is possible.

  • Lack of knowledge or education: A party having no understanding at all of what they are getting into can get out of a contract.


Commercial Bank of Australia v Amadio furnishes a good example of unconscionable dealing. In this case there was both a lack of knowledge and education. Mr & Mrs Amadio, had very limited English, were aged in their 70’s, and their son, Vincenzo, had huge business debts, although he lived opulently and his parents thought he was very successful. He compelled them into giving a guarantee for a further overdraft to the bank. He also misled them as to the financial position of his company, V Amadio Builders. They wanted to help their son. The bank was in a position to know the risk the Amadios were taking, and the branch manager was a friend.


The court found that Mr & Mrs Amadio’s ability to judge whether entry into the transaction was in their own best interests, was sadly lacking. They were misled as to the financial position of V Amadio Builders, but the bank well knew the perilous position Mr & Mrs Amadio were putting themselves in. Their guarantee was set aside so that the bank could not claim their assets.

Unconscionable Conduct

Unconscionable conduct is a protection against unfair practices in commerce. It is contained in sections 20 to 22 of the Australian Consumer Law[2] and applies to dealings with business and individuals.  


To be caught by this law, conduct must be both unfair or harsh, and have an element of bad conscience. But there is no precise legal definition. Factors which courts look at to determine whether conduct is unconscionable include 10 factors:


  • Evidence of the parties acting in bad faith.

  • The stronger party’s knowledge of exploitation, rather than mere negligence.

  • The parties’ relative bargaining power.

  • The unfair use of tactics, influence or pressure by the stronger party.

  • Whether the stronger party imposed conditions on the weaker party that were not needed to protect its legitimate interests.

  • Whether the weaker party found documentation comprehensible.

  • Requirements of relevant industry codes.

  • The willingness of the stronger party to negotiate.



[1] Commercial Bank of Australia v Amadio (1983) 151 CLR 447.

[2] Competition and Consumer Act 2010 (Cth) See Schedules.

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