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Case Study: Commercial Bank of Australia v Amadio

Case Study: Commercial Bank Of Australia V Amadio

Commercial Bank of Australia v Amadio is a case that took into account the problem of unconscionable conduct. This case revolved around the Australian contract law and equity. Only after this case, “unconscionability” was introduced into the Trade Practices Act.

Overview of the Case: Commercial Bank of Australia v Amadio

This case involved a bank guarantee provided by old parents for their son. The old Italian migrant couple posed as guarantors for the loan their son took for his construction business from Commercial Bank of Australia. The bank manager had good communication with the son and knew the reality of the business. He also knew that the son had misrepresented the facts in order to make his parents agree to become the guarantors.

The bank manager went to the parents’ home to get their signatures on a mortgage. He also did not explain anything regarding the document. Eventually, the bank asked for payment related to the guarantee. When the payment was not made, the bank put up a notice for selling what was held under the mortgage.

It was held by the court (majority) that the bank employed unconscionable conduct and could not depend on the guarantee. For this, it was required to prove that the parents faced a “special disadvantage” while dealing with the bank, and that the bank took advantage of this specific situation.

Some facts about the case

  • The Amadios were really bad in English
  • They were not told that the liability had no limit and they thought it to be $50,000
  • The financial position of the son was not unknown to the bank
  • The parents were not recommended to get independent advice
  • When the son’s business did not work, the bank tried to put the guarantee into effect

While coming to a decision, the judge held that the manager of the bank was aware of the special disability of the Amadios, but still, he did not take any action to make sure that they had a full understanding of the transaction. Hence, the bank taking advantage of this opportunity was unconscientious. This is the main foundation upon which the unconscionability clause lies.

Unconscionable Conduct under the Australian Consumer Law

There are a number of protections laid down by the Australian Consumer Law that covers the consumers in case of the supply of goods and services. There is also protection under the Australian Consumer Law against the unconscionable conduct. There is a prohibition against unconscionable conduct. The court first deals with a matter under section 21 in order to consider a possible case of unconscionable conduct. In case the unconscionable conduct is not caught under section 21, then, the court can consider section 20 in order to come to a conclusion about the matter under the common law principles.

The idea of unconscionable conduct is not restricted to the common law meaning under section 21, and hence, it is broadly defined. In the Australian Consumer Law, the term “unconscionable” is not explained. However, in its general meaning, unconscionable conduct occurs where serious misconduct is there, and it is so against conscience that it requires the court’s intervention to grant relief. The circumstances around the conduct are often unreasonable and unfair. There should also be no presence of morality in order to form unconscionable conduct.

Final Judgement on the Case

It was held by the majority that the Amadio had a special disadvantage as compared to the bank, which made it unconscionable for them to be dependent upon the guarantee.

Justice Mason stated the following:

  • Relief on the foundation of unconscionable conduct is to be granted when unconscientious advantage is taken out of an innocent party whose will has been overborne and hence it is not voluntary and independent.Generally, relief on the basis of “unconscionable conduct” refers to a case where a party unconscientiously uses his superior position to harm a party who has some special disability or is in some particular disadvantage or situation.
  • The knowledge of the bank manager can be considered as the knowledge of the bank. The ultimate conclusion is that the bank can be held guilty of unconscionable conduct by processing any transaction without revealing specific facts that could have made the respondents build their own judgement, and without making sure that the respondents received independent advice.

Justice Deane said:

  • The necessities for unconscionable dealing are:
  • One party engaged in a transaction was under a special disability or disadvantage while dealing with the opposite party. This resulted in the absence of any reasonable level of equality between the two parties.
  • The disadvantage or disability was clearly visible to the stronger party to make it completely unfair to obtain the assent of the weaker party.

Conclusion

It can be said in the end that the legal doctrine of unconscionable conduct dismisses the basic principle of contract law, which is that the terms of an agreement bind all the parties who sign a contract. Now, remedies have been introduced against unconscionable conduct for the aggrieved party.

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