Unconscionability is a principle of contract law that means acting unjustly and unfairly, or in an unreasonably excessive manner. Understanding unconscionability is important in starting and running a business because of the legal implications in any contracts entered into. For instance, employment contracts, production, manufacturing and distribution contracts, trade agreements and privacy policies all have to be conscionable to successfully maintain a business.
1. Factors Causing Unconscionable Conduct
A contract suspected of being formed unethically, will be looked at by the court for:
- The relative bargaining strengths of the parties
- Whether the parties understood the documents
- If one party was required to comply with unreasonable conditions for the interests of the other party
- Whether there was unfair influence or tactics used by the party
- Whether the parties acted in good faith.
2. How to Avoid an Unconscionable Dealing
An unconscionable dealing could be:
- Entering an agreement with a person who doesn’t understand what they were signing because they have cognitive disabilities or a lack of education, preventing them from grasping the consequences of the contract.
- Compelling someone to sign a contract despite them not speaking the primary language contained in the contract, and therefore not understanding the language used.
- Using unfair tactics, such as supplying misleading information, to convince the other party to agree to something.
You can avoid becoming a victim of an unconscionable dealing by making sure any contract or agreement is in writing and you can fully understand what it means. If you are having trouble comprehending anything, ask the other party to clear it up for you. Make sure to consult a business lawyer to look over a contract if you still don’t understand what you are agreeing to, to make sure you are getting a fair deal.
3. How to Make Conscionable Deals
Avoid unconscionable dealings by not exploiting the other party in a dealing. Make sure the other party understands the consequences of any contract or agreement they accept. This can be done by avoiding confusing language or phrasing, therefore ensuring that the other party’s judgement isn’t affected.
If it is clear someone doesn’t understand the language of the contract, or can’t grasp the meaning of the terms used, avoid entering into an agreement. Rather, request the affected party seeks assistance from a friend or a lawyer. Be open and clear with the other party because misleading or using unfair tactics are another form of unconscionable conduct.
Contact one of our lawyers to check if your business is making conscionable deals.
4. Consumer Protection
In Australia, the Competition and Consumer Act 2010 prohibits corporations from participating in unconscionable conduct for the protection and wellbeing of consumers. Schedule 2 of the legislation sets out the Australian Consumer Law (ACL) which further prohibits this conduct in relation to the supply or purchase of trade or commerce. In addition to the general factors in unconscionable dealings, ACL also looks at whether industry codes were followed by the supplier, and if false advertising might mislead consumers.
Issues with suppliers can go through the respective consumer protection agency in your state, who review consumer complaints and resolve disputes.
5. Penalties for Unconscionable Dealings
Unconscionable dealings leads to legal complications down the road. A contract entered into unconscionably results in repercussions, the penalties of which includes:
- compensation because of a loss or damage
- monetary penalties
- a void or void in part contract
- changes to the contract
- a refund or action of a certain service.
Under ACL, monetary penalties for corporations can be up to $10,000,000, three times the value of the received benefit, or 10% of annual turnover in the following 12 months. Individuals can also face fines of up to $500,000 for unconscionability.
To report potential unconscionable conduct visit the Australian Competition & Consumer Commission to submit an issue.
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