Bu1112 Business Law: Commercial Bank Assessment Answers

Answer:

Introduction:

When a person lacks knowledge and does not have the bargaining power he is said to be in a state of unconscionable conduct. The present case deals with the subject of unconscionable conduct. In Commercial Bank of Australia Ltd. V Amadio(1983) 151 CLR 447 is the case from which the concept of unconscionable conduct has been originated under the Australian Contract Law (Brody & Temple 2016).

Facts:

Vincenzo the only son of Amadios is engaged in the business of builders. Vincenzo has several debts with the bank due to his business. He dealt with the Commercial Bank of Australia. He has such a huge debts and overdrafts that the bank requires to be secured through a mortgage. Therefore, he mortgaged a building that his parents owned. The Amadio’s executed the guarantee which says that if his son fails to repay the debts within stipulated time period then the bank will enforce the guarantee. Vincenzo could not repay the debts on time and so bank enforced the guarantee but the parents of Vincenzo said that they were unaware of the facts of the case and the guarantee could not be enforced on the ground that it was unconscionable.

Issue:

“Unconscionable Conduct” is an important issue in this case. Unconscionable conduct means when no proper disclosure of facts are given to a person. According to Section 21 of the Australian Consumer Law it strictly prohibits unconscionable conduct. In the present case, the bank manager has the liability or responsibility to disclose all material facts to the Amodios before entering into the contract of guarantee (Competition & Consumer Commission 2014).

Secondly, the bank has misrepresented them by not disclosing the statement of account of Vincenzo.

Thirdly, the bank being on the stronger side has undue influence over the weaker party i.e. the Amodios.

Appeal Decision of the High Court:

In the present appeal case the High Court held the bank liable and said that the contract of guarantee could not be enforced as the bank has made an unconscionable conduct. Moreover, the bank has dismissed the case on the ground of misrepresentation and wilful ignorance of the bank in disclosing the facts. The court viewed that it was the responsibility of the bank to disclose all material facts and statements related to Vincenzo’s business account, but they have not disclosed any such facts which resulted into misrepresentation and wilful ignorance (Paterson & Brody 2015).

Banks responsibility to inform the guarantor:

Justice Gibbs decided in the present case that the main issue in the case is Misrepresentation due to non-disclosure of facts.The bank is in the state of responsibility to disclose all material facts available regarding the statement of account of Vincenzo to the guarantor. The court also viewed on the fact that bank does not have responsibility to disclose all material facts of the case to the guarantor, it shall disclose on in special case or situation as held in the case of Llouds bank Ltd. V Harridon. Therefore, the court said that the present case is a special arrangement between the bank and the customer and so it is the responsibility of the bank to disclose all material facts to the guarantor (Rajapakse & Gardner 2014).

Facts upon which bank should have made such disclosure:

Justice Gibbs decided that the present case is a special arrangement between the customer and the bank. The bank should have disclosed the information of Vincenzo’s state of account to the guarantor on the facts that the bank requires to secure Vincenzo’s over draft facility within a short period and regular dishonouring of cheques leads to a deceptive appearance for the company (Thanasegaran 2016).

Justice Gibbs decision making:

Justice Gibbs decided the case based on three issues. Firstly it says that the bank has made non disclosure of material facts and has been liable for misrepresentation. Justice Gibbs also said that the contract has not been made out of utmost good faith and so the contract of guarantee cannot be enforced. Secondly, according to Justice Gibbs the bank has committed wilful ignorance of disclosing the facts of the case and shall be held liable and Thirdly, Justice Gibbs decided the case based on the issue of unconscionable conduct. The bank made no unfair use of its position and thus unconscionable conduct does not arise (Brody & Temple 2016).

Difference in decisions of Justice Mason and Justice Gibbs:

Justice Mason on his decision has said that the bank is liable for unconscionable conduct as well as misrepresentation due to non-disclosure of the facts of the case. Whereas, Justice Gibbs held that the bank is liable for the misrepresentation for non-disclosure and wilful ignorance to disclose the facts of the case but the bank is no way liable for the unconscionable conduct. Thus, both the judgement differs from one other in the context of unconscionable conduct. Mason J. Has accepted that there was unconscionable conduct on the part of the bank whereas the Gibbs J. has held that there was no unconscionable conduct on the part of bank (Thampapillai et al. 2015).

Gross Inequality on the part of both the parties:

Bank is liable for misrepresentation due to non-disclosure of the statement of account of Vincenzo. The bank has made wilful ignorance of the facts of the case. Whereas the guarantor was ignorant of the fact and does not intend to know that why guarantee in such case is required. Moreover, every prudent person is aware of the fact that guarantee is required only in the case of credit and so the Amodios should intend to know the facts.

Definitions put forth by Justice Mason and Justice Dean:

According to Justice Mason Undue influence has certain difference with Unconscionable conduct. In undue influence the will of the innocent party is not voluntarily taken whereas in case of unconscionable conduct the innocent party or the weaker party has taken its decision voluntarily. According to Justice Mason the two remedies are exclusive in its own sense. In case of undue influence it the weaker party who could not take its decision independently but in case of unconscionable conduct, they decide voluntarily but could not judge the impact of their decision (Walton 2013).

According to Justice Dean’s Undue influence looks into how or in what manner the decision has been taken but in case of unconscionable conduct it is it deals with the stronger party by applying unconscionable dealing how the party gets benefited (Virgo 2015).

According to Justice Dawson test on how bank shall be made liable.

According to Justice Dawson, bank has no such responsibility to provide or disclose material facts of the case to the guarantor. It is the responsibility of the guarantor to intend to know about the facts of the statement of the bank account for which he has been made guarantor. The bank would have been liable only if the guarantor has intended to know the statement of the account and the bank wilfully ignores such intention of the guarantor (Walton 2013).

Thus, concluding the case with the view that bank is liable for non-disclosure of the facts of the case. Bank stands as a stronger party and is the holder of material facts of the case. So it is the liability of the bank to disclose the facts of the case.  The bank is also responsible for wilful ignorance to disclose the facts of the account in which he has entered in guarantee. Hence, the contract of guarantee stands unenforceable and the appeal is set aside.

References:

Brody, G., & Temple, K. (2016). Unfair but not illegal: Are Australia's consumer protection laws allowing predatory businesses to flourish?. Alternative Law Journal, 41(3), 169.

Competition, A., & Consumer Commission. (2014). ACCC takes action against Coles for alleged unconscionable conduct towards its suppliers. News Release NR, 102, 14.

Paterson, J. M., & Brody, G. (2015). “Safety Net” Consumer Protection: Using Prohibitions on Unfair and Unconscionable Conduct to Respond to Predatory Business Models. Journal of consumer policy, 38(3), 331-355.

Rajapakse, P. J., & Gardner, J. (2014). The Unconscionable Conduct and Subprime Lending in Australia.

Thanasegaran, H. (2016). Pre-contractual Duty of Disclosure and Misrepresentation. In Good Faith in Insurance and Takaful Contracts in Malaysia (pp. 47-108). Springer Singapore.

Brody, G., & Temple, K. (2016). Unfair but not illegal: Are Australia's consumer protection laws allowing predatory businesses to flourish?. Alternative Law Journal, 41(3), 169.

Thampapillai, D., Tan, V., Bozzi, C., & Matthew, A. (2015). Australian Commercial Law. Cambridge University Press.

Walton, R. (2013). Kakavas v Crown Melbourne Limited. Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia, 27(4), 33.

Virgo, G. (2015). Principles of the Law of Restitution. Oxford University Press, USA.

Walton, R. (2013). Kakavas v Crown Melbourne Limited. Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia, 27(4), 33.