Legal Principles for Unconscionable Conduct
Issue: In this question, the issue arises if the contract created by Peter and Mary can be described as unconscionable and as a result, if they can rescind the contract.
Rule: the test related with unconscionable conduct has been provided by the court in Commercial Bank of Australia Ltd. v Amadio (1983). The test provided in this case, mentions those circumstances where the conduct of the party to the contract may be described as unconscionable. The former is when the other party takes an unconscionable benefit of the guiltless party and the will of such party is overborne as a result, it is not free and voluntary. The second is when the party has taken advantage of the blameless party who has not lost free will but is not in a position to make a sensible judgment regarding its best interests.
The leading case in this regard is Commercial Bank v Amadio. Here, Mr. and Mrs. Amadio executed a guarantee and mortgage in the form of a guarantee for the debts taken by the company of their son. Both of them were Italian immigrants have little knowledge of English and very little experience in business matters and formal education. On the other hand, their son Vincenzo was living in expensive lifestyle even if he was insignificant debt. Under the circumstances, Vincenzo told the Amdio’s that the guarantee was only for $50,000 and for a period of six months. In reality, this was not true. The liability of the elderly couple was not restricted. On the other hand, the bank decided to allow Vincenzo to add to his overdraft.
A bank manager also visited their home in order to get the relevant papers of mortgage signed. The papers were not read by the Amadio’s. At the same time, the representative of the bank also did not provide any clarification to Amadios regarding the papers that were going to be signed by them and also the risks involved in the transaction. However, the representative did mention that the security was not limited to a period of 6 months when he listened to the untrue misrepresentation made by Vincenzo.
The company belonging to their son kept on facing financial losses and then it went into liquidation. It was required by the bank that Amadios make good on their promise to pay the amount outstanding of the company. However, the aged couple was not in a position to meet the liability of the guarantee and a notice was issued by the bank that it was going to exercise the power of sale under the mortgage.
Application of Unconscionable Conduct Principles to Case Example
In this case, it was stated by the High Court that there was a special disadvantage present on part of the Amadio’s. Therefore, it was the finding of the court that in this case the conduct of the bank can be termed as unconscionable. In this regard, Mason J stated that in such cases, unconscionable conduct is related with a situation where one party unconscientiously uses its bargaining power or better position, to the disadvantage of the other, which experiences from a particular disability or has been put in a certain place of disadvantage (Finn, 1994).
While arriving at its verdict, the court also considered the special disadvantage that was present on part of the Amadio’s, particularly due to their limited knowledge of English language, lack of business experience and formal education as well as their old-age (Dixon, 2005). The special disadvantage present on part of the Amadio’s, along with the failure on part of the bank to reveal all the relevant facts due to which an informed judgment could have been made by the Amadios regarding the deal was considered to be amounting to unconscionable (Bogan, 1998). The court noted that the documents would not be signed by the elderly couple if they were completely aware of the effect of the terms of the transaction that they were going to enter into.
Application: in the present case also, Peter and Mary are immigrants with very little knowledge of English language and lack of formal education. Both of them had retired and they want to help their son in getting a loan (ACCC v Lux Distributors, 2013). However, their sons and the money lender did not explain the facts to Peter and Mary regarding the guarantee that they were going to sign on its implications. The only ensure Peter and Mary that everything is going to be all right. However, for some time, the business of their son fails. In cases where unconscionable conduct has been alleged, the focus of the court is on the bargaining power of the parties and particularly the negotiating authority of the stronger party and its conduct. As a result, the responsibility is on better placed party to establish that the deal was reasonable and just (Blomley v Ryan, 1956). If the stronger party could not establish that the deal was reasonable and just, the conduct of such party has to be considered as being unconscionable and the court may set aside the transaction (ANZ Banking Group v Durnosa, 1995).
Legal Remedies for Oppressive Conduct
In this case, the transaction can be set aside. The reason is that Peter and Mary were not informed of the implications of the transaction that they were going to enter into. Moreover, due to the special disability present on both the Peter and Mary, they were not in a position to make an informed judgment regarding the fact is, the transaction was in their best interests or not.
Conclusion: in view of the legal rules mentioned above and the application of these rules to the facts of this case, it can be stated that in the present case, Peter and Mary can apply to the court to set aside the transaction.
Issue: the present issue is concerned with any remedies that may be accessible to Jacinta as a member of the corporation.
Rule: there are a wide range of remedies available to the shareholders in circumstances where the persons controlling the company have unfairly used their power or have breached their duties. In this regard, the oppression remedy that is present in Part 2F.1,Corporations Act, 2001 provides a noteworthy protection regarding the rights of shareholders, including the minority shareholders. The remedy is generally used along with an application to wind up of the corporation on the basis that doing so is just and reasonable under section 461.
Who may apply for this remedy: it has been mentioned in section 234 regarding the persons who can apply for another under s. 232. The applicants that are accepted in this regard include:
- Shareholder
- Person who has been removed from register due to selective reduction;
- Person who ceased to be a shareholder, and the application is related with the circumstances under which the person has been removed;
- The person to whom share in the company has been transmitted by will or through operation of law; and
- According to ASIC, an appropriate person, after conducting an inquiry regarding the affairs of the company.
A shareholder can seek an order, where the work is contrary to the shareholder in any capacity except the shareholder or in opposition to another shareholder in their power as the same.
The behavior regarding which remedy may be wanted: according to s 232, the court has been permitted to provide respite to the applicants if the court is of the opinion that the business affairs were conducted, any real or planned act/omission by the corporation or a resolution of shareholders or class of shareholders is either (i) against the interests of the shareholders all together or (ii) if it is oppressive to, unjustly prejudicial or unjustly discriminatory against any shareholder/shareholders, whether in their authority as shareholders or some other (Elder v Elder and Watson, 1952).
In this regard the term, affairs of the company includes the behavior of the directors of the company, majority shareholders, substantial shareholders of the corporation and also the company itself (Fexuto v Bosnjak Holdings., 2001). In this regard, s53 of the Act provides the definition of “company’s affairs” which comprises a allusion to the promotion, membership, formation, control, transaction and dealings, income, losses, outgoings and expenditure;
Application of Oppressive Conduct Principles to Case Example
The internal management of the company and related proceedings;
The power enjoyed by the persons to use or to direct the use of, the rights to vote related with the shares in the company or to dispose of, or exercise control over the disposal of these shares.
Oppression remedy is usually treated as operated when oppression takes place in case of a minority shareholders. Some of the examples of oppressive and unfair conduct can be given as follows. Therefore, it includes unacceptable diversion of business to a different body, failure to prosecute connection, payment of too much salary to the controller of the company or its associate, improper share issue, misuse of company funds, refutation of admission to information, oppressive conduct during meetings of the board (Morgan v 45 Flers Avenue., 1986).
The law provides wide-ranging powers to the court to make in order that is considered to be appropriate by the court if the shareholder is in a position to establish that the dealings of the business is against the interests of the shareholders as a whole, unfairly prejudicial, oppressive or discriminatory. Some of the orders that may be suitable under the circumstances have been mentioned in s233. These include the order that:
- the company may be wound up;
- the present constitution of the company should be modified or repealed;
- the purchase of shares of any shareholders by other shareholders of the company or by a person to whom a share, has been transmitted by will or through operation of law;
- the purchase of shares with a proper introduction of the share capital of the company;
- restraining a person from being involved in particular conduct or from doing a particular act; or
- requiring a person to do a particular act.
The policy behind the provisions mentioned in Ss 232 and 233 is to allow the shareholder who has to face oppressive conduct, from being released from the corporation. Under the conditions that have been mentioned in s232. When, the court has made in order, in accordance with s232, the applicant is required to submit a copy of such order with ASIC in 14 days of the order.
Application: in the present case, Jacinta was feeling powerless as did the directors of the company, Bill’s sons Jack and Daniel lamely follow their father regarding the matters related with the company. Under these circumstances, it has been decided that the company is not going to pay dividend out of the profits made by the company but they were going to be reinvested. This has been going on for the last four years in a row. Moreover, the company has also decided to restructure the shares of the company. As a result, Yvetta and Jacinta have been excluded because they were being considered as a threat. In case they’ve managed to Bill’s sons fails.
Under these circumstances, Jacinta can seek the remedies that have been provided to the minority shareholders by the Corporations Act.
Conclusion: in this case, the remedy for oppressive conduct that is available to minority shareholders can be used by Jacinta for the purpose of protecting her interests.
References
Bogan, S., 1998, “Garcia v National Australia Bank Ltd.: Resurrecting the Corpus of Yerkey v Jones” UNSW Law Journal 845
Dixon, W. 2005, “Common law obligations of good faith in Australian commercial contracts – a relational recipe”, Australian Business Law Review 33(2)
Finn, P., 1994, ‘Unconscionable Conduct’ (1994) 8 Journal of Contract Law 37
Case Law
ANZ Banking Group v Durnosa (1995) ANZ ConvR 86
Australian Competition and Consumer Commission v Lux Distributors [2013] FCAFC 90
Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Elder v Elder and Watson (1952) S.C. 49
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97
Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692
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