Unjust contracts — changes and charges
Sections 76 and 77 contain the NCC's version of statutory unconscionable conduct. These sections allow a court to grant relief to debtors from the consequences of entering into "unjust transactions". The provisions set out a two-step test.
STEP 1
Was the contract, mortgage or guarantee unjust at the time it was entered into or changed?
A definition of the term "unjust" is provided in section 76(8) of the NCC, which states that "unjust includes unconscionable, harsh or oppressive". This phrase, which has been adopted from the Contracts Review Act 1980 (NSW), has been dubbed the "tautological trinity": see West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621 per McHugh JA.
The definition of unjust is wider than that of unconscionable conduct at common law and includes unconscionability: Maisano v Car and Home Finance Pty Ltd[2005] VCAT 1755 ("the Maisanocase"). The concept also includes both:
substantive unconscionability (i.e. the idea that the terms of the document itself are unconscionable); and
procedural unconscionability (i.e. the idea that the conduct of the parties at or prior to the time the transaction was entered into was unconscionable: see the Maisano case, above).
Further, the fact that a contract favours one party's rights over another (West v AGC (Advances) Ltd (1986) 5 NSWLR 610; Esanda Finance Corporation Ltd v Murphy (1989) ASC 55-703; Custom Credit Corporation Ltd v Lupi [1992] 1 VR 99; Custom Credit Corporation Ltd v Gray [1992] 1 VR 540), or that a contract fails to comply with the NCC (Custom Credit Corporation Ltd v Gray [1992] 1 VR 540; Morlend Finance Corporation (Vic) Pty Ltd v Westendorp [1993] 2 VR 284; Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469; McKenzie v Smith (1998) ASC 155-025) will not, on their own, amount to unjust conduct.
When considering whether a transaction is unjust, a court must have regard to:
the public interest; and
all the circumstances of the case (s.76(2) NCC).
Note the two competing public interests of consumer protection and upholding bargains.
In addition, a court may have regard to:
the consequences of the parties complying or not complying with the provisions of the contract, mortgage or guarantee;
the relative bargaining power of the parties;
whether or not the parties could negotiate the terms of the contract, mortgage or guarantee at the time it was entered into or changed;
whether or not it was reasonably practicable for the applicant to negotiate changes to or reject any of the provisions of the contract, mortgage or guarantee or the change;
whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of a party;
