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Negotiating any contact can be a stressful situation. It is critical that you are in the best position when negotiating a contract so that the other party does not take advantage of you, especially if you are in a lower position of power. A common contract that you may have entered into recently is a consumer contract. However, you should ensure your contracting partner has not performed unconscionable conduct when negotiating this contract. This article will explain what unconscionable conduct is and how you can recognise it when negotiating a New Zealand consumer contract.

What Is a Consumer Contract?

A consumer contract is a type of legally binding agreement. Most people enter into consumer contracts when buying and selling products. Consumer contracts do not have to be written and can be implied from the circumstances surrounding the arrangement.

What Is Unconscionable Conduct?

Unconscionable conduct is conduct that goes against conscience. The courts have developed a doctrine against unconscionable conduct called an unconscionable bargain. However, there is also legislation that prohibits unconscionable conduct when negotiating contracts. 

Unconscionable Bargain

A court can set aside a legally enforceable contract if they find that there was an unconscionable bargain between the two parties. However, there is a high threshold to find an unconscionable bargain, and a party must satisfy certain steps. The test for an unconscionable bargain is that:

  1. the weaker party is under a significant disability;
  2. the stronger party knew or ought to have known about that disability;
  3. the stronger party has victimised the weaker, either by active extortion or passive acceptance;
  4. there is a marked inadequacy of consideration, and the stronger party either knows or ought to know that to be the case; and
  5. there is procedural unfairness, either demonstrated or presumed from the circumstances.

If a party satisfies these elements, then the courts can set aside the contract. This is because the contract was not made on an even playing field.

Unconscionable Conduct

Unconscionable conduct is not specifically covered by legislation, but it has defined conduct that goes against conscience by reference to the norms of society. The minister in charge described unconscionable conduct asthat which goes far beyond being commercially necessary or appropriate”. Legislation in New Zealand lists a set of criteria that you must establish before conduct can be unconscionable. These are:

  1. the relative bargaining strength of the parties;
  2. whether one party was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;
  3. whether there was any undue influence, pressure, or any unfair tactics; and
  4. the extent to which the supplier and the customer acted in good faith.

What to Do if I Recognise Unconscionable Conduct?

If you are in negotiations over a consumer contract and notice possible unconscionable conduct, the best thing to do is to discuss this with your contracting partner. They may not be aware that they are acting unconscionably and could try and remedy this by bringing in a third party to oversee the negotiation. However, if they refuse to accept that they are acting unconscionably, then it may be prudent to walk away from the negotiations. This is because you do not want to enter into a deal that does not benefit you. 

Key Takeaways

Getting the best out of your agreement is important when negotiating any contract. However, there may be times where you are negotiating with a party that has higher bargaining power than you. In this case, you should make sure that they are no acting unconscionably, as this could lead you to enter into a deal that is not beneficial for you or your business. The courts will set aside any contract that is found to have been made through an unconscionable bargain. However, this is a high threshold, and you must be under a pre-existing disadvantage to satisfy the test. There is legislation that bars unconscionable conduct, but this conduct is not properly defined. Rather, the legislation provides a test for the courts to use.

If you need any legal assistance regarding unconscionable conduct and contract negotiations, contact LegalVision’s experienced contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I get damages if the courts find an unconscionable bargain?

Usually, the courts will only set aside a contract if there is an unconscionable bargain. They are unlikely to grant you damages.

Can I prosecute my negotiating partner for unconscionable conduct before they sign the contract?

No, you cannot as there is no contract that disadvantages you. However, if you do recognise this type of conduct, then it might be prudent to walk away from negotiations. This is because you do not want to enter into a deal that does not benefit you.

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