SUBSTANTIVE UNFAIRNESS & PROCEDURAL UNFAIRNESS

Case name: Hart v OConnor

Principle: Distinction between 2 concept

Fact: Jack O'Connor was the trustee of a trust that owned the family farm
in Waimate since their father died in 1911. Jack was sold the property to a neighbour,
Mr Hart, but within a month, Mr Hart, unhappy with leasing the farm, contacted the
vendor's solicitor to obtain an outright sale of the farm, and they later agreed to a sale
at an unspecified price to be determined by a valuer.

However, unknown to either Mr Hart or even Jacks own solicitor at the time, Jack was
suffering from senile dementia. It was also later discovered that the sale conditions were
arguably unfair, as the property was later sold for $180,000, when a subsequent
valuation was $197.000, and the purchaser only had to pay for the farm two years after
he had taken possession, giving Mr Hart the benefit of any rise in farm prices in those
two years. Later, Jack subsequently died. After the two surviving brothers retained new
solicitors, they subsequently took legal action to set aside the sale.

Held: The Privy Council advised that the contract was not an unconscionable bargain.
With regards to the trust's claim, the Court said the contract was unfair in equity if one
party is insane and the other party is not aware of this, the contract can be set aside due
to insanity if the contract was deemed to be "unfair". However, the court said there were
two types of "unfair" contracts: "procedural unfairness" and Substantive unfairness.
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Substantive Unfairness

Case name: Australian Competition and Consumer Commission v Chrisco Hampers

Australia Limited

Fact: Chrisco Hampers Australia Limited (Chrisco), is a well-known company in

Australia and conducts a business which allows its customers to purchase Christmas
hampers by instalments throughout the year. In this case, the ACCC issued proceedings
against Chrisco in the Federal Court claiming that three terms in its standard form
contracts contravened provisions in the ACL.

Held: The court held that the Headstart term used in Chriscos contracts was unfair,
causing a significant imbalance in the parties rights and obligations arising under the
contract. The Court also held that the sums money lost by the consumers is not in small
amount and can cause Substantive unfairness in the contract.

Case name: Small v Gray

Principle: Procedural unfairness

Fact: The case concerned a loan taken by a couple to purchase a house. Because the
couple did not have any savings, the loan taken covered both the cost of the house and
the stamp duty and legal fees associated with its purchase. The lenders required the
mother and father of the husband to put up their family dwelling as security for the loan.

When the couple fell into default of the loan, the lenders sought to enforce the mortgage
over the parents property. It is accepted between the parties to the proceedings that the
fathers signature was forged and only the mother had signed the mortgage. The mother
sought relief from the mortgage on the basis that the mortgage was unjust under the
Contracts Review Act 1980, or alternatively, the lenders unconscionability.

Held: following the judgment of Justice McHugh in West v AGC (Advances) Ltd,
where Justice McHugh identified two kinds of injustice "substantive" and "procedural",
Justice McDougall found that the contract contained in the mortgage was both
procedurally and substantively unjust. In term of Procedural injustice, the court found
that the contract was procedurally unjust because the signature of Kristines (Jarrod's
mother) to the mortgage was procured by a representation that turned out to be
inaccurate. Therefore, the document became binding upon her as the result of a fraud,
therefore the document contract was Procedural unfair.

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