The Supreme Court of South Australia has recently heard an appeal brought by the South Australian Consumer Affairs Commissioner involving a real estate agent, Pitt. Pitt commenced the “We buy houses” business in 2012 and sought to sign up home owners with an option to purchase their home for an agreed price in the future. (Commissioner for Consumer Affairs v Pitt  SASC 72) Of course, Pitt’s business model was based on the premise that the option would only be activated if the market price exceeded the option price in the coming years.
Interestingly, in the lower court the Magistrate took considerable care to dissect the High Court’s decision in Kobelt and separately apply both the ‘narrow’ and ‘broad’ approach of unconscionability before making a determination about Pitt and unconscionable conduct.
First, the Magistrate explained the ‘narrow’ approach, being that of equity, which required the presence of a special disadvantage on the part of the innocent party that affected their ability to make a judgment in their own best interests, that the accused party was aware of that disability, and finally that they had unconscientiously taken advantage of that special disadvantage for their own benefit.
Secondly, the Magistrate detailed the ‘broad’ approach - that being a requirement for an evaluation of the values and norms of society (as recognised by statute) by identifying the normative standard of conscience accepted by the community, and then contrasting that standard against the standard of conduct in the present case to arrive at a value judgment on whether it was indeed so far outside the norms of society and commercial behaviour as to warrant condemnation.
Equitable unconscionability (narrow approach)
On appeal, Auxiliary Justice David found that the home owner, an aged pensioner and retired labourer with limited education, no knowledge of commercial and property transactions, a chronic gambler and on a mortgagee hardship program with an immediate need to sell his home and fund a move to a retirement village, was indeed at a special disadvantage because he had found himself at the whim of Pitt and in complete reliance on the agent to sell his house at any time during the option period of 4 years when it was only Pitt whom could benefit from inflation.
Statutory unconscionability (broad approach)
Under the factual matrix of all factors to be considered under section 22 of the ACL, David AJ considered the homeowner’s special disadvantage (because of his age, inexperience and dependence on Pitt to sell his home so he could move to a retirement village) along with the fact the option agreement had in no way protected his legitimate interests or offered him any material advantage could only amount to exploitation at the hands of Pitt.
After allowing the appeal on the grounds of unconscionability, David AJ remitted the case back to the Magistrates’ Court for final determination.
By Rob Norton and Louise Gehrig