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Commercial Bank of Australia Ltd v. Amadio Report

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Updated: May 6th, 2022


In the ever-changing business environment, Australian law has continuously changed to address some of the loopholes where some enforceable agreements would be at a disadvantage of either party. The rationale is that large conglomerates use unfair rules at the disadvantage of some perceived small parties. This discourse seeks to unveil the amendments in the common law borrowing heavily from unconscionable conduct. This was primarily because of the outcome of the case between the Commercial Bank of Australia and Amadio in 1983 (Crosling & Butterworths 2009, pp. 34-67). The case changed the ways trade practices interpreted unconscionable conduct, which has formed a large part of contracts and agreements between different parties. Indeed, it was the first case that the principle of the unconscionable act became applicable and as such, the Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 case inspired the amendments to the law of contract. Undoubtedly, there has been an increase in the number of laws that seek to protect consumers from unfair acts. This further reinforces the unconscionable conduct within the contract law. This paper explores the contract law in the context of the outcome of the Commercial Bank of Australia v Amadio case as explained in the concept of ‘unconscionable conduct’.

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447


In 1983, Vicenzo Amadio sought a guarantee from his parents owing to his indebtedness to the Bank of Australia. The aged parents guaranteed the indebtedness of their son for him to continue with his business, which was primarily a building venture. Despite the bank’s knowledge of the business, the manager was convinced that Vicenzo had hidden some critical information from his parents regarding the solvency of his business. To the anticipation of the bank, the business failed and the bank went ahead to mortgage the business owned by Vicenzo. This raised the question of whether the enforceable agreement signed between him and the bank was still applicable given the circumstances that the bank had agreed to enter the contract with Amadio. At the outset, the court revealed that Amadios could speak little English, as it was not their first language (Crosling & Butterworths 2009, pp. 34-67). Besides, it became apparent that Amadio had made no efforts to seek consultation and advice from a professional firm regarding the contract that he had signed. In addition, the bank manager had prior knowledge of the precarious situation facing Amadio’s business but did not make efforts to inform the party of the need to look for professional advice. Moreover, the bank made no profound efforts to ensure that the parents were aware of their son’s business situation and the limit of the liability. Apparently, Vicenzo Amadio believed that his liability was only limited to fifty thousand dollars (Crosling & Butterworths 2009, pp. 34-67).

The decision by the court held that the bank manager and the commercial bank were aware of the special disadvantage of the Amadios and made no substantive efforts to ensure that Amadio clearly understood the nature of the contract that he entered. In other words, Justice Mason explained that the bank had the motive of taking the advantage of the Amadios and the entire agreement. This was in contravention of ethical and moral actions by a party when entering a contract as indicated within the doctrine of ‘unconscionable conduct’. Mr. Virgo, who at the time was the bank’s manager, did not notify the bank of the nature of the contract despite being its representative. As such, Crosling & Butterworths (2009, pp. 34-67) say that the doctrine of unconscionable conduct was the focal point in the entire case that absolved Amadios from any misdeeds and held the bank accountable for being an opportunist in the context of common law.

Unconscionable Conduct

After the deliberation of the case, it became apparent the new concept of unconscionable conduct had been entrenched in the Australian contract law and consequently passed by the legislature. The court made an insight on the concept and divided it into two broad terms during the ruling (Pascoe 2006, p. 67). First, unconscionable conduct could result when one party uses gratuitous influence or coerce the other party into entering an agreement. In particular, the use of coercion to enter an agreement is a central part of consumer protection law that guarantees consumers the ability to enter any binding agreement independently and devoid of any unwarranted pressure or influence. Second, a court can declare an enforceable agreement as conscionable conduct if either party takes advantage of the other party owing to a lack of enough information and knowledge regarding the contract.. Besides, if a party is unable to make an autonomous decision, the court of law can go ahead and nullify such contract drawing influence from the unconscionable conduct by one party for attempting to take advantage of the other.

To this end, the doctrine of unconscionable conduct has two main divisions. Procedural unconscionability refers to the fact that an individual suffers apparent disadvantage during the process of entering a contract. Substantive unconscionability occurs when the outcomes of the contract are out of favor of one party. While procedural unconscionability will ultimately result in substantive unconscionability in most cases, the lack of the latter is enough to nullify a contract. It is worth noting that the court has the discretion of judging whether all parties had equal platform when reaching the decision. However, it is not the work of the court of law to make a decision on whether an individual made a good or a bad negotiation. Owing to the fact that unconscionable conduct arises from the lack of a balanced power to make a bargain, only small parties may be able to establish in the court of law that they were victims of such unethical acts. To this end, Pascoe (2006, p. 87) says that large conglomerates can rarely be the subjects of such unethical contractual agreements. Indeed, they bear the responsibility of making contracts in a reasonable manner in that they should avail any information that they may have to the other party in order to assist them in arriving at an informed decision. In reality, if the commercial bank of Australia had shown the court that the contract was just and fair for all parties, the contract would not have suffered impugnation.

Factors that guide Unconscionability

In essence, unconscionable conduct arises in a context where there is an apparent lack of balance bargaining power between parties. In such a situation, the seemingly strong party exploits the susceptibility of other parties involved. The court of law looks into various aspects in such a situation. First, the court ought to have the conviction that the exploited party had (or lacked) freedom when entering the contract (Seddon & Ellinghaus 1997, pp. 334-354). Lack of freedom in making a legally binding contract leads to undue influence according to the court of law. It refers to a context where the large conglomerate overbears the weaker party in such a way that the latter does not enter the contract using his/her free will. Regardless of the information provided by the stronger party, it is apparent that the availability of the information will do little to save the contract from nullification. The rationale is that the contract will not have resulted from free will and is dependent on the undue influence of the stronger party. For instance, if the bank manager availed information to Amadio regarding the solvency of his business and the need to seek professional advice but still deny him the freedom to make an independent decision, the contract would not hold.

The second factor that the unconscionable conduct operates in involves sufficient information. The stronger party should make available all pertinent information about the impending transaction or contractual agreement. The party should provide adequate information with accuracy and precision and ensure that the other party comprehends it fully. In addition, all the parties ought to understand the consequence of the transaction. To this end, if the stronger party is able to convince the court that the seemingly vulnerable party had all the relevant information but a misunderstanding arose later, the court cannot overturn or nullify the contract (Duncan & Dixon 2007, p. 59). Despite the vulnerable party having signed a contract in line with their free will and independence, the contractual law dictates that the free will must emanate from the accuracy of the information provided and not from incomplete or ‘half-baked’ information.

According to Justice Mason during the deliberation of the Commercial Bank of Australia v Amadio case, all efforts should be towards helping illiterate, drunk or even sick persons from entering an agreement that they vaguely understand (Turley 2001, p. 37). In other words, the stronger party ought to ensure that a drunken person does not enter into a contract until they are sober enough to understand the content of the contract (Meagher & Lehane 1992, p.78). For illiteracy cases, they should receive specialized assistance to ensure that their decisions depend on their comprehension of the nature of the contract. Nonetheless, Justice Mason pinpointed that there are instances such as when the vulnerable party suffers from emotional dependency that could strip off their contractual rights when entering a legally binding contract. The rationale is that they give rise to some complex issues that the court cannot resolve with ease (Seddon & Ellinghaus 1997, pp. 334-354). In other words, emotive dependence may severely affect the contractual rights of an individual raising some complex issues regarding the nature of the information provided and the accuracy of the same.

The Impact of the Case on Other Laws

Commercial Bank of Australia v Amadio (1983) 151 case had many impacts on the Australian law and other legislations that seek to protect individuals who wish to enter into contractual agreements. Considering the fact that the doctrine of unconscionable conduct came into being during the Blomley v Ryan case, it got further reinforcement from Amadios case (Turley 2001, p. 42). This was in an attempt to protect one party from suffering special disadvantages when entering into a transaction. Besides, it prevents the larger parties from taking the opportunity to reap benefits from such a disadvantaged person. Consequently, the case has continued to shape and influence many laws and practices in the entire Australian business environment.

First, Chen-Wishart (2012, p. 56) says that it influenced the appraisal of trade practices act. The doctrine of the unconscionable act became an additional clause of the Act in 1992. Contained in section 51AA, conscionable conduct should guide all business transactions as a way of protecting parties that may suffer from special disadvantages. It outlines that a company or a corporation should not make any transaction in an unconscionable way. In fact, the Act refers to the doctrine as a written law, which implies that the development of the law was by the courts. In the Act, the doctrine talks about people who suffer from a special disadvantage because of their inabilities, sickness, age and other factors that render them unable to make decisions that are in their best interests when entering a contract (Goldring 1998, p. 87). If a corporation makes a contract under these premises, the Act is in a position to declare it as invalid due to the apparent procedural unconscionability. In the Commercial Bank of Australia v Amadio (1983) 151 case, Justice Mason articulated that a party that suffers low bargaining power in a transaction may not have suffered a special disadvantage since the other party must be able to make a decision that is in his/her best interests for various reasons. Besides, only under the situation in which the parties entered the transaction that the doctrine is applicable. In 1998, section 51AC came into force borrowing from the same doctrine. It is aimed at protecting small businesses. It articulates that large corporations should not enter into a contract with seemingly small businesses based on unconscionable conduct (Meagher & Lehane 1992, p.78). Initially, the Act under section 51AB had banned consumer transactions from the doctrine, which later became a loophole through which large businesses and conglomerates could continue with the exploitative behavior.

Second, the doctrine of unconscionable conduct has found its way into the financial services in Australia. Particularly, Australian Securities and Investments Commission (ASIC) took the duty to provide protection to seemingly small parties within the financial sector. The doctrine operates within the context of conventional law and prescribes that unconscionability conduct is applicable to both consumers and small businesses. The application of the principle within the financial services reflects the Act in trading practice law. To this end, it is important to notice that section 12CA records that an individual shall not transact with other people in any way that the court deems unconscientiously (Gillies 2001, p. 56). The content of section 12CB of the Act also prohibits corporations from indulging in such acts directed towards consumers. To that end, it is imperative to recognize the case had unparalleled influence in the ways in which ASIC regulates the financial institutions in Australia.

Fair Trading Acts have also drawn inspiration from the doctrine of unconscionable conduct. Indeed, numerous states and territories have integrated the doctrine into their sections that guide fair trading laws. Although not many states have been in a position to enact all provisions under section 51A, many have incorporated the majority of its content into the fair-trading practices. For instance, New South Wales has been in a position to enact the entire pact of the law although with substantial amendments that seclude ordinary business dealings. The major focus of the contract is to ensure that unjust and unfair business dealings should not typify the business environment of the territory.


In sum, the Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 case provides a situation where corporations engage in unjust and unfair practices when entering into legally binding contracts with other parties. Particularly ,the Commercial Bank of Australia entered a contract with Amadio who had little knowledge of the consequences of the contract and liability. Despite the precarious situation that Amadio faced in his business, the bank went ahead and entered into a contract with him without alerting his parents who had guaranteed his indebtedness and liability to the bank. Upon solvency, the bank mortgaged his building. The court ruling nullified the contract owing to the fact that the bank withheld crucial information from him and the fact that the contract had placed Amadio in a specially disadvantaged situation (Priestley 1986, pp. 34-87). He lacked information and as such, he did not act freely during the transaction. To this end, the doctrine of unconscionability conduct became a part of a law that governs trade practices in Australia. Such acts that guide trading practices, financial practices and fair trade have become typical of conscionable acts in states and territories of Australia. The case, therefore, aims at protecting consumers and individuals who are at a disadvantage owing to a lack of information and an imbalance of bargaining power.


Chen-Wishart, M 2012, Contract Law, Oxford University Press, London.

Crosling, T & Butterworths, M 2009, How to Study Business Law, Sage Publishers, New South Wales.

Duncan, W & Dixon, W 2007, The Law of Real Property Mortgages, McGraw Hill Publishers, Sydney.

Gillies, P 2001, Concise Contract Law, Pearson, Upper Saddle River, New Jersey.

Goldring, J 1998, Consumer Protection Law, Prentice hall Publishers, Melbourne.

Meagher, G & Lehane, B 1992 Equity: Doctrines and Remedies, Butterworths, Sydney.

Pascoe, J 2006, ‘Statutory Unconscionability and Guarantees’, Australian Law, vol. 5 no. 4, pp.56-67.

Priestley, J 1986 ‘Unconscionability as a Restriction on the Exercise of Contractual Rights’, Rights and Remedies for Breach of Contract, vol. 5 no. 1, pp. 80-81.

Seddon , R & Ellinghaus,T 1997, Cheshire and Fit foot’s Law of Contract, Butterworths, Sydney.

Turley, H 2001, Australian Principles of Commercial, Rutledge Publishers, New South Wales.

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