Undue Influence And Unconscionable Conduct In Australia: What To Know

When you’re running a small business, you’re constantly making deals - signing supplier agreements, negotiating leases, onboarding customers, and sometimes even restructuring a struggling arrangement to keep cashflow moving.

Most of the time, these agreements are straightforward: you negotiate, you sign, you perform. But sometimes the way a contract is formed (or the way one party behaves) can cross a legal line.

That’s where undue influence and unconscionable conduct come in. These are legal concepts that can make an agreement vulnerable to being set aside (or can expose a business to claims, penalties, and reputational damage).

If you’re thinking, “We’re not a big corporate - does this really apply to us?”, the answer is yes. These issues often show up in small business environments because relationships are closer, resources are tighter, and power imbalances can happen quickly (even unintentionally).

Below, we’ll break down what undue influence and unconscionable conduct mean in Australia, where they commonly arise for small businesses, and the practical steps you can take to reduce risk while still negotiating firmly and commercially.

What Do “Undue Influence” And “Unconscionable Conduct” Actually Mean?

Even though these terms often get mentioned together, undue influence and unconscionable conduct are not the same thing. They overlap in the sense that both deal with unfair pressure or unfair advantage, but they focus on different legal problems.

Undue Influence (In Plain English)

Undue influence is about how someone’s decision was overborne - meaning they didn’t genuinely make a free and voluntary choice when entering the agreement.

In business, undue influence can arise when:

• one party has a position of influence, authority, or trust over the other, and
• that influence is used (directly or indirectly) to push the other party into signing.

It’s not always about obvious threats. Sometimes it’s about the nature of the relationship and whether the weaker party felt they couldn’t reasonably say no.

Unconscionable Conduct (In Plain English)

Unconscionable conduct is about serious unfairness in behaviour - typically where one party takes advantage of another party’s disadvantage in a way the law considers against conscience (ie, beyond “hard bargaining”).

In Australia, unconscionable conduct can arise under general law (equity) and also under statute - most commonly the Australian Consumer Law (ACL), including the prohibitions in sections 20 to 22.

It’s important to know that unconscionable conduct isn’t just “the deal is a bit unfair” or “someone drove a hard bargain.” It’s closer to:

• exploiting vulnerability, lack of understanding, distress, language barriers, or lack of bargaining power
• using tactics that are seriously unfair or oppressive
• creating an outcome that is harsh because of the way the agreement was obtained

These concepts sit in the broader world of contract law. If you’re ever unsure about whether a deal is enforceable in the first place, it helps to understand what makes a contract legally binding and how offer and acceptance works in practice.

Why Small Businesses Should Care (Even If You Never Intend To “Pressure” Anyone)

Most small business owners aren’t trying to do the wrong thing. The risk is that day-to-day commercial pressure can look very different from the other side of the table - especially if the other party is vulnerable or unsophisticated.

Here’s why undue influence and unconscionable conduct matters for small businesses in Australia.

1) Your Contract Might Be Challenged Or Unwound

If a court finds undue influence or unconscionable conduct, it may set aside the agreement (or parts of it), order compensation, or impose other remedies. The specific outcome depends on the legal basis of the claim (for example, equitable relief versus an ACL claim), and it can be commercially disruptive, especially if you’ve built operations around the deal.

2) You Could Face Regulatory Risk Under The ACL

Some unconscionable conduct issues can fall under the Australian Consumer Law. Even if you mostly deal business-to-business, the ACL can still apply in many circumstances (including to some small business transactions), and regulators may take an interest in patterns of unfair dealing.

Unconscionable conduct also often travels with other ACL risks, like misleading or deceptive conduct. If your sales process, advertising, or negotiation statements could be challenged, it’s worth understanding the elements of misleading or deceptive conduct as part of your overall compliance.

3) The “Power Imbalance” Isn’t Always Obvious

Small businesses often work with:

• individual contractors or sole traders
• first-time franchisees
• family-run suppliers
• new migrants or non-native English speakers
• customers under time pressure or financial stress

Even if you’re also a small business, you might still be seen as the stronger party in a particular negotiation (for example, if you control access to work, stock, premises, or essential services).

4) It Can Harm Trust And Your Brand

Beyond legal exposure, a dispute involving allegations of undue influence or unconscionable conduct can damage commercial relationships and reputation. For many small businesses, trust is a major competitive advantage - and disputes can be expensive, even if you ultimately “win.”

Common Small Business Scenarios Where These Issues Come Up

Undue influence and unconscionable conduct can arise across many industries. Here are some of the most common scenarios we see in small business disputes and risk reviews.

Supplier Or Distributor Agreements Signed Under “Last Minute” Pressure

Let’s say you’re about to launch, a key supplier pulls out, and another supplier offers “take it or leave it” terms with a tight deadline. You might sign because you have no alternative.

Hard bargaining and tight deadlines aren’t automatically unlawful. But if the other party knows you’re in a severely disadvantaged position and uses tactics that go beyond commercial negotiation (for example, confusing terms, hidden fees, or refusal to let you seek advice), that’s where risk increases.

Business Sale Or Asset Purchase Deals With Unequal Information

When buying or selling a business, one party often has more information, more experience, and better advisers. If the stronger party exploits that imbalance - especially where the weaker party is relying on them for explanations - unconscionable conduct can become a real issue.

This is one reason it’s wise to do proper due diligence and get documents reviewed before you commit.

Guarantees, Security Interests, Or Personal Commitments

Undue influence classically appears in situations where someone signs a guarantee or security document because of relationship pressure.

For small businesses, this can pop up when:

• a director guarantees company debts
• a spouse or family member is asked to sign for a loan
• a business owner is pressured into signing security documents late in the process

These documents are serious. If the signing process is rushed or the person does not genuinely understand the risk, the enforceability can be challenged.

Franchise-Like Arrangements Or “Standard Form” Contracts

Many small businesses scale by offering standard terms to multiple customers or partners. Standardisation is normal - but risk arises where the terms are very one-sided and the weaker party is pressured to accept them without genuine opportunity to negotiate or understand them.

One practical area to watch is how you draft and present limitations and exclusions. If you use clauses that significantly limit your responsibility, make sure they’re clear and fair in context. It’s often worth checking your approach to limitation of liability clauses, because unclear or overly harsh clauses can trigger disputes even if the rest of the contract is solid.

Debt Collection Or “Pay Now Or Else” Negotiations

Chasing payment is part of business. But if you’re negotiating repayment plans or settlement terms with a small operator who is clearly distressed or vulnerable, you’ll want to keep things measured and properly documented.

In many cases, the best way to resolve a dispute commercially (without escalating risk) is to document the outcome in a deed. Depending on the situation, a Deed of Settlement can help both parties move forward with clarity.

How Courts Look At Undue Influence Vs Unconscionable Conduct

It’s not always easy to predict how a dispute will be characterised, because courts look at the full context. But understanding the general “lens” helps you run a safer contracting and sales process.

What Matters For Undue Influence

In broad terms, courts tend to focus on things like:

• The relationship between the parties: Was there trust, dependence, authority, or a special relationship where one party could strongly influence the other?
• The circumstances of signing: Was the agreement signed quickly, in private, late at night, or without time to reflect?
• Whether independent advice was available: Did the weaker party have a realistic opportunity to get legal or financial advice?
• Signs of pressure: Even if there was no explicit threat, was there an implied consequence for refusal (like withdrawing work, access, or support)?

From a small business owner perspective, the practical lesson is: if the other party is relying on you emotionally, financially, or structurally, be careful about how you negotiate and document their consent.

What Matters For Unconscionable Conduct

For unconscionable conduct, the focus often includes:

• Whether one party had a special disadvantage: This could be lack of understanding, illness, language barriers, financial distress, or low bargaining power.
• Whether the stronger party knew (or should have known): If you can see the disadvantage, you can’t ignore it.
• Whether the stronger party exploited the disadvantage: This is the core issue - taking unfair advantage rather than negotiating firmly.
• The fairness of the process: Was the weaker party given time, clear information, and a real chance to ask questions?

A key point for small businesses: unconscionable conduct is often about process and behaviour, not just the end price or final terms.

How To Reduce Risk: A Practical Checklist For Small Businesses

You can still negotiate strongly and protect your business - the goal is to do it in a way that’s transparent, properly documented, and defensible if there’s ever a dispute.

Here are practical safeguards you can build into your processes.

1) Slow Down The Signing Process (Especially For High-Stakes Deals)

If the deal is significant - long term, high value, or involves personal guarantees - give the other party time to consider it. Even a short “cooling-off” period can help demonstrate the agreement was voluntary and informed.

From a risk perspective, last-minute signing is one of the most common facts that later gets framed as pressure.

2) Encourage Independent Advice (And Record That You Did)

You generally don’t want the other party later saying, “I didn’t understand what I was signing and I didn’t feel I could ask anyone.”

Practical steps include:

• suggesting they obtain legal advice for major agreements
• providing clean copies of documents in advance (not “sign here” screenshots)
• keeping a written record that they had time and opportunity to review

This is especially important where there’s a personal relationship, or where someone is signing because they feel obligated.

3) Avoid “All-Or-Nothing” Pressure Where The Other Party Is Vulnerable

Commercial negotiation often includes deadlines. But consider the optics and fairness of statements like “sign today or the deal is off,” particularly where you know the other party is distressed, inexperienced, or dependent on the deal for basic stability.

A better approach is to be clear and firm, while still giving reasonable time, explaining key terms in plain English, and being open to questions.

4) Make Key Terms Clear And Prominent

If a term is particularly important (for example, auto-renewal, early termination fees, personal guarantees, security interests, or broad indemnities), don’t bury it.

Unclear or hidden key terms can escalate risk in two ways:

• they can support an argument that the other party didn’t genuinely understand what they agreed to
• they can make your business look like it was trying to “catch” someone out

Clarity is not just good customer service - it’s legal risk management.

5) Keep Your Contracts Professionally Drafted And Updated

Many disputes about undue influence and unconscionable conduct start with messy paperwork: inconsistent versions, missing schedules, handwritten amendments, or clauses copied from somewhere else without context.

Having your agreements properly prepared and reviewed can reduce the chances of misunderstandings and reduce dispute leverage later. In many cases, a contract review is a practical way to identify red flags before they become expensive problems.

6) Train Your Team (So A Sales Script Doesn’t Become A Legal Risk)

If you have staff negotiating or closing deals, make sure they understand the line between persuasive sales and unfair pressure.

Simple internal guardrails might include:

• not contacting prospects excessively after a clear “no”
• not discouraging customers from seeking advice
• not making promises that aren’t in the contract
• having a clear process for escalations when someone seems vulnerable or confused

This also helps reduce complaints that could otherwise snowball into a larger dispute.

7) Document Negotiations In Writing (Without Being Heavy-Handed)

You don’t need to turn every deal into a legal battle. But keeping a basic written trail helps show the agreement was entered fairly.

Good “lightweight” documentation can include:

• an email summarising agreed terms and next steps
• a clear written quote or proposal (with timeframes)
• written confirmation that changes were requested by the other party

And if terms change later, it’s worth documenting the change properly. Informal changes can create confusion and later allegations. (For higher-risk changes, formal variation documents can be the safest option.)

Key Takeaways

• Undue influence and unconscionable conduct can affect small businesses in Australia even where nobody intended to do the wrong thing - it often comes down to power imbalances and process.
• Undue influence is about whether the other party’s free will was overborne (often due to a relationship of influence or dependence).
• Unconscionable conduct is about seriously unfair behaviour, especially where one party exploits another party’s disadvantage.
• Common risk areas include high-pressure signing, one-sided standard terms, guarantees/security arrangements, business sales, and settlement negotiations.
• You can reduce risk by slowing down the signing process, encouraging independent advice, making key terms clear, training staff, and keeping a sensible written record.
• Well-drafted, up-to-date contracts and early legal input can prevent disputes (and put you in a much stronger position if a dispute arises).

If you’d like help reviewing a contract or negotiating process for potential undue influence or unconscionable conduct risk, you can reach us at 1800 730 617 or team@sprintlaw.com.au to enquire about an initial chat.