Unconscionability in English law

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Unconscionability in English law is a field of contract law and the law of trusts, which precludes the enforcement of voluntary (or consensual) obligations unfairly exploiting the unequal power of the consenting parties. "Inequality of bargaining power" is another term used to express essentially the same idea for the same area of law, which can in turn be further broken down into cases on duress, undue influence and exploitation of weakness. In these cases, where someone's consent to a bargain was only procured through duress, out of undue influence or under severe external pressure that another person exploited, courts have felt it was unconscionable (i.e., contrary to good conscience) to enforce agreements. Any transfers of goods or money may be claimed back in restitution on the basis of unjust enrichment subject to certain defences.

Contents

Considerable controversy is still present over whether "iniquitous pressure" must actually be exercised by a defendant in order for a voluntary obligation to be voidable. While it seems clear that in cases of undue influence the pressure need not come from the person who may lose the contract, [1] it is open to debate whether circumstances exist where an obligation should be voidable simply because the person was pressured by circumstances wholly outside a defendant's control.

One of the most prominent cases in this area is Lloyds Bank Ltd v Bundy , [2] where Lord Denning MR advocated that there be a general principle to govern this entire area. He called the concept "inequality of bargaining power", while the American case espousing an equivalent doctrine, Williams v. Walker-Thomas Furniture Co. (1965), [3] termed the issue one of "unconscionability". Note that even though it is accepted that an "inequality of bargaining power" is relevant to the doctrine of undue influence, Lord Denning's broader dictum on a general equitable principle of an "inequality of bargaining power" was later rejected by the House of Lords in the 1985 case National Westminster Bank plc v Morgan . [4]

If a man fails to fulfil an agreed contract – unless he had contracted to do something forbidden by law or decree, or gave his consent under some inquitous pressure, or was involuntarily prevented from fulfilling his contract because of some unlooked-for accident – an action for such an unfulfilled agreement should be brought in the tribal courts, if the parties have not previously been able to reconcile their differences before arbitrators (their neighbours, that is).

Plato , The Laws , Book 11, §23, Contracts.

History

Duress

Physical threats

Duress has been defined as a "threat of harm made to compel a person to do something against his or her will or judgment; esp., a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition". [5] An example is in Barton v Armstrong , [6] a decision of the Privy Council. Armstrong threatened to kill Barton if he did not sign a contract, so the court set the contract aside. An innocent party wishing to set aside a contract for duress to the person need only to prove that the threat was made and that it was a reason for entry into the contract; the onus of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. There can also be duress to goods and sometimes, the concept of 'economic duress' is used to vitiate contracts.

Economic duress

Consideration

Undue influence

Undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. The law presumes that in certain classes of special relationship, such as between parent and child, or solicitor and client, there will be a special risk of one party unduly influencing their conduct and motives for contracting. As an equitable doctrine, the court has the discretion to vitiate such a contract. When no special relationship exists, the general rule is whether there was a relationship of such trust and confidence that it should give rise to such a presumption. [7]

Actual undue influence

Presumed undue influence

Exploitation or unconscionable bargain

A general principle?

Statutory regulation

See also

Notes

  1. ↑ e.g. in the case of a husband who pressures his wife to sign a mortgage agreement with a bank, and the bank takes subject to the wife's equitable interest when it is found that her signature was inequitably procured.
  2. ↑ Lloyds Bank Ltd v Bundy [1975] QB 326
  3. ↑ Williams v. Walker-Thomas Furniture Co. 350 F.2d 445 (C.A. D.C. 1965)
  4. ↑ National Westminster Bank plc v Morgan [1985] UKHL 2, [1985] AC 686, [1985] 1 All ER 821 (via BAILII)
  5. ↑ Black's Law Dictionary (8th ed. 2004)
  6. ↑ Barton v Armstrong [1976] AC 104
  7. ↑ Johnson v Buttress [1936] HCA 41 , (1936) 56 CLR 113 (17 August 1936), High Court (Australia).

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<i>Lloyds Bank Ltd. v. Bundy</i>

Lloyds Bank Ltd. v. Bundy[1974] EWCA 8 is a landmark case in English contract law, on undue influence. It is remarkable for the judgment of Lord Denning MR who advanced that English law should adopt the approach developing in some American jurisdictions that all impairments of autonomy could be collected under a single principle of "inequality of bargaining power."

Inequality of bargaining power in law, economics and social sciences refers to a situation where one party to a bargain, contract or agreement, has more and better alternatives than the other party. This results in one party having greater power than the other to choose not to take the deal and makes it more likely that this party will gain more favourable terms and grant them more negotiating power. Inequality of bargaining power is generally thought to undermine the freedom of contract, resulting in a disproportionate level of freedom between parties, and that it represents a place at which markets fail.

Universe Tankships Inc. of Monrovia v. International Transport Workers’ Federation [1982] 2 All ER 67 is an English contract law case relating to duress.

Barton v Armstrong is a Privy Council decision heard on appeal from the Court of Appeal of New South Wales, relating to duress and pertinent to case law under Australian and English contract law.

Williams v Bayley (1866) LR 1 HL 200 is an English contract law case relating to undue influence.

Bank of Credit and Commerce International S.A. v. Aboody [1992] 4 All ER 955 is an English contract law case relating to undue influence.

<i>Alec Lobb (Garages) Ltd. v. Total Oil (GB) Ltd.</i>

Alec Lobb (Garages) Ltd. v. Total Oil (GB) Ltd.[1984] EWCA Civ 2 is an English contract law case relating to undue influence.

<i>R v Attorney General for England and Wales</i>

"R" v Attorney General for England and Wales [2003] UKPC 22 is a New Zealand contract law case, heard by the Privy Council acting as the final court of appeal of New Zealand and not as part of the judiciary of the UK, relating to duress and undue influence.

<i>Commercial Bank of Australia Ltd v Amadio</i>

Commercial Bank of Australia Ltd v Amadio, is a seminal case in Australian contract law and equity, in which the High Court held that unconscionable dealing due to a lack of knowledge or education and the consequent imbalance in bargaining power could lead to a transaction being set aside.

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<i>National Westminster Bank plc v Morgan</i>

National Westminster Bank plc v Morgan[1985] UKHL 2 is a judicial decision of the House of Lords relating to English contract law and the doctrine of undue influence. The case is most well known for the comments of Lord Scarman about the supposed requirement of "manifest disadvantage" to set aside a contract for undue influence.

Undue influence in English law is a field of contract law and property law whereby a transaction may be set aside if it was procured by the influence exerted by one person on another, such that the transaction cannot "fairly be treated the expression of [that person's] free will".

Pakistan International Airlines Corp v Times Travel (UK) Ltd [2021] UKSC 40 is an English contract law case, concerning economic duress.

References

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