Facts
Jack O'Connor was the trustee of a trust that owned the family farm in Waimate since their father died in 1911. Jack and his two brothers Dennis and Joseph both worked and lived on the farm owned by the trust. By the mid-1970s, the brothers were in their 70s and 80s, and given their advanced age, their solicitor recommended that something be done about the farm ownership. Jack essentially had three options: to lease out the farm, but that was ruled out as only delaying an inevitable sale; to sell the farm to his two nephews, which he ruled out, as he did not think his nephews could make a success out of the farm; and the third option, a sale to a third party.
As it turned out, a neighbour, Mr Hart was interested in buying the property and after negotiations with Jack and his solicitor, they arranged for the farm to be leased to Mr Hart, with a clause of right to purchase. 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 Jack's 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 (rounded up from a valuation of $179,780), 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. Jack subsequently died. After the two surviving brothers retained new solicitors, they subsequently took legal action to set aside the sale. While they were unsuccessful in the High Court, they were later successful in the Court of Appeal of New Zealand, which set aside the sale.
Mr Hart then appealed to the Privy Council.
Advice
The Privy Council advised that the contract was not an unconscionable bargain. The Court said there were two types of "unfair" contracts: "procedural unfairness", where a benefit is obtained through undue influence, i.e., victimisation, and "contractual imbalance", where one party gets a more favourable outcome than the other party, i.e., a bargain. For such a contract to be set aside for unfairness, the second party had to be active in obtaining an unfair contract. In this case the Privy Council held that Mr. Harts conduct was "beyond reproach", emphasising that most of the sale terms and conditions were proposed by the trust's own solicitor, which Mr Hart merely accepted.
Accordingly, the Court rescinded the Court of Appeals ruling to set aside the sale contract for the farm.
Unconscionability is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining power, that they are contrary to good conscience. Typically, an unconscionable contract is held to be unenforceable because no reasonable or informed person would otherwise agree to it. The perpetrator of the conduct is not allowed to benefit, because the consideration offered is lacking, or is so obviously inadequate, that to enforce the contract would be unfair to the party seeking to escape the contract.
Waltons Stores (Interstate) Ltd v Maher, is a leading case in Australian contract law. The Australian High Court decided that estoppel, in certain circumstances, could be a cause of action.
Lloyds Bank Ltd v Bundy is a decision of the English Court of Appeal in English contract law, on undue influence. One of the three judges hearing the case, Lord Denning MR advanced the argument that under English law, all impairments of autonomy could be collected under a single principle of "inequality of bargaining power."
Unconscionability in English law is a field of contract law and the law of trusts, which precludes the enforcement of voluntary 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 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.
Bisset v Wilkinson [1927] AC 177 is a leading contract law case from New Zealand on the issue of misrepresentation. The case establishes that a mere misstatement of opinion given fairly cannot amount to a misrepresentation.
Cobbe v Yeoman's Row Management Ltd[2008] UKHL 55 is a House of Lords case in English land law and relates to proprietary estoppel in the multi-property developer context. The court of final appeal awarded the project manager £150,000 on a quantum meruit basis for unjust enrichment because Yeoman's Row had received the benefit of his services without paying for that. The court refused to find or acknowledge a binding contract, prior arrangement with a third party or promise, overturning a £2m award on the basis of a possible lien arising from a promise over the property. The court found a non-binding agreement in principle, entirely subject to the owner's final say to take into account for example their view of the market; this was the basis on the facts on which the parties were proceeding.
Alec Lobb (Garages) Ltd. v. Total Oil (GB) Ltd.[1984] EWCA Civ 2 is an English contract law case relating to undue influence.
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.
Dundee Farm Ltd. v. Bambury Holdings Ltd. (1978) is a case involving the sale of a farm in Bombay, South Auckland and is notable as it is often cited in New Zealand on issues of mistake, and reinforces the English case of Joscelyne v Nissen [1970] 2 QB 86 into NZ case law.
Frazer v Walker [1967] 1 AC 569 is a landmark New Zealand court case that went to the Privy Council on appeal. The case upheld the concept that an owner of interest in land which was originally obtained from the rightful owner through fraud, still obtains an indefeasible interest in that title if they were unaware of the fraud.
Efstratiou v Glantschnig (1972) is an often cited New Zealand case to the limits of indefeasibility of title to land ownership, where in this case, the purchaser of the land was aware of the title fraud at the time of the purchase of the property.
Conlon v Ozolins (1984) NZLR 489 is an important New Zealand case involving the legal issues of non est factum and mutual mistake.
Nichols v Jessup [1986] 1 NZLR 226, is a New Zealand case regarding unconscionable bargains, and it set the threshold for an unconscionable bargain is that the stronger party did not have to have actual knowledge of the other party having a disability, but merely that the stronger party should have had suspicions that the other party had a disability.
Neylon v Dickens [1977] 2 NZLR 35 is an often cited case regarding whether a change to a contract is a waiver or variation.
Harding v Coburn [1976] 2 NZLR 577 was a New Zealand case that was one of the first that upheld that the Illegal Contracts Act 1970 had the power to validate despite the fact that another legal enactment "deemed to be unlawful and shall have no effect".
Contractors Bonding v Snee [1992] 2 NZLR 157 is a leading New Zealand case regarding undue influence.
Money v Ven-Lu-Ree Ltd [1988] 2 NZLR 414, aff'd [1989] 3 NZLR 129 is a cited case in New Zealand regarding the issue of certainty in contract formation.
Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 is a cited court case in New Zealand regarding the objective approach to contract formation.
Bowkett v Action Finance Ltd [1992] 1 NZLR 449 is a cited case in New Zealand regarding unconscionable bargains.
Ross v Henderson [1977] 2 NZLR 458 is a cited case in New Zealand regarding illegal contracts that were later upheld that the Illegal Contracts Act 1970 had the power to validate despite the fact that another legal enactment "deemed to be unlawful and shall have no effect".
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