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Unconscionability in English law

September 02, 2023

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.

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 Edit

  • James v Morgan (1663) 83 Eng Rep 323 refused to enforce contract calculating purchase price of a horse based upon 2 pence for the first nail in the horse's shoes, doubled for each of an additional 31 nails.
  • Vernon v Bethell
  • Earl of Chesterfield v Janssen (1751) 28 Eng Rep 82, 100, unconscionability "may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under a delusion would make on the one hand, and as no honest man would accept on the other; which are unequitable and unconscientious bargains, and of such even the common law take notice".

Duress Edit

Main article: Duress in English law

Physical threats Edit

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 Edit

Consideration Edit

See also: Consideration in English law

Undue influence Edit

Main article: Undue influence in English law

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 Edit

  • Williams v Bayley (1886) LR 1 HL 200, Bayley's son forged his father's signature on promissory notes and gave them to Williams. Williams threatened Bayley with criminal prosecution, so Bayley made an equitable mortgage to get back the notes. House of Lords upheld the cancellation of the agreement.
  • Bank of Montreal v Stuart 1911] AC 120, 136) and the transaction resulted from that influence.
  • Mutual Finance ltd v John Wetton and Sons Ltd [1937] 2 KB 389
  • BCCI v Aboody [1992] 4 All ER 955
  • CIBC Mortgages plc v Pitt [1993] 4 All ER 433

Presumed undue influence Edit

Exploitation or unconscionable bargain Edit

  • Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125, equity intervenes to relieve against unconscionable bargains
  • Earl of Aylesford v Morris (1873) LR 8 Ch App 484
  • Fry v Lane (1888) 40 Ch D 312
  • Cresswell v Potter [1978] 1 WLR 255
  • The Medina (1876) 2 PD 5
  • Alec Lobb Garages Ltd v Total Oil (GB) Ltd [1985] 1 WLR 173
  • Backhouse v Backhouse [1978] 1 WLR 243, 251, Balcombe J could not fit in an intelligent woman into the Fry v Lane criteria but citing Bundy said, obiter dicta, that entering a contract without independent advice because of "great emotional strain" could be another way the law could develop.
  • Burmah Oil Co Ltd v Governor of the Bank of England (1981) noted 125 Sol Jo 528, the Bank bought Burmah Oil's shares in BP on request from Burmah, who was very financially embarrassed because the share price had fallen and Burmah's borrowings were structured on the basis that BP shares would be higher. It looked like Burmah may collapse, and the Bank did not want BP shares to go foreign. But afterwards, Burmah claimed the Bank took unfair advantage of bargaining power inequality in buying the shares and making a profit. Walton J doubted Lord Denning MR's principle. Note that Burmah was always advised by expert lawyers and merchant bankers and would have got no better price elsewhere (because selling such a large block of shares would depress the price).

A general principle? Edit

See also: Inequality of bargaining power

Statutory regulation Edit

See also Edit

Notes Edit

  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).

References Edit

  • P Birks, ‘The Travails of Duress’ [1990] LMCLQ 342, argued there is a policy choice in applying a duress doctrine. A wide principle, to give weight to the initial agreement, a narrow principle to uphold renegotiations. Which is better?
  • Enman, 'Doctrines of Unconscionability in England, Canada and the Commonwealth' (1987) 16 Anglo-American Law Review 191
  • AA Leff, 'Unconscionability and the Code: The Emperor's New Clause' (1967) 115 University of Pennsylvania Law Review 485-559
  • Slayton, 'The Unequal Bargain Doctrine' (1976) 22 McGill Law Journal 94
  • SA Smith, 'Contracting Under Pressure: A Theory of Duress' [1997] Cambridge Law Journal 343, 371
  • M Trebilcock, 'Economic Criteria of Unconscionability' in Reiter and Swan (eds), Studies in Contract Law 390–396, 404-408
  • Waddams, 'Unconscionability in Contracts' (1976) 39 Modern Law Review 369
  • RA Epstein, 'Unconscionability: A Critical Reappraisal' (1975) 18 Journal of Law and Economics 293, 297, “The question of duress is not that of the equality of bargaining power in a loose sense that refers to the wealth of the parties. It is the question of what means are proper to achieve agreement.”

September 02, 2023
unconscionability, english, field, contract, trusts, which, precludes, enforcement, voluntary, consensual, obligations, unfairly, exploiting, unequal, power, consenting, parties, inequality, bargaining, power, another, term, used, express, essentially, same, i. 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 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 Contents 1 History 2 Duress 2 1 Physical threats 2 2 Economic duress 2 3 Consideration 3 Undue influence 3 1 Actual undue influence 3 2 Presumed undue influence 4 Exploitation or unconscionable bargain 5 A general principle 6 Statutory regulation 7 See also 8 Notes 9 ReferencesHistory EditJames v Morgan 1663 83 Eng Rep 323 refused to enforce contract calculating purchase price of a horse based upon 2 pence for the first nail in the horse s shoes doubled for each of an additional 31 nails Vernon v Bethell Earl of Chesterfield v Janssen 1751 28 Eng Rep 82 100 unconscionability may be apparent from the intrinsic nature and subject of the bargain itself such as no man in his senses and not under a delusion would make on the one hand and as no honest man would accept on the other which are unequitable and unconscientious bargains and of such even the common law take notice Duress EditMain article Duress in English law Physical threats Edit 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 Edit The Atlantic Baron or North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd 1979 QB 705 Pao On v Lau Yiu Long 1980 AC 614 Universe Tankships Inc of Monrovia v International Transport Workers Federation 1982 2 All ER 67 Atlas Express Ltd v Kafco 1989 QB 833 CTN Cash and Carry Ltd v Gallaher Ltd 1994 4 All ER 714 lawful act duress Alec Lobb Garages Ltd v Total Oil Great Britain Ltd 1984 EWCA Civ 2 1983 1 WLR 87 94 refusal to waive existing contractual obligations is not duress because there is no wrongful threat Consideration Edit See also Consideration in English law Pinnel s Case 1602 5 Co Rep 117a Stilk v Myrick 1809 EWHC KB J58 Foakes v Beer 1884 9 App Cas 605 D amp C Builders Ltd v Rees 1965 2 QB 617 Williams v Roffey Bros amp Nicholls Contractors Ltd 1991 1 QB 1Undue influence EditMain article Undue influence in English law 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 Allcard v Skinner 1887 36 Ch D 145Actual undue influence Edit Williams v Bayley 1886 LR 1 HL 200 Bayley s son forged his father s signature on promissory notes and gave them to Williams Williams threatened Bayley with criminal prosecution so Bayley made an equitable mortgage to get back the notes House of Lords upheld the cancellation of the agreement Bank of Montreal v Stuart 1911 AC 120 136 and the transaction resulted from that influence Mutual Finance ltd v John Wetton and Sons Ltd 1937 2 KB 389 BCCI v Aboody 1992 4 All ER 955 CIBC Mortgages plc v Pitt 1993 4 All ER 433Presumed undue influence Edit Tate v Williamson 1886 LR 2 Ch App 55 Barclays Bank plc v O Brien 1993 4 All ER 417 Royal Bank of Scotland v Etridge No 2 2001 UKHL 41 Thompson v Foy 2009 EWHC 1076 Ch Exploitation or unconscionable bargain EditEarl of Chesterfield v Janssen 1751 2 Ves Sen 125 equity intervenes to relieve against unconscionable bargains Earl of Aylesford v Morris 1873 LR 8 Ch App 484 Fry v Lane 1888 40 Ch D 312 Cresswell v Potter 1978 1 WLR 255 The Medina 1876 2 PD 5 Alec Lobb Garages Ltd v Total Oil GB Ltd 1985 1 WLR 173 Backhouse v Backhouse 1978 1 WLR 243 251 Balcombe J could not fit in an intelligent woman into the Fry v Lane criteria but citing Bundy said obiter dicta that entering a contract without independent advice because of great emotional strain could be another way the law could develop Burmah Oil Co Ltd v Governor of the Bank of England 1981 noted 125 Sol Jo 528 the Bank bought Burmah Oil s shares in BP on request from Burmah who was very financially embarrassed because the share price had fallen and Burmah s borrowings were structured on the basis that BP shares would be higher It looked like Burmah may collapse and the Bank did not want BP shares to go foreign But afterwards Burmah claimed the Bank took unfair advantage of bargaining power inequality in buying the shares and making a profit Walton J doubted Lord Denning MR s principle Note that Burmah was always advised by expert lawyers and merchant bankers and would have got no better price elsewhere because selling such a large block of shares would depress the price A general principle EditSee also Inequality of bargaining power Lloyds Bank Ltd v Bundy 1975 QB 326 National Westminster Bank plc v Morgan 1985 AC 686 698Statutory regulation EditUnfair Contract Terms Act 1977 Unfair Terms in Consumer Contracts Regulations 1999 Unfair Contract Terms BillSee also EditEnglish contract law English unjust enrichment law Duress contract law Undue influence Economic tort Baird Textile Holdings Ltd v Marks amp Spencer plc Vegelahn v Guntner 167 Mass 92 107 1896 Holmes J The word threats often is used as if when it appeared that threats had been made it appeared that unlawful conduct had begun But it depends on what you threaten As a general rule even if subject to some exceptions what you may do in a certain event you may threaten to do that is give warning of your intention to do in that event and thus allow the other person the chance of avoiding the consequences Notes Edit 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 Lloyds Bank Ltd v Bundy 1975 QB 326 Williams v Walker Thomas Furniture Co 350 F 2d 445 C A D C 1965 National Westminster Bank plc v Morgan 1985 UKHL 2 1985 AC 686 1985 1 All ER 821 via BAILII Black s Law Dictionary 8th ed 2004 Barton v Armstrong 1976 AC 104 Johnson v Buttress 1936 HCA 41 1936 56 CLR 113 17 August 1936 High Court Australia References EditP Birks The Travails of Duress 1990 LMCLQ 342 argued there is a policy choice in applying a duress doctrine A wide principle to give weight to the initial agreement a narrow principle to uphold renegotiations Which is better Enman Doctrines of Unconscionability in England Canada and the Commonwealth 1987 16 Anglo American Law Review 191 AA Leff Unconscionability and the Code The Emperor s New Clause 1967 115 University of Pennsylvania Law Review 485 559 Slayton The Unequal Bargain Doctrine 1976 22 McGill Law Journal 94 SA Smith Contracting Under Pressure A Theory of Duress 1997 Cambridge Law Journal 343 371 M Trebilcock Economic Criteria of Unconscionability in Reiter and Swan eds Studies in Contract Law 390 396 404 408 Waddams Unconscionability in Contracts 1976 39 Modern Law Review 369 RA Epstein Unconscionability A Critical Reappraisal 1975 18 Journal of Law and Economics 293 297 The question of duress is not that of the equality of bargaining power in a loose sense that refers to the wealth of the parties It is the question of what means are proper to achieve agreement Retrieved from https en wikipedia org w index php title Unconscionability in English law amp oldid 1092793130, wikipedia, wiki, book, books, library,

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