(A) THE GENERAL PRINCIPLE OF UNCONSCIONABLE CONDUCT

In Lloyd’s Bank Ltd v Bundy[1] Lord Denning MR recognized a general principle of inequality of bargaining power, which he said arose where the claimant:

without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reasons of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.[2]

This principle of inequality of bargaining power has subsequently been doubted,[3] [4] [5] but, to the extent that this principle forms part of the general equitable jurisdiction to relieve against transactions induced by unconscionable conduct, it has a useful function. In National Westminster Bank plc v Morgan177 Lord Scarman considered that the principle of undue influence is now sufficiently well developed to remove the need for any doctrine of inequality of bargaining power. But this is unconvincing, since undue influence will only operate where there is an actual or presumed relationship of influence between the parties, and this will often not be the case where two parties have entered into a bargain and one has the potential to exploit the other. The principle which underlies undue influence, namely that of exploitation, should be applicable even where there is no existing relationship of influence between the parties. Although Lord Denning in Lloyds Bank Ltd v Bundy said that this justified the recognition of a general principle of inequality of bargaining power, which encompassed all cases of duress, colore officii,178 unconscionable transactions, undue pressure and undue influence, this is apt to mislead, since these specific grounds of restitution are so different from each other that nothing can usefully be gained from treating them together. But Lord Denning did identify a gap in the recognized grounds of restitution where ‘an unfair advantage has been gained by an unconscientious use of power by a stronger party against a weaker’.[6] Consequently, there is a need to recognize a ground of restitution, which can usefully be called ‘unconscionable conduct’. Although the name of this ground of restitution is new, the principles underlying it are not, for they have been recognized by Equity for a very long time and have been confirmed by the Court of Appeal[7] and the Privy Council.[8]

The biggest drawback with a principle of unconscionability is that its vagueness will make it unworkable. Bamforth in particular has warned against the danger of using pejorative terms such as ‘unconscionability’, and has called for precision and clarity when identifying criteria for assessing whether a transaction is unconscionable.182 But it is possible to identify certain key principles which define the application of the principle of unconscionable conduct with some certainty. Crucially, it is clear that Equity will not set aside a transaction simply because it is harsh. As Sir Raymond Evershed MR said in Tufton v Sperni,183 ‘extravagant liberality and immoderate folly do not of themselves provide a passport to equitable relief ’. To secure the intervention of Equity184 by reason of the defendant’s unconscionable conduct, the claimant needs to prove that three conditions have been satisfied. Whilst the unconscionable conduct doctrine is well developed in Australia, it does operate in English law too, and indeed many of the Australian cases have developed the doctrine with explicit reliance on English authorities.

  • [1] [1975] QB 326.
  • [2] Ibid, 3 39. 176 See National Westminster Bank plc v Morgan [1985] AC 686, 708 (Lord Scarman).
  • [3] 177 Ibid. 178 See p 395, below. 179 Lloyd’s Bank Ltd v Bundy [1975] QB 326, 337.
  • [4] 180 Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144, 151 (Nourse LJ).
  • [5] 181 Hart v O’Connor [1985] AC 1000.
  • [6] 182 Bamforth, ‘Unconscionability as a Vitiating Factor’, 544. 183 (1952) 2 TLR 516, 519.
  • [7] 184 It is clear that there is no Common Law doctrine of inequality of bargaining power or anything
  • [8] equivalent to such a doctrine. See CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, 717 (Steyn LJ).
 
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