THE UNCONSCIONABLE BARGAINS DOCTRINE IN ENGLAND AND AUSTRALIA: COUSINS OR SIBLINGS?

• Date: 01 August 2021
• Author: Liew, Ying Khai,Yu, Debbie
• Published date: 01 August 2021
• Author: Liew, Ying Khai

CONTENTS I Introduction II Overview A English Law B Australian Law III The Requirements A The First Requirement 1 A Liberal Approach 2 Disadvantage vis-a-vis the Stronger Party? 3 Emotional Dependence or Strain B The Second Requirement 1 Categories of Knowledge 2 Level of Knowledge Required 3 Exploitation C The Third Requirement 1 Content 2 Onus 3 The Role of Independent Legal Advice IV Three Core Differences A Content of the Duty B Policy of Equitable Intervention C Unconscionability V Conclusion I INTRODUCTION

In discussions concerning the modern equitable doctrine of unconscionable bargains, (1) it is common for judges (2) and commentators (3) to draw seamlessly from English and Australian law as though they are siblings. Thus, it is common for cases from both jurisdictions to be cited freely in discussions concerning only one jurisdiction (usually English law). It is also common for the law of one jurisdiction (usually England) to be criticised on the basis of the developments of another (usually Australia). (4) But little effort has been made to consider precisely how the law of the two jurisdictions differs and--more fundamentally--why those differences exist. Without the benefit of a detailed examination of those points, it is not at all obvious, their shared historical root notwithstanding, that treating English and Australian law as siblings is justified in the modern law.

In this paper we attempt to examine those unaddressed issues. We begin in Part II with an overview of the requirements of the doctrine in England and Australia. In Part III, we undertake a point-by-point comparison of those requirements to ascertain how, precisely, the doctrine differs in the two jurisdictions. On the basis of that analysis, Part IV observes three core differences which distinguish the two jurisdictions. These differences concern: the nature of the duty imposed on contracting parties; the policy considerations underlying equity's intervention in transactions; and the meaning of unconscionability. The conclusion we draw, in Part V, is that these differences demonstrate that the Australian and English iterations of the doctrine are cousins rather than siblings, and this conclusion counsels caution as to how we ought to approach the doctrine from a comparative perspective.

II OVERVIEW

The modern unconscionable bargains doctrine can be traced back to England between the 17th and 19th centuries, with the Court of Chancery's jurisdiction to set aside agreements to protect the financial interests of expectant heirs and reversioners on account of their age and vulnerability. (5) Where there was an inadequacy of transaction, relief was provided 'on that ground alone'. (6) This was later extended to poor and ignorant persons with contracts at an undervalue and having no independent legal advice, most notably in Fry v Lane ('Fry'). (7) Since then, the categories of case and the requirements for equity's intervention have been extensively developed in England and Australia, although in different directions.

A English Law

In England, after Fry, the doctrine effectively went into hibernation (8) until it was applied to members of a lower-income group and the less educated in Cresswell v Potter ('Cresswell'). (9) The surrender by a wife of her interest in the former matrimonial home in favour of her ex-husband in return for a release from an existing mortgage was set aside because of her ignorance in relation to property transactions. (10) In Multiservice Bookbinding Ltd v Marden ('Marden'), Browne-Wilkinson J held explicitly, probably for the first time, and without reference to any authority, that

a bargain cannot be unfair and unconscionable unless one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a way which affects his conscience. (11) This was taken up by Peter Millett QC (sitting as a deputy High Court judge) in his restatement of the requirements of the doctrine in Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd ('Alec Lobb'):

[I]f the cases are examined, it will be seen that three elements have almost invariably been present before the court has interfered. First, one party has been at a serious disadvantage to the other, whether through poverty, or ignorance, or lack of advice, or otherwise, so that circumstances existed of which unfair advantage could be taken ... secondly, this weakness of the one party has been exploited by the other in some morally culpable manner ... and thirdly, the resulting transaction has been, not merely hard or improvident, but overreaching and oppressive. (12) Later cases have taken this passage as authority that represents the modern requirements of the unconscionable bargains doctrine. (13) Certainly, the three requirements are not mutually exclusive, since the presence of one may have a strong effect on the court's finding of another. For example, Peter Millett QC went on to observe that 'impropriety ... in the terms of the transaction itself' may often provide reason to infer 'impropriety ... in the conduct of the stronger party'. (14) Nor do courts always strictly distinguish between these requirements in practice. (15) Nevertheless, each requirement points to a particular aspect of the doctrine, which together would '[shock] the conscience of the court'. (16) The first requirement speaks to the position of the weaker party ('C') vis-a-vis the stronger party ('D'); the second speaks to D's conduct; and the third speaks to the terms of the transaction itself.

For the sake of completeness, it can be noted that in the earlier case of Lloyds Bank Ltd v Bundy ('Bundy'), Lord Denning MR had attempted to propound a general principle of 'inequality of bargaining power', which would subsume the unconscionable bargains doctrine. (17) Explaining this principle, his Lordship said:

English law gives relief to one who, 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 reason 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. (18) When compared against the Alec Lobb requirements, Lord Denning MR's principle retains the first and third requirements while dispensing of the second: overt exploitation on D's part is not necessary. But that wider principle was decisively laid to rest in National Westminster Bank plc v Morgan ('Morgan'), with Lord Scarman stating:

I question whether there is any need in the modern law to erect a general principle of relief against inequality of bargaining power. Parliament has undertaken the task--and it is essentially a legislative task--of enacting such restrictions upon freedom of contract as are in its judgment necessary to relieve against the mischief ... I doubt whether the courts should assume the burden of formulating further restrictions. (19) B Australian Law

Perhaps the first case resembling the modern unconscionable bargains doctrine in Australia was Wilton v Farnworth ('Wilton'), where the High Court set aside a gift from a 'dull-witted and stupid' man to his stepson of all his interest in his late wife's estate, amounting to about 1,800 [pounds sterling]. (20) Over the following decades, the High Court extended the reach of the doctrine through a series of cases. In particular, since the expansion of the doctrine in Commercial Bank of Australia Ltd v Amadio ('Amadio'), (21) 'the decisions [applying the doctrine] have been legion'. (22) Indeed, even Lord Walker observed in Lawrence v Poorah that '[t]he doctrine of unconscionable bargain appears to be particularly vigorous in Australian jurisprudence'. (23)

In Amadio, an elderly Italian couple with little formal education and a limited grasp of English were approached by their son and his bank manager to execute a guarantee for the son's benefit. When the son defaulted, the bank sought to enforce the guarantee. The parents successfully set aside the guarantee in the High Court. (24) It was held that the bank manager (and hence the bank) knew or ought to have known that the parents suffered from a special disability, and therefore the bank ought to have taken steps to ensure that the parents they understood the nature of the transaction. (25) Because no such steps were taken, the guarantee was rendered unenforceable. The precise requirements for the doctrine are found in Deane J's judgment:

The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or 'unconscientious' that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable ... (26) These requirements have not always been treated as mutually exclusive. For example, in National Australia Bank Ltd v Nobile, Neaves J held that in the absence of any knowledge by the bank of the principal debtor's actions in inducing his parents to act as surety, the parents were not at a special disadvantage vis-a- vis the bank. (27) Nevertheless, as with English law, the requirements point to three distinct aspects of the doctrine: the first requirement speaks to C's position; the second speaks to D's conduct; and the third speaks to the terms of the transaction itself.

For the sake of completeness, it can be noted that, although our discussion concerns the equitable unconscionable...