Alec Lobb Garages Ltd v Total Oil (GB) Ltd [1985]
Facts: C was a small company that ran a petrol station and garage. Under a tie agreement it was bound to buy the petrol from the D oil company. C got into financial difficulty and contrary to the advice of its solicitor, it entered into an agreement with D to sell to and lease back its premises from D. The payments received allowed C to pay off its debts. 10 years later, C sought to set aside the transaction as unconscionable.
Issue for the Court: When is a bargain unconscionable?
Held:
Dillion LJ
· Lord Denning argued that where there is unequal bargaining power between the parties, the stronger party can only enforce a contract where that party proves it to be just, fair, and reasonable.
o Fact that C received legal advice is irrelevant if C, because of its lack of bargaining power, essentially had no choice but to submit.
· The whole emphasis of the authorities is the extortion or taking advantage of a weakness, an unconscientious use of the power.
o Thus, while equity has developed, this doesn’t mean that this emphasis on unconscionability has gone.
§ And that in cases of greater bargaining power, the court can set aside a transaction, even where there has been no exercise of unconscionable conduct.
· It can only occur if there is an unconscientious taking advantage of a weakness.
o The fact that a term negotiated is unreasonable in a business context does not make it unconscionable.
Burrows
· Makes it very rare for contracts to be set aside merely for the exploitation of another’s financial weakness.
o (unless there is unconscionable conduct in doing this?)
· it is interesting that the Unfair Contract Terms Act is based on the premise of inequality of bargaining power.
o And the fact that a term is unreasonable.
§ Shows that greater protection is only given to specified classes of persons with financial weakness, not everyone – they must rely on the much harder test of unconscionability.