Alec Lobb (Garages) Ltd v Total Oil (GB) Ltd

In fact Lord Denning's judgment in Lloyd's Bank v Bundy merely laid down the proposition that where there was unequal bargaining power the contract could not stand if the weaker did not have separate legal advice. In the present case Mr Lobb and the Company did have separate advice from their own solicitor. On the facts of this case, however, that does not weaken the appellants' case if the general proposition of law which they put forward is valid. Total refused to accept any of the modifications of the transaction as put forward by Total which the Company's and Mr Lobb's solicitor suggested, and in the end the solicitor advised them not to proceed. Mr Lobb declined to accept that advice because his and the Company's financial difficulties were so great, and, it may be said, their bargaining power was so small, that he felt he had no alternative but to accept Total's terms. Because of the existing valid tie to Total which had, as I have said, three to four years to run, he had no prospect at all of raising finance on the scale he required from any source other than Total. There is no suggestion that there was any other dealer readily available who could have bought the property from him subject to the tie. The only practical solutions open to him were to accept the terms of the Lease and Lease back as put forward by Total on which Total was not prepared to negotiate, or to sell the freehold of the property to Total and cease trading. In these circumstances, it would be unreal, in my judgment, to hold that if the transaction is otherwise tainted it is cured merely because Mr Lobb and the Company had independent advice.

But on the learned deputy Judge's findings can it be said that the transaction is tainted? Lord Selborne dealt with the case before him as a case of fraud. He said at pages 490-1: "The usury laws, however, proved to be an inconvenient fetter upon the liberty of commercial transactions; and the arbitrary rule of equity as to sales of reversions was an impediment to fair and reasonable, as well as to unconscionable, bargains. Both have been abolished by the Legislature; but the abolition of the usury laws still leaves the nature of the bargain capable of being a note of fraud in the estimation of this Court; and the Act as to sales of reversions (31 Vict. c. 4) is carefully limited to purchases "made bona fide and without fraud or unfair dealing", and leaves under-value still a material element in cases in which it is not the sole equitable ground for relief. These changes of the law have in no degree whatever altered the onus probandi in those cases, which, according to the language of Lord Hardwicke, raise "from the circumstances or conditions of the parties contracting — weakness on one side, usury on the other, or extortion, or advantage taken of that weakness" — a presumption of fraud. Fraud does not here mean deceit or circumvention; it means an unconscientious use of the power arising out of these circumstances and conditions; and when the relative position of the parties is such as prima facie to raise this presumption, the transaction cannot stand unless the person claiming the benefit of it is able to repel the presumption by contrary evidence, proving it to have been in point of fact fair, just, and reasonable."

The whole emphasis is on extortion, or undue advantage taken of weakness, an unconscientious use of the power arising out of the inequality of the parties' circumstances, and on unconscientious use of power which the Court might in certain circumstances be entitled to infer from a particular — and in these days notorious — relationship unless the contract is proved to have been in fact fair, just and reasonable. Nothing leads me to suppose that the course of the development of the law over the last 100 years has been such that the emphasis on unconscionable conduct or unconscientious use of power has gone and relief will now be granted in equity in a case such as the present if there has been unequal bargaining power, even if the stronger has not used his strength unconscionably. I agree with the judgment of Browne-Wilkinson J. in Multiservice Bookbinding Ltd v Marden [1979] Ch 84 which sets out that to establish that a term is unfair and unconscionable it is not enough to show that it is, objectively, unreasonable.

In the present case there are findings of fact by the learned Deputy Judge that the conduct of Total was not unconscionable, coercive or oppressive. There is ample evidence to support those findings and they are not challenged by the appellants. Their case is that the Judge applied the wrong test; where there is unequal bargaining power, the test is, they say, whether its terms are fair, just and reasonable and it is unnecessary to consider whether the conduct of the stronger party was oppressive or unconscionable. I do not accept the appellants' proposition of law. In my judgment the findings of the learned Judge conclude this ground of appeal against the appellants.

Inequality of bargaining power must anyhow be a relative concept. It is seldom in any negotiation that the bargaining powers of the parties are absolutely equal. Any individual wanting to borrow money from a bank, building society or other financial institution in order to pay his liabilities or buy some property he urgently wants to acquire will have virtually no bargaining power; he will have to take or leave the terms offered to him. So, with house property in a seller's market, the purchaser will not have equal bargaining power with the vendor. But Lord Denning did not envisage that any contract entered into in such circumstances would, without more, be reviewed by the Courts by the objective criterion of what was reasonable. See Lloyd's Bank v Bundy at page 336. The Courts would only interfere in exceptional cases where as a matter of common fairness it was not right that the strong should be allowed to push the weak to the wall. The concepts of unconscionable conduct and of the exercise by the stronger of coercive power are thus brought in, and in the present case they are negatived by the deputy Judge's findings.

Even if, contrary to my view just expressed, the Company and Mr and Mrs Lobb had initially in 1969 a valid claim in equity to have the Lease and Lease back set aside as a result of the inequality of bargaining power, that claim was, in my judgment, barred by laches well before the issue of the Writ in this action.