Author’s Details: Farzana Salik – Third Year Law Student at the University of Cambridge.
This essay was submitted as part of my end-of-year exams for Contract Law. It takes heavy inspiration from the renowned works of my respected supervisor, Professor Neil Andrews.
Inequality of bargaining power means parties stand on a relatively unequal footing in the contracting process regarding their degree of freedom and empowerment in negotiating terms. For Lord Denning, in Lloyd’s Bank v Bundy this combines undue influence, duress and unconscionability. By virtue of this, English law gives relief to one who, without independent advice, enters into a contract upon terms which are unfair or transfers property for consideration which is grossly inadequate. This is when his bargaining power is grievously impaired by reason of his own needs and/or desire, or by his own ignorance, coupled with undue influences or pressures brought unto him by or for the benefit of another.
This essay will, first, argue that Lord Denning’s minority judgment in Lloyds Bank v Bundy is not persuasive. Rather, it is a convoluted way of conceptualising the law. However, his comment is an important insight into different ways the law can develop. Lastly, it will proceed to pose that Lord Denning’s identification of a ‘inequality of bargaining power’ does not ‘deserve’ to be considered by the USKC. Instead, a general wide principle does, paired with Parliamentary action.
In Lloyd’s Bank Ltd v Bundy (1975), Bundy Senior guaranteed Lloyd’s loan to his son and he later was added as security. The latter transaction gave the bank additional security and reduce the son’s borrowing limit. This was fateful as on this occasion, the father (Bundy Senior) signed without obtaining fresh independent legal advice. The bank did not see the need to impress upon him the need to obtain such advice, given the extremely onerous nature of a proposed increase in security.
The Court of Appeal held, by a majority, that there ought to be a rescission of the second guarantee and the accompanying charge over the father’s home. This was found under the orthodox principles of undue influence.
Is Lord Denning’s suggestion persuasive?
Lord Denning’s suggestion of undue influence forming a wider principle of ‘inequality of bargaining power’ is an unpersuasive conceptualisation of the blend between undue influence and other equitable doctrines. Two reasons can be mentioned.
First, such consolidation of the individual doctrines has not received judicial support. In Bundy itself, the majority declined to pass judgment on it, choosing to resolve the case under undue influence. Later, in Alec Lobb, the CA rejected it, making clear that Lord Denning himself did not intend that inequality of bargaining power, without more, should be enough. Further, Lord Scarman held in Morgan and Gallahers that the courts regard the possibility of regulating contracts by reference to market imbalance and substantive harshness as a delicate task, even quasi-political. LD has thus been unable to influence case law, having received a ‘frosty reception in appellate courts’ (McKendrick); rather this principle is a ‘heretical synthesis’ (Andrews).
Secondly, Moore argues it is difficult to see how inequality of bargaining power can accurately encapsulate individual equitable doctrines. This is because similarities are at most confined to unconscionability and presumed undue influence, and still play a limited role. For example, whether one party was under disadvantage is inherent in unconscionability and the parties’ relationship being of a kind typified by influence is in presumed undue influence. But the presence of such inequality is not enough – in presumed influence, there must be an existing relationship of trust and dependence and in unconscionability, it must reside within categories of the weakness of the disadvantaged party. Further, both doctrines require misconduct by the stronger party – an abuse of bargaining position – and proof of the striking substantive disparity in bargaining. Across both, inequality of bargaining power creates a potential for exploitative dealings, but additional requirements pursue a separate inquiry of whether the contract show abuse of the unequal bargaining power. Conversely, duress and actual undue influence do not require inequality of bargaining power as they do not inquire into the position of the parties. Rather, they directly pursue positive proof of misconduct. Worse still, there are cases where the affected parties do not bargain at all; they are simply at the will of the exploiting party. Here, bargaining power would be under-inclusive as a concept for capturing any one of the doctrines. Inequality of bargaining power is unpersuasive as it does not synthesise different existing laws.
Lord Denning expanded on his wider principle further in Bundy (399), allowing relief for ‘very unfair’ terms or transfers of property for a ‘grossly inadequate’ consideration. Not only has this not gained favour in the court, but Andrews refers to this conception as a ‘mongrel’ for blending three breeds of requirement: (i) gross substantive unfairness; (ii) grievously weak bargaining power; and (iii) illegitimate pressure or influence. Anson also adds that this test requires procedural and substantive fairness, whereas duress and undue influence require only the former, and presumed undue influence uses substantive unfairness to place on the stronger party the burden to justify the contract where there is no evidence of actual undue influence, and similarly for unconscionability. Denning’s extension of his inequality of bargaining principle is thus unpersuasive as it does not conform to the existing list and makes the law complicated.
Lord Denning’s suggestion of a wider principle of inequality bargaining power is not ‘persuasive’, but complex so does not ‘deserve’ the UKSC’s consideration.
Is it, nonetheless, insightful?
Although LD’s suggestion itself can be rejected, it has provided an important insight into how undue influence can fit with other equitable doctrines. There are three conceptualisations worth discussing.
Waddams views ‘general power’ as the underlying basis for multiple disparate doctrines, including those mentioned above and mistake, frustration, the penalty doctrine, and other forfeitures. He favours a broader approach because of its fairer result and encourages rejecting rigid closed categories of intervention as ‘deserving cases can fall through the cracks’. For example, supporting Lord Carnwath’s dissent in Arnold v Britton, Waddams views a better purposive reading would see compound interest rate as capping the increase, reversing the landlord’s gain at the tenant’s expense. However, this conception is unconvincing. Moore argues this has not been accepted by jurisprudence, besides the areas he cites. Although Waddams accepts this as there is ‘no principled basis for confining the law’, he inverts a conscious allocation of the roles of principle and exception in existing law, primarily to prevent the unsettling of commercial transactions. This causes uncertainty and imprecision.
Alternatively, Conaglen, following from LD fixates on inequality of bargaining power but sees this as a continuum, whereby each doctrine applies at varying levels of strength. On the ‘contractual end’, all parties are equal, and no policing is necessary. Where the power imbalance is sufficient, duress and actual undue influence apply. Further up, the ‘fiduciary end’ covers unconscionability and presumed undue influence. However, Moore dismisses this because not only does jurisprudence not support this varying overlap between the doctrines, but it breaks down where a set of facts satisfy the requirement of more than one doctrine, putting in two places of the continuum at one time.
A fortiori, Moore proposes a compromise in his LQR. He views that the contractual vice is not inequality of bargaining power, but the constraint of one party’s autonomy within the process of deciding whether to consent. Constraint covers illegitimate pressure in duress (The Universe Sentinel – Lord Diplock), improper influence in undue influence (Johnson v Buttress), desperate circumstances or impairments, in unconscionability (Amadio v Commercial Bank of Australia). This is distinguished from doctrine vitiating contracts, where the defect is the unreliability of the information which autonomy is deployed. Exploitation also becomes clear as concluding a contract with a party is improper since lacks the autonomous conditions prescribed by law. This is a convincing conceptualisation as it escapes the current confusing doctrinal distinctions ‘tied to distracting factual fixations’ and is instead premised on a foundational principle of common law: autonomy.
Lord Denning’s comment is an important insight as it has led to a better understanding of the harmony between different equitable doctrines.
As Moore’s conception can at first be recognised as ‘merely an organising rationale for the existing doctrines’, UKSC authority can be useful in offering a cleaner analysis and officially deciding under one principle. However, this ought to be paired with Parliamentary action. There are gaps in the statutory protection of for instance small businesses (Consumer Rights Act 2015), and other consumer contracts (Arnold v Britton). Whilst Morgan contends the courts ought not to assume power by creating wider principles, Parliament has not been active enough. Instead of a hands-off approach, Parliament should too address the possibility of a wider principle and settle the matter.
To conclude, Lord Denning’s minority judgment is unpersuasive. Although, it provides an important insight into better conceptions, such as Moore’s unifying principle, which mirrors contractual freedom. Whilst this ought to be considered by the UKSC, Parliament needs to too.
 Marcus Moore, Why Does Lord Denning’s Lead Balloon Intrigue Us Still? The Prospects of Finding a Unifying Principle for Duress, Undue Influence and Unconscionability
(2018) 134 L.Q.R. April
 Lloyds Bank Ltd. v. Bundy  EWCA 8
 See note 1
 Cartwright, Unequal Bargaining: A Study of Vitiating Factors in the Formation of Contracts (1991)
 Andrews, Contract Law (2015), at p.317
 Anson’s Law of Contract (2010), at pp.375–376
 Waddams, “Unconscionability in Contracts” (1976) 39 M.L.R. 369
 Arnold v Britton & ors  UKSC 36, 10 June 2015
 See note 1
 Conaglen, “Duress, Undue Influence, and Unconscionable Bargains: The Theoretical Mesh” (1999) 18 N.Z.U.L.R. 509
 See note 1
 Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)  1 A.C. 366 at 384
  HCA 41; (1936) 56 C.L.R. 113 at 134 per Dixon J.
 (1983) 151 C.L.R. 447 at 461 per Mason J
 Arnold v Britton & ors  UKSC 36, 10 June 2015
 Jonathon Morgan, Great Debates in Contract Law