THE DOCTRINE OF UNCONSCIONABILITY: IS IT APPROPRIATE FOR IT TO BECOME THE UNDERLYING PRINCIPLE FOR A CLAIM OF VOIDABLE CONTRACTS ON THE GROUNDS OF UNDUE INFLUENCE? Table of Contents 1.0
A voidable contract is one that gives the aggrieved party the right to choose whether or not to proceed or terminate its performance. Thus, voidable contracts shall have the meaning allocated to it as per section 2(i) of the Act. To analyze the similarities and differences between the two doctrine of undue influence and unconsiounability, it is pertinent to evaluate the development and progression of law governing these doctrines in specific countries. Through a trend analysis over the past few years, the law in countries such as Malaysia, Australia and United Kingdom have seen to been significantly developed. For an instance, in Australia, the classic decision in the case of Commercial Bank of Australia v Amadio is in line with the Common Law position regarding the doctrine of unconscionability. Similarly, in Saad Marwi v Chan Hwan Hua & Anor the court’s decisions show that the doctrine of unconscionability which was first applied locally, was then distinguished in American International Assurance Co Ltd v Koh Yen Bee, for reasons that this doctrine should not be interpreted in accordance with section 14 of the Contracts Act as the meaning within that Act is subjected to contracts entered into without free consent. In terms of legislation, the Consumer Protection (Amendment) Act 2010 recognizes this doctrine in a wider extent whereby a contract or a term of a contract that is substantively unfair or unconscionable as per section 24D (c) will be unenforceable or declared void. However, this only limited to consumer contracts. Thus, this essentially shows that the doctrine has improved and extended in application. Therefore, though both doctrines are parallel in temperament, they however differ in terms of application and to be able to develop holistically for their significance, they ought to develop independently and autonomously in contract law. I will provide a thorough study on the doctrines of undue influence and of unconscionability, the correlation between these two doctrines and the influence of the Consumer Protection (Amendment) Act 2010 on the development of the doctrine of unconscionability. 2.0 Concept of Undue Influence The doctrine of Undue Influence is basically concerned with the consent of the party who was induced to enter into a contract due to the dominating influence of the other party upon the weaker party. In this sense, this doctrine is primarily to prove that the effect of entering a contract in the presence of undue influence is procedurally unfair because it impaired one of the party’s judgement and free will in contracting. A contract is procedurally unfair if the manner in which it was entered into was unfair. In short, freedom to contract does not exist when undue influence is present during the commencing of the said contract. In an attempt to prove that there was undue influence, be it actual or presumed during the contracting stage, the party induced must prove 2 prerequisite elements, i.e. in a position to dominate the will of the other and unfair advantage. Upon establishing these two elements, the onus of proof then shifts to the party accused. According to Poosathurai v Kannappa Chettiar and Others,the party alleging must show that the influence was undue and unconscionable. Absence of which does not classify as Undue Influence as per section 16(1) of the Act. 3.0 Doctrine of Unconsciobility. Unconsciobility, on the other hand is not a concept embodied within the Contracts Act 1950 and as such is not thoroughly explained nor is it well established. Unconscionability is basically an English doctrine that deals with the imbalance power of two contracting parties in which one suffers from a special impairment. It is adopted in our local context and applied in a broader view in Saad Marwi v Chan Hwan Hua & Anor. Here, the appellant owned two pieces of land elsewhere and both parties then entered into an agreement whereby the appellant was to sell his land to the respondent for an undervalued price of RM42, 000 (a deposit of RM4200 was to be paid offset to harvest coconut). The contract was drawn up by the respondent’s solicitor in English, which the appellant is incapable to understand and to make matters worse, he did not obtain any separate legal advice pertaining it. It can be seen that the respondent had acted unconscionably when he used the appellant’s position to ‘force’ him to enter into the alleged agreement due to the fact the appellant depended on his permission and when he bought the property for an undervalue price, drafted the agreement in English knowing that the appellant would not comprehend the language and finally, decided that deposit ought to be paid on an embark basis. In that case, Gopal Sri Ram JCA adopted the doctrine of unconscionability to overcome situations of inequality of bargaining powers. There are two reasons why undue influence could not be established in this case, first being that the appellant’s will cannot be said to have been dominated by the respondent though he owned the said land in which the appellant used to harvest coconut (actual) and secondly, a relationship of trust and confidence did not exist even though the appellant suffered mental distress to a certain degree (presumed)
Both doctrines are equitable in nature to ensure that there is a sense of independency on the part of the weaker party in making judgements and aims to alleviate the risk of abuse by the party in the stronger bargaining position. Both doctrines deal unequal bargaining power of the parties, business imbalance and unconscionable conduct by the defendant. Basically, both parties are agreeable to contract but the reason as to why somewhat differs in these two doctrines. In cases of undue influence, it can be said that free consent to contract was absent because the intention to be contractually bound did not occur voluntarily and freely but rather, out of manipulation and domination. By contrast, in situations where a dealing is unconscionable, assent is wilfully given but impaired whereby the weaker party believes that he has consented to something beneficial to him but in reality, the contract is lopsided and to his detriment. This doctrine can be identified when the position of the dominant party can be proven in which he has knowledge and is well informed of the weaker party’s special disability and in turn, manipulates that ‘weakness’ to cause the weaker party to desire to contract.
The Supreme Court case of FuiLian Credit v Leasing SdnBhdcould have been either a case on undue influence, unconscionability, or both. An example of how the two doctrines can be employed to produce similar results is in Richardson v Harris where Mr Richardson was an experienced money-lender knew of Mr Harris’ financial difficulties i.e creditors coercing him to borrow money to pay off debts had entered into an agreement with him to purchase his life interest for an overpriced amount. It was held that this was a matter for undue influence and that Mr Richardson was unsuccessful in discharging the burden placed on him to prove that the transaction was fair, just and reasonable, it was held to be an unconscionable bargain. A huge difference between the two doctrines is that undue influence is concerned with the damaged consent of the weaker party and thus can be said to be aggrieved-oriented while unconscionability in itself is focused on the actions and exploitation of the stronger party in which it was unconscitious behaviour. In cases of undue influence, the will and consent of the innocent party is dependant and involuntary because it is overborne while in unconscionability situations, it is independent and voluntary due to the disadvantageous position he is placed in and of the other party frivolously abusing that weakness. However, the weaker party may think that the contract was for and in his best interest, not knowing that the stronger party had actually known of a defect and had taken advantage of it. In other words, though there is ‘free consent’, the consent given by the innocent party is defected because due to the multiple limiting factors, he is then unable to make a worthwhile judgment in matters where his best interest is in question. This is evident in circumstances of presumed undue influence in which when rebutting, the wrongdoer must prove that the complainant had acted independently where as for unconscionability, the wrongdoer is required to verify something more than just the claimant’s ‘independent act’, in its literal sense which is that the transaction is fair, just and reasonable. A glaring distinction between undue influence and unconscionability is the aim of rebutting the evidential presumption of undue influence. If the elements of unconscionability are established, the burden of proof shifts to the stronger party to show that the transaction was fair, just and reasonable. For undue influence, the dominant party must show that the weaker party had acted independently whereas in cases of unconscioubility, the onus is to show that the transaction was a fair one. Another juncture would be the role of independent advisers. In an unconsionability cases, they seek to rectify the parallel imbalance which would otherwise subsist due to reasons of special defects of the weaker party. In plain terms, their duty is to clear the ethics of the stronger party. Their doing aids to ascertain that the stronger party did not misuse his superiority to exploit the weaker. In a case of undue influence, the their obligation is not limited to only help the weaker party realize that they are being influence and subsequently, freeing them from it (defendant-based aspect), but also to ensure that free will was exercised (plaintiff -based aspect). Undue influence requires that there exist a prior relationship between both parties in which one is in a position to dominate the will of the other party which causes the inducement of the contract i.e inequality superiority. It hinges crucially on the existence of a relationship which enables one party to unduly influence the other. Unconscioubility however, can be established without the need to have a party in a dominant position and without there being a relationship, outside that of the immediate contract, between the parties.; rather what is needed is essentially an unconscionable conduct of the wrongdoer that brings in a gross disadvantage to the complainant. Unconsiounability centralizes with the nature and conditions of the bargain itself, and the other party’s special disadvantage which is known by the other party at the point of transaction. Hence, this is the reason why unconscionability was easier to be established in Saad Marwi’s case which stated : “the latter doctrine (unconscionability) operates in circumstances less stringent than those demanded by (undue influence).”
In short, undue influence is concerned with establishing the relationship of both parties in which one was susceptible to the domination of the other party which vitiated the consent. which caused one party to be in a more controlling and commanding position compared to the other. Unconscioability however seeks only to prove the one party was in fact in status, dominant and the reason to that is because he has material knowledge of the other party’s personal incapability and somewhat misuses his dominating position and informed knowledge to cause the weaker party to contract. The element of free will is technically present but the procedure in which the contract was commenced was unconscionable.
‘Unconscionable’ under this section raises the issue whether it can be the underlying basis in proving undue influence by virtue of this section. There were two distinctive views in Chait Singh v Budin bin Abdullah and Abdul Majeed v Khirode Chandra Palin interpretation this section. In the former, the court held that the unconscionable negotiation based on the position of the parties existed without needing to prove the requirement under section 16(1), which is the dominance of the will. This case referred to the Pricy Council case of Abdul Majeed where the court ruled that a detached doctrine of unconscionability cannot spring from this section of the Contracts Act. Therefore, though Chait Singh’s case, it should be noted the decision in this case ought to be read with caution that there is an extent to the application of the said doctrine only for the purpose of the court to presume undue influence. In other words, this subsection is more to a pre-conditional subsection that lays down the requirements needed to be fulfilled before the wrongdoer is allowed to rebut the presumption. Hence, the phrase “…transactions appears, on the face of it….to be unconscionable” merely refers to the second element of presumed undue influence, which is manifest disadvantage. In other words, Unconscionability in s16 (3) serves as a gateway for the court to presume undue influence and toss the burden of proving otherwise to the alleged wrongdoer. So, if the presumption not rebutted, the agreement is voidable for reasons of the fulfillment of the elements in section16 (1) and 16(2) and not on the notion of unconscionability. In addition, unconscionability is however, restricted to the concept of procedural and evidential purpose only. The development of unconscionability can be done through an all-purpose concept of dominance in section 16(1) simply because the two categories of dominance relationship under section 16(2) does not concern its application as there is no weight on the relationship of trust and confidence.
Besides this, the 2010 amendments to the Consumer Protection Act 1999 has, by bringing in Part IIIA to the said act potentially substantial changes to the law of contract that it may affect the development of the doctrine of unconscionability.
So, by dissecting the Malaysian stand, it can be seen that freedom to contract exist when there is a claim for undue influence because where the two contracting parties have agreed to be legally bound to one another, according to the contractual terms stated, local courts are rather reluctant to intervene in their contractual relationship. Though one party’s consent was overborne, the court feels that there is no need to interfere as when something has been mutually consented to, the court is in no position to decide otherwise or speak on behalf of one party. However, for unconscioubility, the court will look into the party’s special disadvantage in which the stronger party manipulated it to gain an unwarranted contract.
These two doctrines overlap in concept but are different in application. Undue influence prioritizes the plaintiff’s consent, whether or not it was freely given where as, unconscioubility is concerned with the defendant’s unfair conduct in obtaining the contract. It is vital to point out that when the plaintiff’s consent is overborne, the defendant had acted unconsciously. The simple logic behind this is that when the contract was not entered into voluntarily and wilfully, a reasonable man would wonder whether or not the defendant had behaved unethically in trying to attract the aggrieved party to contract. Undue influence can be categorized as a type of unconscionable act in which if it falls short of undue influence, it may still amount to impropriety for the purposes of unconscionability. Therefore, an unconscionable bargain can exist without undue influence. The reason is as laid down above, the many insignificant distinctions between the two doctrines in terms of their functions and focuses and so should be applied to problems it seeks to solve. However, I stand by the justification that the doctrine of unconscioubiliy is inappropriate to form the underlying basis for a claim of voidable contract on the ground of undue influence simply because there are two separate doctrines that should develop independently and in isolation of the other. There are mutually exclusive doctrines that by right, must be allowed to savour its originality in application or else lose their individuality.
 (1983) 151 CLR 447   3 CLJ 98   4 MLJ 301  Ibid, section 16(2).  Section 16(1) of Contracts Act 1950.  Hongkong & Shanghai Banking Corp v Syarikat United Leong Enterprise Sdn Bhd & Anor  2 MLJ 449.  Saw Gaik Beow v Cheong Yew Weng & Ors  3 MLJ 301. Raghunath Prasad v Sarju Prasad AIR 1924 PC 60  Act 136.   3 CLJ 98.  Cheong, MF. (2005). A Malaysian Doctrine Of Inequility Of Bargaining Power And Unconscionability After Saad Marwi. Malayan Law Journal. I-xii.  Hardingham, IJ. (1984). The High Court of Australia and Unconscionable Dealing. Oxford J Legal Stud. 275-287.  Capper, David. (1998) Undue Influence and Unconscionability: A Rationalisation. Queen’s Law Report. 479-504.   1 CLJ 522   NZLR 890  Birks, Peter and Chin, Nyuk-Yin. (1995). “On the Nature ofUndue Influence” in Beatson, Jack and Friedman, Daniel (eds). Good Faith and Fault in Contract Law. Oxford: Clarendon Press.  Commercial Bank of Australia Ltd v Amadio  151 CLR 447 at p 461. Lyonnais Bank Nederland NV v Burch  1 All ER 144. Chait Singh v Budin bin Abdullah  1 FMSLP 348 (HC) ZahidbteMohdIshan ‘Doctrine of Unconscionability: Its Development and Possibilities’ 3 MLJ xiiv, p 11   1 FMSLP 348 (HC)  42 Cal 690  ShaikMohd Noor Alam’s article, “Pre- Contractual Fairness: Section 15 and 16 of the Malaysian Contracts Act 1950”  Act 599  Act A1381 of the year 2010 J P F Bogden, ‘On the “Agreement Most Foul”: A Reconsideration of the Doctrine of Unconscionability’ Manitoba Law Journal Vol 25 No 1 187, p 190-1. Hodgkinson v. Simms,  3 S.C.R. 377, para. 27 (Can.).
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