Unconscionable bargain – Agreement whereby defendant council tenant acquiring property under statutory right to buy and selling to claimant – Claimant agreeing to finance right-to-buy transaction and make additional lump sum payment to defendant in return for transfer of property after three years with grant of lease with right of possession in the meantime – Defendant refusing to vacate property – Claimant seeking possession – Whether defendant lacking mental capacity to enter into contract – Claim allowed
The defendant held a secure tenancy of a council property, which she was entitled to buy under Part V of the Housing Act 1985. The claimant company purchased such properties by financing the right-to-buy transaction and paying an additional sum to the tenants once they relinquished occupation and effected the necessary documents.
On an application under the 1985 Act, it was determined that the defendant was entitled to acquire her property for £126,000, which included the maximum discount of £38,000 from the market value of £164,000. She wanted to realise her equity in the property but did not have the necessary funds to purchase it. After making enquiries of several companies, she reached an agreement with the claimant, which agreed to buy the property and pay her £20,000. In August 2004, pursuant to that deal, she signed: (i) an undated transfer of the property, not to be completed for three years so as not to trigger the obligation, under section 155 of the Act, to repay the discount on any relevant disposal within that period; (ii) a lease of the property to the claimant in the meantime, together with an obligation to vacate the premises; (iii) a power of attorney giving the claimant the right to deal with the property; and (iv) a charge over the property in favour of the bank that was providing the claimant with the funds for the purchase. The defendant was advised by a solicitor that the claimant had recommended to her. Before signing the documentation, she raised various issues with her solicitor concerning the transaction and sought assurances from the claimant about various points.
The defendant subsequently changed her mind but could not undo her purchase from the council, which had by then been completed. She refused to give up possession of the property and the claimant brought proceedings, seeking possession and damages for trespass. The defendant contended that, at the time of signing the various documents for the claimant, she had been on a low income, had lacked independent advice and had been given no proper opportunity to consider the documentation before being pressured into signing, so that the documents were unenforceable in equity as an unconscionable bargain. She also asserted that she had lacked capacity at the relevant time owing to mental health problems, including depression.
Held: The claim was allowed.
(1) A court of equity would in some circumstances set aside a transaction that had been entered into as a result of conduct that, although it did not amount to fraud, was contrary to conscience. The transactions to which those principles applied included contracts involving land. The doctrine of unconscionable bargain would, in appropriate cases, relieve a party from the consequences of entering into a transaction that entailed some form of bargaining disadvantage. The court might assist where the party was “indigent and ignorant”, without independent advice and had entered into a transaction at an undervalue. The law required that one party had knowingly taken advantage of another. Equity would not relieve a party from a contract on the basis of a contractual imbalance that did not amount to unconscionable dealing; undertones of constructive fraud were required before the court would consider rescinding a contract that had otherwise been properly made. A bargain that was merely hard or improvident would not for that reason alone qualify as an oppressive or unconscionable bargain; more was required in order to “shock the conscience of the court”: Boustany v Piggott (1995) 69 P&CR 298, McGuane v Welch [2008] EWCA Civ 785; [2008] 3 EGLR 45; [2008] 40 EG 178 and Hart v O’Connor [1985] AC 1000 applied.
The defendant could not raise even a prima facie case of unconscionable bargain. She had been under no misapprehension as to the nature of the documentation. That was demonstrated by her previous actions, in particular, the astute questions that she had asked her representatives, which had been investigated and answered before she was required to sign. The claimant’s behaviour towards her had not been unconscionable or unfair. Although she might have been uncertain about what she wanted to do, had been stressed and had subsequently regretted entering into the deal, that did not render it an unconscionable bargain.
(2) Other than in the case of minors, those of unsound mind and drunkards, the capacity to contract was presumed in law. A plea of incapacity had to be proved by the person who relied on it. Even a person of unsound mind and an inability to understand the general nature of what he was doing would be treated, in matters of contract, in the same way as a person who was mentally competent unless he could prove that the other contracting party had been aware of his situation. No question of incapacity arose in the instant case. The defendant had produced no medical evidence to show she had lacked appropriate capacity to enter into the contract. The contemporaneous correspondence showed that she had been functional. The court had not been given any evidence that would enable it to hold that she lacked capacity because she did not understand the nature of the transactions or their potential effect.
(3) Accordingly, the defendant held the property on trust for the claimant absolutely. Since August 2004, she had been obliged to vacate the premises. The claimant was entitled to exclusive possession of the property and to a declaration that it could be registered in its name. It was further entitled to damages in respect of the defendant’s unlawful use and occupation of the property since August 2004. Once the amount of damages and costs was assessed, the claimant would be entitled to set off those amounts against the £20,000 admittedly owed to the defendant under the agreement.
Marie Claire Bleasdale (instructed by Bude Nathan Iwanier) appeared for the claimant; the defendant did not appear and was not represented.
Sally Dobson, barrister
