Concept of Unconscionably Basis for Estoppel

The concept of unconscionably as a basis for estoppel is a fairly recent concept adopted by the courts. While the courts of Chancery initially did begin as a court of conscience and Seldon said in the 17th century that equity varied with the length of the Chancellor’s foot. [1] However till fairly recently, most of the case laws were decided on the basis of established principles and references to conscience and unconscionability were rarely relied on by courts in cases before them. Further to the decision by the Court of Appeal in Jennings v. Rice [2] the doctrine of proprietary estoppel metamorphosed into a general doctrine of equitable estoppel which is based on unconscionability in general terms. [3] Several other cases such as Crabb v Arun DC [4] in 1976 and in Taylors Fashions [5] in 1977, the doctrine of Unconscionability was applied and this concept was later applied to other types of estoppel by conduct cases such as the Texas Bank case in 1980. Unconscionability is now frequently referred to in this context.

In Fry v Lane [3] Kay J. in defining, the doctrine of unconscionable bargain adopted the following definition based on previous decision:

“ [W]here a purchase is made from a poor and ignorant man at a considerable undervalue, the vendor having no independent advice, a Court of Equity will set aside the transaction.”

“This doctrine has undergone a renaissance in Australia and New Zealand. Whereas, in United Kingdom, it has been observed to be a ‘living fossil’, tending to lead a more understated life, although with some seemingly interesting appearances.” [6]

The requirements for an estoppel by standing by were stated by Lord Cranworth L.C. in Ramsden v Dyson [7] :

“ If a stranger begins to build on my land, supposing it to be his own, and I, perceiving his mistake, abstain from setting him right … a Court of Equity will not allow me afterwards to assert my title to the land on which he had expended money … It considers that when I saw the mistake … it was my duty to be active and to state my adverse title; and that it would be dishonest in me to remain wholly impassive … in order afterwards to profit by the mistake …”

Eldon L. C opined that this type of estoppel was heavily depended on conscience, [8] and therefore proof of knowledge at the relevant time was essential. The primary attention in this type of estoppel is on the passive party, and the test is subjective, but the principles leave no room for a wider inquiry. Dixon J. applied his principles to this form of estoppel when he spoke of a party being estopped because: “ … knowing the mistake the other laboured under he refrained from correcting him when it was his duty to do so” .

Operation of Unconscionability

It is manifest that an inequality of exchange is not sufficient, per se, to ground relief in equity. [9] Additional factors are essential and this has been discussed in this essay. “The cornerstone of the unconscionable bargain doctrine is the, somewhat elusive, notion of a “ special disadvantage” . Special disadvantage broadly includes, drunkenness, mental deficiency, necessity and “ poverty and ignorance” , to name but a few. However, the process by which a disadvantage graduates to “special disadvantage” status is shrouded in mystery.” [10]

The antithesis of a “special disadvantage” is sometimes stated to be “ folly” an equally vague term, especially when put in context with the decision of Schwartz v Barclays Bank Plc [11] where the Court of Appeal held that a claimant was not guilty of a “ folly” simply by entering a transaction which they knowingly did not understand.

A case which is analyzed in detail in this essay is Cox v. Jones [12] , where two barristers became engaged to get married and brought a home with Mr. Jones taking the mortgage out in his name and Ms. Jones helping in the renovation of the house. Mr. Jones also brought another flat solely on his name, it was contended by Ms. Cox that the flat was brought for Mr. Jones as a nominee for her. Their relationship later went into difficulty and a claim was brought as to the ownership of several movable and immovable properties they had. As to findings of evidence, it was made clear in the judgment that facts were found on the judge’s impression as to the credibility of each of the witnesses in the witness box. This demonstrates how it is frequently very difficult to arrive at ‘the truth’ in trust of home cases precisely because the parties frequently cannot prove everything they allege, because the parties have frequently fallen out with one another, and because people are frequently poor witnesses when asked to discuss their personal lives. As to one of the houses, Mann J, held that the parties intentions were contained in an agreement whereby the couple had agreed that the house would be held jointly between them and in relation to which Ms. Cox had acted to her detriment by supervising the renovation works and by giving up her legal practice to do so. However because Mr. Jones had suffered much greater detriment than Ms. Cox, the property would be distributed 75:25 between them as opposed to being divided equally.

It is interesting observe here that Mann. J did not find any clear agreement as to what interest each person was supposed to have: rather he found that there was some form of general agreement but felt himself entitled to declare what share should result from it. The court instead looked for a solution which would be fair having regard to the whole course of dealing between them in relation to the property. This is a much more flexible approach than the one used in Lloyds bank v. Rosset, [13] where the assumption was that the parties must have reached an agreement either as to the shares which each party would have or to the amount of money which each party would contribute (where Miss Cox had contributed nothing and so would receive no interest at all). So, it was held to be unconscionable to have denied some interest to Miss Cox because the parties had intended the house to be jointly-held house, where it was also held unconscionable to give Ms. Cox, half share in the house given the size of her contribution.

As to the flat, it was found that the parties intention was that the flat was intended to have been brought by Mr. Jones as nominee for Miss Cox because only he could have obtained the mortgage and it would have been difficult for her to obtain the mortgage (due to his income being larger than hers). Therefore, Miss Cox was found to be entitled to the entire equitable interest in the flat. It was found as a fact that Miss Cox procured the purchase of the flat at a lower price than otherwise it would have been sold because she knew the vendor personally and so convinced him to make a private sale rather than purchasing at a higher rate through estate agents. It was reasoned in the decision that Ms. Cox did not acquire an equitable interest on the basis of this reduction of this reduction, but rather it was taken into account as something beneficial to Ms. Jones which she had contributed , together with the detriment associated with her not seeking to acquire the flat in her sole name. [14]

An almost similar approach was adopted by the courts in Grundt v Great Boulder Pty Gold Mines Ltd [15] in a long passage that has been approved in and cited in various English cases [16] (the Dixon principles). It was stated that :

“ Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. But the law does not leave such a question of fairness or justice at large. It defines with more or less completeness the kinds of participation in the making or acceptance of the assumption that will … preclude the party if the other requirements for an estoppel are established.”

An almost similar principle was also set forth by the courts in Freeman v Cooke [17] where Parke B., said :

“ … if whatever a man’s real intention may be, he so conducts himself that a reasonable man would take the representation to be true, and believe that it was meant that he should act upon it, and did act upon it as true, the party making the representation will be estopped from contesting its truth …”

It should be noted that a proprietary estoppel claim will fail unless the claimant is able to prove the prerequisite essential elements of assurance, reliance and detriment. However this requirement is not watertight, as can be seen from the case of Gillett v Holt [18] where it was held that “the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all elements of the doctrine.” It was also opined by Robert Walker LJ that “in the end the court must look to the matter in the round” and ultimately the process involves a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances.” [19]

In Keen v Holland [20] , a case where estoppel was pleaded and failed, one reason for the failure of the estoppel by convention was that it was not unconscionable for the tenant to rely on the Agricultural Holdings Act 1948, but the operation of unconscionability is doubted here. In The Vistafjord [21] Bingham L.J. adopted a statement of Peter Gibson J. that: “ [T]he parties [are not] held to an assumed and incorrect statement of fact or law where there is no injustice in allowing a party to resile therefrom.”

“In Hiscox v Outhwaite [22] Lord Donaldson M.R. said that The Vistafjord was an authority for the proposition that ‘ the court will give effect to the agreed assumption only if it will be unconscionable not to do so’ . He said later “ it would be unconscionable now to allow Mr Outhwaite to renege from the common assumption” . The Vistafjord did not decide this, ‘and here was another case where the Court appeared to apply the test of unconscionability to itself’.” [23]

It is pertinent to note that in all these cases, the emphasis has been that the primary function of proprietary estoppel is not to protect expectations but to prevent unconscionable conduct and to do justice between the parties. Although such a principle will inevitably give rise to a more protracted assessment of the circumstances in a given case, it is submitted that where a person has induced another into an expectation, the court should provide a remedy if it would be unconscionable to deny it.

Conclusion.

From the cases that has been discussed, Cox v. Jones, [24] tries to find a middle ground between the strict approach adopted in Rosset and the flexible approach adopted in Grant v. Edwards. [25] By doing so the courts run the risk of combining the doctrine of constructive trust and proprietary estoppel when they operate on different levels, the first is institutional and the other is remedial, a synthesis of both these principle seems impossible. It has to be admitted that, in cases where unconscionability will be brought up, ultimately it will be the decision turns on the facts of each case.

There are notions such as undue influence and duress which has not been discussed, however keeping in mind the operation of undue influence and duress in estoppel cases it would not be possible to bring all of it under unconscionability as there is chance that it would lead to uncertainty. It can also be seen that despite the concept of unconscionability being uncertain, the court has strived to exercise jurisdiction according to well defined principles. It is required by the court to consider the extent to which it would be unconscionable for the defendant to deny an equitable interest to the claimant. It has to be shown that the defendant has taken unconscionable advantage of the claimant, by denying him or her the right or interest they expected to receive. There is no question of the court administering a general discretionary power to uphold promises simply because it would be unfair or harsh to allow the defendant to go back on them. It is the writer’s opinion that English courts are still far from recognizing universal doctrine of unconscionability.