Page 1

Page 2

Malayan Law Journal Articles/2005/Volume 4/A Malaysian Doctrine of Inequality of Bargaining Power and Unconscionability After Saad Marwi?

[2005] 4 MLJ i

Malayan Law Journal Articles

2005

A Malaysian Doctrine of Inequality of Bargaining Power and Unconscionability After Saad Marwi?1

Cheong May Fong

LLB (Hons) (Malaya), LLM (NUS), PhD (Sydney) Diploma in Shariah Law & Practice (IIUM) Advocate & Solicitor (Non-Practising) Associate Professor Faculty of Law, University of Malaya

The doctrine of unconscionability has been increasingly used to overcome contractual unfairness in Australia, Canada and the United Kingdom. The Court of Appeal's decision in Saad Marwi v Chan Hwan Hua & Anor [2001] 3 CLJ 98 has brought Malaysia nearer to this front in its recognition of a "wider doctrine of inequality of bargaining power" and the adoption of "the English doctrine [of unconscionability] but apply it in a broad and liberal way as in Canada". This paper will examine the Court's decision in Saad Marwi and consider its impact on Malaysian contract law. The doctrine of unconscionability is a useful doctrine and the main challenge is the incremental development of this doctrine. In doing so, the Malaysian courts as well as the law practitioners should not stop at considering the English and Canadian approaches but should also consider the developments in Australia.

Introduction

"In my judgment, the time has arrived when we should recognise the wider doctrine of inequality of bargaining power. And we have a fairly wide choice on the route that we may take in our attempt to crystallise the law upon the subject ... What is therefore called for is a fairly flexible approach aimed at doing justice according to the particular facts of a case. Historically, that is what equity is all about. That brings me to the third

4 MLJ i at iialternative. This is to adopt the English doctrine [of unconscionability] but apply it in a broad and liberal way as in Canada".per Gopal Sri Ram JCA in Saad Marwi v Chan Hwan Hua & Anor [2001] 3 CLJ 98 at pp 114 and 115 (Court of Appeal).

With this, the sounding bells had rung for Malaysian law to adopt a more liberal approach in the matter of contractual unfairness. Malaysia has come a long way as earlier cases show the courts grappling with arguments based on inequality of bargaining power amidst the statutory provision on undue influence in the Contracts Act 1950.2 In Saad Marwi's case, the Court of Appeal had adopted a different approach. Gopal Sri Ram JCA started his judgment as follows: "This is an important case. It has to do with whether our jurisprudence recognises a doctrine of inequality of bargaining power independent of the well-established doctrine of undue influence. This is the first time, at least as far as I am aware, that this issue has come up for decision at the appellate level."3

Page 3

The Facts InSaad Marwi'sCase

The appellant, a farmer, had rented some land from the respondents ('the leased land') from which he harvested coconuts. The appellant also held two pieces of land ('the property') by prescriptive rights under the land law in force in Penang at the material time. This meant that the appellant's title was defeasible and this defeasibility was confirmed by an indorsement on the title.

On 11 November 1975, the appellant entered into an agreement with the respondents to sell the property to the respondents for RM42,000. The written agreement was in the English language and merely stated that a deposit of RM4,200 was paid but did not specify that it was to be offset by

4 MLJ i at iii way of the rental payable by the appellant to the respondents for the leased land. It also required the appellant to make good the title within 12 months of the agreement and obtain a court order establishing his ownership. The appellant obtained a cancellation of the indorsement on 22 January 1981 but failed to obtain the court order. Meanwhile, pending his application for the cancellation of the indorsement, the appellant, by a letter dated 24 October 1979 purported to terminate the agreement with the respondents. The respondents refused to accept the termination but they did not bring proceedings until 25 May 1981.

The appellant defended the action on two grounds; first, that the agreement was vitiated by undue influence and secondly, that the respondents were barred by laches from seeking relief.4 The trial judge rejected the defence of undue influence but declined to grant specific performance5 and awarded the respondents damages of RM1.2 million representing half the current market value of the property. The appellant appealed against the order of the trial judge.

The Court of Appeal's Decision

On appeal, the appellant argued that while the trial judge was entitled to reject the defence of undue influence, he ought to have held that the appellant had established a case of "unfair advantage" under section 21(2)(a) of the Specific Relief Act 1950.6 The question was posed to the Court whether a party to a contract may altogether avoid its consequences on this ground. According to the Court, this brought to focus the doctrine of inequality of bargaining power falling short of the proof of undue influence under section 16 of the Contracts Act7 read with section 111 of the Evidence Act 1950.8 With this, the Court went on to consider whether Malaysian law recognises a general doctrine of inequality of bargaining power and made a survey of the equity jurisprudence of the Commonwealth jurisdictions.

4 MLJ i at iv

Beginning with England, the Court referred to Nourse LJ and Millett LJ's judgments in Credit Lyonnais Bank Nederland NV v Burch9 as authority establishing the wider doctrine of unconscionable bargains besides the traditional category of undue influence. In this case, a Mr Pelosi had requested Miss Burch, his junior employee, to put up her home as security for the company's overdraft with the bank. Although Mr Pelosi had explained to Miss Burch that the overdraft was increased by £20,000, he did not tell her that the current borrowings were already £163,000 and that the overdraft facility was extended from £250,000 to £270,000. The relevant portion of Nourse LJ's judgment at p 151 cited by the Court is as follows:

On that state of facts it must, I think, have been very well arguable that Miss Burch could, directly against the bank, have had the legal charge set aside as an unconscionable bargain. Equity's jurisdiction to relieve against such transactions, although more rarely exercised in modern times, is at least as venerable as its jurisdiction to relieve against those procured by undue influence ...

Page 4

The decision of Megarry J in Cresswell v Potter ... where he suggested that the modern equivalent of 'poor and ignorant' might be 'a member of the lower income group ... less highly educated', demonstrates that the jurisdiction is in good heart and capable of adaptation to different transactions entered into in changing circumstances. See also the interesting judgment of Balcombe J in Backhouse v. Backhouse ... where he suggested that these cases may come under the general heading which Lord Denning MR referred to in Lloyds Bank Ltd v Bundy ... as 'inequality of bargaining power'.10

And the judgment by Millet LJ at pp 152-153 cited by the court is as follows:

In the present case, the bank did not obtain the guarantee directly from Miss Burch. It was provided to the bank by Mr Pelosi, who obtained it from Miss Burch by the exercise of undue influence. In such a context, the two equitable jurisdictions to set aside harsh and unconscionable bargains and to set aside transactions obtained by undue influence have many similarities. In either case it is necessary to show that the conscience of the party who seeks to uphold the transaction was affected by notice, actual or constructive, of the impropriety by which it was obtained by the intermediary, and in either case the court may in a proper case infer the presence of the impropriety from the terms of the transaction itself.11

Then the Court considered the Australian position commencing with the established High Court decision of Commercial Bank of Australia Ltd v Amadio.12 In this case, Mr and Mrs Amadio aged 76 and 71 years respectively, were migrants with a limited grasp of English. They had executed a guarantee which

4 MLJ i at vwas unlimited in time and amount to the bank. The guarantee was to secure an overdraft of a company managed by their son, Vincenzo, who had informed his parents that the guarantee was limited to six months and to $50,000. The branch manager did inform the Amadios that it was not limited to six months but they received no independent advice. When the company went into liquidation, it owed the bank $240,000. The bank demanded the sum from the Amadios who sued for a release from the guarantee. The case was decided in favour of the Amadios and the High Court affirmed the equitable jurisdiction to relieve against unconscionable transactions where (1) a party to a transaction was under a special disability in dealing with the other party resulting in an absence of any reasonable degree of equality between them and (2) that disability was sufficiently evident to the stronger party to make it prima facie unfair or unconscientious that he accepts the weaker party's assent to it in the circumstances that he accepted it.

The Court cited and emphasised Mason J's judgment at p 461 as follows:

But relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some situation of disadvantage, eg, a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter, the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position. (emphasis added.)13

The Court then referred to the South Australian case of Westwill Pty Ltd v Heath14 where Duggan J stated the essential features of the doctrine of unconscionable bargains. First is the existence of circumstances which amount to a special disadvantage. Second is the conduct of the stronger party rather than the reality of the weaker party's consent. Third, mere evidence of undervalue, except where the undervalue is very gross will not lead a court to interfere. Fourth, the absence of independent advice to a party plainly in need may lead to the conclusion that the party was disadvantaged. Fifth, if the weaker party proves that he was at a special disadvantage and that his condition was sufficiently evident to the stronger party at the time of the contract so as to

Page 5

make it prima facie unfair to accept the benefit of the contract, the burden of proving that the transaction was nevertheless fair lies upon the stronger party.

4 MLJ i at vi

The Privy Council's decision of Hart v O'Connor15 on appeal from New Zealand was considered before the Court turned its attention to Canada. The Court noted that the Canadian courts "appear to favour a more general doctrine of unconscionability in terms wider than that entertained in England".16 The Court cited Paris v Machnick17 as a case demonstrating the flexibility of Canadian equity in the remedial field. In this case, an illiterate farmer sold her farm worth $9000 for $2500. Hart J upheld the plaintiff's claim of unconscionability on the ground of illiteracy. However, he ordered the payment of additional compensation in lieu of rescission. After referring to the Canadian cases, the Court also cited the book by S M Waddams that "[t]he factors held to indicate the necessary inequality include old age, emotional distress, alcoholism and lack of business experience. It appears that any situation that results in the weaker party's being 'overmatched and overreached' will qualify for relief if the stronger party secures an immoderate gain."18

Finally, the Court considered the Indian cases19 as section 21 of the Malaysian Specific Relief Act is drawn from section 22 of the Indian Specific Relief Act 1877.20 The Court concluded that the Indian authorities appear to interpret the section as housing a doctrine of inequality of bargaining power but that there must be some objective unfairness in the bargain, some oppression or victimisation that can be garnered from the circumstances existing at the time the agreement is made.

Having completed the survey of the position in other jurisdictions,21 Gopal Sri Ram JCA made the landmark statement that "the time has arrived

4 MLJ i at viiwhen we should recognise the wider doctrine of inequality of bargaining power".22 The next question was the route the Court should take to crystallise the law upon this subject. Two alternatives were considered; first, by adopting the English doctrine of unconscionability in toto and secondly, by reading into the general equity jurisprudence the principles governing section 21 of the Specific Relief Act. However, both were found to be too narrow and the Court preferred the third alternative, that is, "to adopt the English doctrine but apply it in a broad and liberal way as in Canada"23 in order to achieve practical justice within a framework of principle.

On the facts, the Court noted that the deposit payable by the respondents was not paid but was set off against the rentals that the appellant had to pay the respondents for the leased land and more importantly, that this fact was not disclosed. This gives rise to a fair inference that the respondents were in a position of advantage. Secondly, the appellant had no separate legal advice as the solicitors who drew up the agreement were appointed by the respondents. Thirdly, the appellant's unwillingness to part with his land was shown by his lethargy in making good the title. Finally, the Court noted that the appellant did not speak English whereas the agreement is in the English language and there was no indication that the agreement had been explained to the appellant in his mother tongue.

The Court held that a judicial tribunal which has properly considered the law and the evidence would have concluded that the agreement between the appellant and the respondents was an unconscionable bargain, resulting in the agreement being unenforceable either by common law or by a decree of specific relief in equity. The appellant would have been entitled to have the suit dismissed with costs. Thus the Court allowed the appeal.

Significance ofSaad Marwi'sCase

The bold statements by the Court of Appeal in Saad Marwi's case in recognising a doctrine of inequality of bargaining power and in adopting the English doctrine of unconscionability and

Page 6

applying it in a broad and liberal way as in Canada, has brought Malaysian law nearer to the common law jurisprudence on the doctrine of unconscionability.24

4 MLJ i at viii

While the position in the United Kingdom has been less certain,25 the doctrine of unconscionability is well developed in Canada,26 and particularly in Australia where it has been used in varied situations.27

The Court's reference to both the doctrine of inequality of bargaining power and the doctrine of unconscionability in Saad Marwi's case, read literally, would mean that the Malaysian position is wider than the English position where Lord Denning's attempt to invoke the principle of inequality of bargaining power to set aside transactions in Lloyds Bank Ltd v Bundy28 was clearly rejected by the House of Lords in Westminster Bank Plc v Morgan.29 However, in Canada, Lord Denning's principle of inequality of bargaining power has remained an important element in the development of unconscionability even after its rejection in the United Kingdom. The Canadian development of unconscionability has been said to have developed in three stages;30 in the first stage, cases were decided relying heavily on traditional English and Irish authorities, in the second stage, Lord Denning's principle of inequality of bargaining power was applied as well and in the third

4 MLJ i at ixstage, notions of community standards of commercial morality were introduced.31 This has resulted in the Canadian doctrine being a fluid and flexible one, and as described by Gopal Sri Ram JCA in Saad Marwi's case, one which achieves "practical justice".

It is submitted that although the Court in Saad Marwi's case referred to both the doctrines of inequality of bargaining power and unconscionability, in essence, the Court was adopting the doctrine of unconscionability to overcome situations of inequality of bargaining positions. The authorities cited from the Commonwealth jurisdictions were cases of unconscionability including the Malaysian case cited, Fui Lian Credit & Leasing Sdn Bhd v Kim Leong Timber Sdn Bhd & Ors32 where Chong Siew Fai J (as he then was) referred to English cases on unconscionability.33 It is regrettable that in both Saad Marwi's case and Fui Lian Credit's case, no reference was made to the Federal Court decision in Loi Hieng Chiong v Kon Tek Shin.34 In this case, the respondent, an old illiterate farmer who owned a piece of land of 8.56 acres in Kuching had exchanged his land with the appellant, a land broker who owned a piece of land of 9.4 acres in Sibu. The appellant claimed to have purchased his land in Sibu for RM55,000 and the respondent signed a transfer form whereby the consideration was stated at RM55,000. The trial judge accepted a surveyor's report that the land in Sibu was worth only RM1,880. The Federal Court accepted the trial judge's findings and held that the appellant had perpetuated fraud in the exchange of the land titles. Referring to Earl of Aylesford v Morris,35 Syed Othman FJ stated that "[w]here the relative position of the parties is such as raises the presumption of an unconscientious use of power arising out of circumstances and conditions, the transaction cannot stand unless the person claiming the benefit of it is able to repel the presumption by contrary evidence proving to have been in point of fact, just and reasonable".36 The facts in Loi Hieng Chiong's case is a good example of how a doctrine of unconscionability can be well used to grant relief

4 MLJ i at xin such cases. The Federal Court's reference to such an unconscientious use of power, although brief, should be taken up to further develop the doctrine.37

The attempts to use the doctrine of unconscionability to overcome contractual unfairness is understandable in the light of the position taken against a general principle of inequality of bargaining power in Malaysia. In the early case of CM Naested v The State of Perak,38 the Court recognised the unequal bargaining position between the defendant, the Government of a state and the plaintiffs, who were a private individual and his mercantile agent claiming for refund of their monies paid to the defendant who had the power whether to grant or not to grant the plaintiff's application for land. In this case, it was held that the money was recoverable as it was paid involuntarily. Besides this early case, inequality of bargaining power has been referred to

Page 7

mainly as a factor to vitiate consent based on undue influence rather than as a ground of relief on its own. It was referred to in Datuk Jagindar Singh & Ors v Tara Rajaratnam39 where the Federal Court alluded to the differing positions between the appellants who were solicitors of the respondent and had used their professional position and social status to exercise undue influence over the respondent. In Polygram Records Sdn Bhd v The Search & Anor,40 the High Court rejected arguments based on inequality of bargaining power between a group of young artistes and their recording company on the ground that there was little judicial support for this doctrine, both in the United Kingdom and in Malaysia.41

The Aftermath ofSaad Marwi'sCase

The Court of Appeal's decision in Saad Marwi's case is surely seen by proponents arguing for fair contracts to be one of the foremost developments in Malaysian contract law. However, the opposing interest for certainty in the law has always been an important concern as well. The tension and the proper balance to be struck in relation to these two conflicting interests in contract law can be seen in another Court of Appeal decision in American International Assurance Co Ltd v Koh Yen Bee (f)42 where Abdul Hamid Mohamad JCA stated:

We do not wish to enter into an argument whether the doctrine of inequality of bargaining power or unconscionable contract may be imported to be part of our law. However, we must say that we have some doubts about it for the following reasons. First is the specific provision of s 14 of the Contracts Act

4 MLJ i at xi1950 which only recognizes coercion, undue influence, fraud, misrepresentation and mistake as factors that affect free consent. Secondly, the restrictive wording of s 3(1) of the Civil Law Act 1956, in particular, the opening words of that subsection, the cut-off date and the proviso thereto. Thirdly, the fact that the court by introducing such principles is in effect 'legislating' on substantive law with retrospective effect. Fourthly, the uncertainty of the law that it may cause.43

However, it is pertinent that having expressed the above doubts, Abdul Hamid Mohamad JCA continued as follows:

Be that as it may, there is a lot to be said for the decision of this court in Saad in view of the facts therein and the justice that the court should do. Saad is a very clear case where a farmer ... [the facts of the case was summarized]

The facts of that case clearly supports such a decision if justice were to prevail.

The facts of this case is nowhere similar to the facts in Saad. Here the respondent was an insurance agent. The contract was perfectly understood by her. It was not a one-off contract, but was subsisting for about ten years and there was no complaint by her of the terms thereof. The clause which is now challenged is applicable to both parties. If it is not unconscionable to the appellant if she exercises that right, why should it be unconscionable to her when the appellant exercises that same right?

In this kind of case, we think that the court should be slow to interfere with the freedom of the parties to contract unless it is contrary to the clear provisions of the law, in this case, in particular the Contracts Act 1950.44

It is submitted that despite the earlier doubts expressed, American International Assurance Co Ltd v Koh Yen Bee (f) has not totally rejected the decision in Saad Marwi's case. The Court's effort to distinguish the facts of the case from Saad Marwi's case shows the Court's awareness that certain fact situations may well require justice to be dispensed that can be supplied by a doctrine of unconscionability.

4 MLJ i at xii

Page 8

While the Court of Appeal's decision in Saad Marwi's case is indeed timely to overcome problems of contractual unfairness which has lacked statutory attention thus far,45 it is submitted that an incremental approach towards a more systemic development of the doctrine of unconscionability poses the main challenge. The concept of unconscionability is not new in Malaysia and the term "unconscionable" has been used in Malaysian cases. However, it has been applied in a general sense without much analysis of the necessary elements for its application.46 The concept of unconscionability is also statutorily provided in the Moneylenders Act 195147 and the Hire-Purchase Act 196748 which provide for reopening of transactions which are harsh and unconscionable. Section 21(2) of the Moneylenders Act empowers the court to reopen a transaction where the interest charged is excessive and the transaction is harsh or unconscionable or substantially unfair. Section 33(1) of the Hire-Purchase Act provide for the court to reopen a hire-purchase transaction which is harsh and unconscionable or is otherwise such that it will be just to give relief. Unfortunately, these provisions have not been well utilised due mainly to a lack of legislative guidance and the conservatism of both the courts and legal profession.

The Court in Saad Marwi's case has specifically singled out the English and Canadian doctrines in developing the doctrine of unconscionability in Malaysia. It is submitted that the development of a Malaysian doctrine of unconscionability need not be limited to these two jurisdictions, and the courts as well as the legal profession should also consider the developments in Australia. The careful analysis in the High Court's judgment in Amadio's case in restating the principles relating to unconscionable contracts and the decisions thereafter in applying the doctrine in a creative manner49 can be usefully examined for the future development of the doctrine of unconscionability in Malaysia.

4 MLJ i at xiii

1 This edited paper was originally delivered at the National University of Singapore (NUS) - University of Malaya (UM) Centennial Law Symposia "Developments in Singapore and Malaysian Law" held in Singapore on 16 April 2005. This paper will also form part of the proceedings of papers delivered by the academic staff of the Faculty of Law, University of Malaya to be published by the Faculty.

2 Act 136 (Revised 1974). Section 16(1) provides when a contract is said to be induced by undue influence; s 16(2) provides when a person is deemed to be in a position to dominate; s 16(3) deals with the burden of proof, that is, "(a) when a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that the contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other" (emphasis added). The reference to "unconscionable" in s 16(3)(a) has raised an issue whether a separate doctrine of unconscionability can arise by virtue of this section. Although the early case of Chait Singh v Budin Bin Abdullah (1922) 1 FMLSR 348 appears to suggest this possibility, the better view is that unconscionability within s 16(3)(a) is a limited concept for procedural and evidential purposes only. See Andrew Phang Boon Leong, Cheshire, Fifoot and Furmston's Law of Contract, Second Singapore and Malaysian Edition (Singapore, Malaysia, Hong Kong: Butterworths Asia, 1998) at p 533; Shaik Mohd Noor Alam SMH, "Pre-Contractual Fairness: Sections 15 and 16 of the Malaysian Contracts Act 1950" [1993] 2 MLJ cxxi-cxxx.

3 At p 103.

4 This paper will not deal with this second ground.

5 Apparently on the ground that "both parties were equally to blame for the predicament in which they found themselves." (the trial judge's words as quoted in the Court's judgment, see p 104).

6 Act 137 (Revised 1974). Section 21(1) provides that the jurisdiction to decree specific performance is discretionary. Section 21(2) provides that the court may properly exercise a discretion not to decree specific performance in, inter alia, "(a) where the circumstances under which the contract is made are such as to give the plaintiff an unfair advantage over the defendant, though there may be no fraud or misrepresentation on the plaintiff's part; and" (emphasis added).

Page 9

7 See Note 2.

8 Act 56. Section 111 provides for the proof of good faith in transactions where one party is in a relation of active confidence.

9 [1997] 1 All ER 144.

10 At p 105.

11 At p 106.

12 [1983] 151 CLR 447.

13 At p 107.

14 [1959] 52 SASR 46.

15 [1985] AC 1000. The Court referred to Lord Brightman's judgment where a distinction was made between "procedural unfairness" (a contract is unfair by reason on the unfair manner in which it was brought into existence) and "contractual imbalance" (unfairness by reason of the fact that the terms of the contract are more favourable to one party than to the other). The latter is also referred to as "substantive unfairness".

16 At p 108.

17 [1972] 32 DLR 723.

18 The Law of Contracts (Toronto: Canada Law Book Inc, 2nd ed, 1984) at pp 382-384.

19 The Court referred to Lakshminarayana v Singaravelu AIR [1963] Mad 24, Rangasami Gounder v Periamuthu Gounder [1977] 1 Mad 231, Manak Chand v Puran AIR [1960] Madh Prad 235, Davis v Maung Shwe Go [1911] LR 38 IA 155.

20 The 1877 Act has been repealed and is now replaced by the Indian Specific Relief Act 1963, see the present s 20 for the equivalent of the former s 22.

21 The Court also briefly considered the Malaysian case of Fui Lian Credit & Leasing Sdn Bhd v Kim Leong Timber Sdn Bhd & Ors [1991] 1 CLJ 522 and the dissenting judgment of an American case, United States v Bethlehem Steel Corp [1942] 315 US 289.

22 At p 114.

23 At p 115.

24 See generally, A H Angelo & E P Ellinger, "Unconscionable Contracts: A Comparative Study" (1979) 4 Otago L Rev 301-339; Steven R Enman, "Doctrines of Unconscionability in Canadian, English and Commonwealth Contract Law" (1987) 16 Anglo-Am LR 191-219.

25 While cases like Boustany v Pigott (1993) 69 P & CR 298, Credit Lyonnais Bank v Nederland, Note 8, Peter Millett QC's statements in Alec Lobb (Garges) Ltd v Total Oil Great Britain Ltd [1983] 1 WLR 173 has been used to argue for a general doctrine of unconscionability, some writers are more cautious. See for eg, J Beatson, Anson's Law of Contract (Oxford: Oxford University Press, 28th edn, 2002) at p 298, John N Adams & Roger Brownsword, Understanding Contract Law (London: Sweet & Maxwell, 3rd edn, 2000) at p 108. See also generally, Chitty on Contracts Volume 1 General Principles (London: Sweet & Maxwell, 29th edn, 2004), ch 7 'Duress and Undue Influence', particularly pp 567-575. For a local article on the English position, see Nurretina Ahmad Shariff & Zainal Amin Ayub, "Unconscionable Contracts: The Court's Approach Towards Substantive Fairness" [2003] 4 MLJ clxv-clxxvii.

Page 10

26 See cases cited in S M Waddams, "Unconscionability in Contracts" (1976) 39 Mod LR 369-393.

27 See for eg, George T Collings (Aust) Pty Ltd v HF Stevens (Aust) Pty Ltd (1991) ATPR 41-104 where the doctrine of unconscionability was successfully applied to a standard contract. See also Louth v Diprose (1992) 175 CLR 621 at 638 where a disadvantage did not arise out of personal disabilities but from a relationship where one party had been emotionally vulnerable. In this case, a gift of a house by a male solicitor to a woman was set aside on the ground that a special disability arose from "the man's extraordinary vulnerability in the false atmosphere of a crises in which he believed that the woman with whom he was completely in love and upon whom he was emotionally dependent, was facing eviction and attempting suicide unless he provided the money for the purchase of the house".

28 [1974] 3 All ER 757.

29 [1985] 1 All ER 821.

30 See Enman, Note 24.

31 See for eg, Harry v Kreutiziger (1978) 9 BCLR 166 (CA). In this case, an Indian commercial fisherman, who sold his boat to another fisherman for under one third of its value because he did not understand that his licence was attached to it, was allowed to rescind the contract. According to Lambert J A (at p 241), the single question applicable to all unconscionability cases is "whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded." This standard was later applied by the same court in Dusik v Newton (1985) 62 BCLR 1 (CA). See also Justice Beverley M McLachlin, "A New Morality in Business Law?" (1990) 16 Can Bus LJ 319-327 at p 322.

32 Note 21.

33 The Court referred to Multiservice Bookbinding Ltd v Marden [1979] Ch 84, Hart v O'Connor Note 15, Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd Note 25.

34 [1983] 1 MLJ 31.

35 (1873) 8 Ch App 484.

36 At p 35.

37 For a dfferent view, see RR Sethu, "Unconscionability Equivalent to Actual Fraud? Part 1" [1983] 1 CLJ 165-168.

38 (1925) 5 FMSLR 185.

39 [1983] 2 MLJ 196.

40 [1994] 3 MLJ 127.

41 See also earlier Malaysian cases,Societe De Etains De Bayas Tudjuh v Woh Heng Mining Kongsi [1978] 2 MLJ 267 at p 269, Yap Chee Meng v Ajinomoto (Malaysia) Bhd [1978] 2 MLJ 249 at p 251.

42 [2002] 4 MLJ 301.

43 At p 319 (emphasis added).

44 At pp 319-320.

45 As a comparative position, consider Hong Kong' s Control of Exemption Clauses Act 1990 and Singapore's Unfair Contract Terms Act (Chapter 396), both of which are similar to the United Kingdom's Unfair Contract Terms

Page 11

Act 1977 to deal with exemption clauses. Hong Kong has also enacted the Unconscionable Contracts Ordinance 1994. In Australia, the Trade Practices Act 1974 (Cth) and the New South Wales Contracts Review Act 1980 impact greatly at unconscionable conduct and at unjust contract respectively. In Europe and in the United Kingdom, the European Community's Directive on Unfair Terms in Consumer Contracts 1993 and consequently the United Kingdom's Unfair Terms in Contracts Regulation 1994 (now replaced by the 1999 Regulation) have impacted the law on unfair contracts.

46 See for eg, Tan Yan Long & Anor v Newacres Sdn Bhd [1992] 1 MLJ 289, Wee Wood Industries Sdn Bhd v Guannex Leasing Sdn Bhd [1990] 2 CLJ 1060.

47 Act 400 (Revised 1989).

48 Act 212 (Revised 1978).

49 See generally, J W Carter & D J Harland, Contract Law in Australia (Australia: Butterworths, 4th edn, 2002), ch 15 'Unconscionability', particularly pp 528-533.