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THE NARROW, BROAD AND MIDDLE GROUNDS: THE MUDDLED DOCTRINE OF UNCONSCIONABILITY
TOH DING JUN*
I.
INTRODUCTION: BOM V BOK
In 2018,
the Singapore Court of Appeal (“SGCA”) in BOM v BOK[1]confirmed
that the doctrine of unconscionability formed part of the law in Singapore.[2] To this end, the SGCA stated that for
the doctrine of unconscionability to be invoked, the plaintiff must show:
1. That he was suffering from an infirmity; and
2. That the infirmity was exploited by the other party exploited in procuring the transaction.[3]
Once the
plaintiff has satisfied the requirements, the burden then shifts to the
defendant to show that the transaction was fair, just and reasonable.[4] To this end, the court will
invariably consider, inter alia, whether:
1. Whether the transaction was at an undervalue; and
2. Whether the plaintiff had received independent legal advice.[5]
The SGCA
stated that this approach was a modification of the ‘narrow’ doctrine of
unconscionability that was first espoused by the House of Lords in Fry v
Lane[6] and Cresswell v Potter[7].[8] In doing so, the SGCA stressed that
the approach to be adopted in Singapore was not the ‘broad’ doctrine of
unconscionability adopted by the Australian courts.[9] In other words, it would seem that
the SGCA was adopting a ‘middle’ ground to the doctrine of unconscionability.
However, this leads to the question—what exactly is this ‘middle’ ground?
In this
article, it is submitted that the difference between the ‘broad’ and ‘middle’
grounds is more apparent than real. Further, it will be argued that the court
ought to take a broader approach to invoking the doctrine of unconscionability,
which could include situational infirmities such as emotional dependence and
infatuation.
II. THE ORIGINAL NARROW DOCTRINE OF UNCONSCIONABILITY
At this
stage, it is apposite to briefly state the ‘narrow’ doctrine of
unconscionability that was originally conceptualised by the English courts to
prevent expectant heirs from being exploited and deprived of their
inheritances.[10] The ‘narrow’ doctrine involves the
consideration of three requirements:
1. Whether the plaintiff is poor and ignorant;
2. Whether the sale was at a considerable undervalue; and
3. Whether the vendor had independent advice.[11]
By
accepting that the plaintiff may have other forms of infirmities besides being
poor and ignorant, the SGCA has certainly broadened the doctrine of
unconscionability from its ‘narrow’ beginnings.[12] However, the question remains—what is
the scope of the doctrine of unconscionability as espoused by the SGCA? This is
a question we now turn to.
III. THE ‘BROAD’ DOCTRINE ADOPTED IN AUSTRALIA
The
position as adopted in Australia will be discussed first, followed by Singapore’s
latest position in BOM.
The SGCA
in BOM used the High Court of Australia (“HCA”) decision of
Commercial Bank of Australia Limited v Amadio[13]
to exemplify the ‘broad’ doctrine of unconscionability. Briefly, this ‘broad’
doctrine of unconscionability requires the plaintiff to prove that [“Amadio
formulation”]:
1. He was “…under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them…”[14]; and
2. “…[T]hat the disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure[d], or accept[ed], the weaker party’s assent to the impugned transaction…”.[15]
Once these
elements were established by the plaintiff, the onus is then on the defendant
to show that the transaction was fair, just and reasonable.[16]
Further,
the HCA emphasised that a mere difference in bargaining power of the parties
was ipso facto insufficient to invoke the doctrine of unconscionability.
As Mason J put it:
I qualify the word “disadvantage” by the adjective “special” in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to [emphasise] that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.[17]
Two points
can be distilled from this quote:
1. There is a standard of “special” disadvantage, presumably taken from the objective person’s point of view, ie it must be “special” in the circumstances, presumably taken from a reasonable man’s standpoint.
2. The content of this standard is that the condition or circumstance must have “seriously” affected the ability of the innocent party to protect his own best interests.
Seen in
this light, it is puzzling as to why the SGCA rejected this ‘broad’ doctrine on
the basis that “it affords the court too much scope to decide on a subjective
basis”[18], because it comes dangerously close
to empowering the court to subjectively decide whether there was an inequality
of bargaining power as between the parties.[19] This seems to go against the express
wording of the judgment, as made by Mason J, where he stated that the
inequality of bargaining power must have arose from the “disabling condition”
of the weaker party, and must have “seriously [affected]” the weaker party’s
ability to make a judgment as to his best interests.[20] It is submitted that Mason J’s words suggest
that the courts have an objective standard to guide its inquiry into
whether there was an inequality of bargaining power for the purposes of
invoking the doctrine of unconscionability – that of a “disabling condition”
which “seriously affects” the innocent party’s ability to make a judgment as to
his own best interests. Indeed, it is submitted that where the disadvantage
merely amounts to inequality in bargaining positions seen in the normal course
of business, the innocent party’s ability will not be said to be “seriously
affected” such that the doctrine of unconscionability can be invoked.
Moreover,
it is unclear as to why the SGCA was concerned with the “subjectivity” of the ‘broad’
doctrine of unconscionability. When the HCA applied the law to the facts of Amadio,
Deane J stated:
[T]he result of the combination of their age, their limited grasp of written English, the circumstances in which the bank presented the document to them for their signature and, most importantly, their lack of knowledge and understanding of the contents of the document … [the plaintiffs] lacked assistance and advice where assistance and advice were plainly necessary if there were to be any reasonable degree of equality between themselves and the bank.[21]
As stated
in the Amadio formulation, the court is to determine the inequality of
bargaining power through the lens of what is reasonable in the circumstances
that the transaction was completed (ie “reasonable degree”).[22] This has since been suggested to be a
comparison of the relative disparity between the positions of the stronger and
weaker party rather than focusing upon the inherent weakness of the latter.[23]
If this is true, it seems to suggest an objective test being used, where the
“relative disparity” is seen from a third party’s point of view, with the third
party necessarily objective and neutral. Again, this is certainly not a
subjective test which the SGCA was concerned would lead to uncertainty in
contract law.[24]
Further, it
is submitted that the use of the term “plainly necessary”[25] fortifies the opinion that a
reasonable man standard was used by the HCA in establishing the first element
to the Amadio formulation. In other words, it is submitted that the HCA
was suggesting that any reasonable person not party to the transaction would
have known that, without assistance and advice, there would not be any
reasonable degree of equality between the parties. To conclude, and with due respect,
it is submitted that had the SGCA considered the position in Amadio in
this light, the Amadio formulation may have well been adopted in
Singapore.
IV. THE POSITION IN SINGAPORE: DIFFERENCE MORE APPARENT THAN REAL?
It is also
submitted that the doctrine of unconscionability may be similar, if not the
same, in both Singapore and Australia. Briefly, there are three reasons why
this may be so:
1. In both jurisdictions, the doctrine of unconscionability is primarily concerned with procedural fairness and not substantive fairness.
2. Prima facie, both jurisdictions seem to accept the same range of infirmities or special disabilities.
3. In both jurisdictions, the evidential burden of proof is shifted to the defendant once the plaintiff has made out a prima facie case of unconscionability.
First, it
is submitted that the focus of the inquiries in Australia and Singapore is on
procedural fairness as opposed to substantive fairness. In BOM, the SGCA
held:
We stress that the absence of independent advice and the characterisation of a transaction as being at an undervalue are not mandatory elements to be satisfied … However, as this case demonstrates, the presence of these factors will often underscore and highlight the exploitation of an infirmity that renders a transaction improvident.[26]
In an
article, Professor Rick Bigwood wrote:
[T]he Australian doctrine is purely procedural in its focus, [with] substantive unconscionability serving merely an important forensic role, namely, ‘as supporting the inference that a position of disadvantage existed’, and also ‘as tending to show that an unfair use was made of the occasion’.[27]
As such, it
can be seen that both the ‘broad’ and ‘middle’ grounds of unconscionability are
primarily concerned with procedural unfairness, with the SGCA making it clear
that an undervalue only goes to “underscore and highlight the exploitation of
an infirmity”[28], rather than ipso facto allowing the doctrine of unconscionability to
be invoked.
Second,
while different terms were used by the SGCA and HCA, ie “infirmities”
and “special disability” respectively, it would seem that both courts had the
same definition in mind. In BOM, the SGCA stated:
[I]n addition to considering whether or not the plaintiff is poor and ignorant, we would also include situations where the plaintiff is suffering from other forms of infirmities – whether physical, mental and/or emotional in nature … [The infirmity] must have been of sufficient gravity as to have acutely affected the plaintiff’s ability to “conserve his own interests” … Such infirmity must also have been, or ought to have been, evident to the other party procuring the transaction.[29]
Similarly,
in Amadio, the HCA stated:
The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued … [They include] poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance of explanation is necessary …[30]
It bears
mentioning that the definition of “special disability”, as stated by the HCA,
is intended to be non-exhaustive.[31] Likewise, it seems that the SGCA left
the categories of “infirmities” broad. As such, it is submitted that the list
of specific “special disabilities”, as stated by the HCA, could very well be mapped
onto the broad categories stated by the SGCA. For example, the concepts of
“age” and “sex”, as espoused by the HCA, could very be placed under the broad
categories of “physical” or “emotional”. Likewise, the idea of “drunkenness”
may well be categorised under “emotional” or “mental”. In other words, there
exists an argument that the list of infirmities as stated by the SGCA may be as
broad as the position taken by the HCA. To this end, we will now discuss the
boundaries of what constitutes an “infirmity”.
V. INFATUATION: WHAT SHOULD SINGAPORE’S POSITION BE?
With
regards to the criterion of “infirmity”, it would seem that both the courts and
academics have drawn a distinction between “situational infirmities” and “constitutional
infirmities”.[32]
As noted
by Le Miere J in Warren v Lawton (No 3)[33]:
I use the descriptions constitutional and situational disadvantage to distinguish between disadvantages which are inherent characteristics of a person, for example, lack of intelligence, infirmity and illiteracy – and disadvantages which arise because of the circumstances in which an otherwise normal and ordinary person finds herself.[34]
Further, as
noted by Professor Burton Ong:
The SGCA’s choice of the noun “infirmity” to describe the disadvantageous position of the weaker party appears confined to a limited range of constitutional qualities personal to him or her. It would probably not be enough, for example, to plead vulnerability on the basis that a party faced difficult circumstances in his personal life (ie, a situational disadvantage) …[35]
Furthermore, not every constitutional disadvantage is likely to be regarded as an “infirmity” for the purposes of the Singapore doctrine of unconscionability … it is far from certain whether “infirmity” would cover a foolish, naïve or immature individual … who has entered into a bad bargain.[36]
One such “situational
infirmity” immediately comes to mind—emotional dependence arising out from an
intimate relationship, or infatuation, as accepted by the HCA in Louth v
Diprose[37].
Indeed, at
the boundaries of the doctrine of unconscionability lies the “situational infirmity”
of emotional dependence and infatuation. This area of the law is fraught with
much difficulties because courts are generally ill-equipped to determine the
emotional state of parties to the impugned transaction.[38] Indeed, it is likely that the weaker
party will find it hard to furnish scientific evidence to the courts to
establish his “emotional weakness” at the time when the transaction was
completed.
Further, as
noted by the dissenting judgment given by Toohey J in Louth:
The [weaker party] was well aware of all the circumstances and of his actions and their consequences … That knowledge and his clear appreciation of the consequences of what he was doing run directly counter to a conclusion that he was suffering from some special disability or was placed in some special situation of disadvantage. It is clear that the respondent was emotionally involved with the appellant. But it does not follow that he was emotionally dependent upon her in any relevant legal sense.[39]
Admittedly,
there is certainly much force in this statement. Why should the law intervene
to vitiate a transaction where parties are fully aware of their what they are
doing, notwithstanding that there may be certain situational disadvantages? After
all, inequality in bargaining position may very well make the weaker party ‘feel’
as if he needs the transaction to be completed more than the stronger party ie,
emotional pressure. Seen in this light, a strong argument exists against
allowing “emotional weakness” to be seen as an “infirmity”. In other words, a
person may be “emotionally weak” in the factual sense but is taken as a
normal person in the legal sense, when the court determines whether the
doctrine of unconscionability should be invoked.
However,
this cannot be right, and it is submitted that situational infirmities should
be considered as an “infirmity” for the purposes of invoking the doctrine of
unconscionability. The kernel of the doctrine of unconscionability lies in the
element of exploitation, where the stronger party exploits the weaker party’s
infirmity, with the actual or constructive knowledge of that infirmity.[40] As such, it should follow that the
law should not allow the stronger party to keep any gains he received from the
transaction, notwithstanding that the “infirmity” exploited is a situational
infirmity and not a constitutional one. In other words, where an offeror intentionally
manipulates and exploits the offeree’s emotions and the
prevailing situation, knowing that the offeree has a certain emotional weakness
vis-à-vis him or her, the transaction should be vitiated.
Further, perhaps
the Singapore courts should not be overly concerned with limiting the list of
legally acceptable “infirmities” for the purposes of the doctrine. As the SGCA
rightfully noted:
The inquiry [into the weaker party’s infirmity] … would, of course, be an intensely fact-sensitive one … [The infirmity] must have been of sufficient gravity as to have acutely affected the plaintiff’s ability to “conserve his own interests” …[41]
As such,
it is submitted that the list of “infirmities” should not be limited or
restricted. In the context of “emotional weakness”, it is submitted that there
is conceivably a myriad of situations where emotional manipulation or
exploitation may take place in, and which would not attract the doctrines of
duress or undue influence eg, emotional manipulation of one party by
another over cyberspace.
It is
further submitted that fears of contractual uncertainty, arising from a broad
conception of “infirmity”, are misplaced because:
1. Such an “infirmity” must still be proven by the plaintiff to have acutely affected his ability to conserve his own interests; and
2. The court is entitled to consider other factors such as, inter alia, the presence of independent legal advice and the entire factual matrix in which the transaction took place in.
Ultimately,
this gives effect to both certainty, in the sense that parties know for certain
that they want to partake in the transaction, and fairness, in the sense that
nobody should be allowed to manipulate and exploit others beyond what is
reasonably acceptable in commercial or domestic negotiations.
VI. CONCLUSION
In
conclusion, it is submitted that, for the foregoing reasons established in this
article, the Armadio formulation of the doctrine of unconscionability
and the conception of the doctrine as espoused by the SGCA in BOM are
more alike than initially thought. To recapitulate:
1. It is submitted that the SGCA was mistaken in its belief that adopting the Armadio formulation would introduce greater subjectivity into the doctrine of unconscionability. This possibly led to fears of greater contractual uncertainty.
2. Additionally, it is worth noting that the ‘broad’ conception of the doctrine was objectively applied by the HCA in Armadio.
3. Seen in this light, the ‘middle’ ground, as stated by the SGCA resembles the ‘broad’ ground espoused by the HCA. While different terms may have been used, it is submitted that the difference is more apparent than real.
4. To this end, it is submitted that the Singapore courts should interpret the term “infirmity” broadly because the doctrine of unconscionability is fundamentally concerned with exploitative conduct on the stronger party’s part.
* Third Year Student, Faculty of Law, National University of
Singapore.
[1] [2019] 1 SLR 349 (CA) [BOM].
[2] Ibid at para
114.
[3] Ibid at para 142.
[4] Ibid.
[5] Ibid.
[6] (1888) 40 Ch D
312.
[7] [1978] 1 WLR 255.
[8] BOM, supra note 2 at para 141.
[9] Ibid at
para 144.
[10] Ibid at
para 127.
[11] Ibid at para 130.
[12] Ibid at para 141.
[13] (1983) 46 ALR
402 (HCA) [Amadio].
[14] Ibid at 422.
[15] Ibid.
[16] Ibid.
[17] Ibid at 413.
[18] BOM, supra note 1 at para 133.
[19] Ibid at paras 133, 134.
[20] Amadio, supra note 13 at 413.
[21] Ibid at
425.
[22] Ibid.
[23] Burton Ong, “Unconscionability,
Undue Influence and Umbrellas: The “Unfairness” Doctrines in Singapore Contract
Law After BOM v BOK” [2020] SJLS 295 at 307 [Ong, Unconscionability].
[24] BOM, supra note 2 at para 121.
[25] Amadio, supra
note 11 at 425.
[26] BOM, supra note 1 at para 155.
[27] Rick Bigwood, “Knocking
Down the Straw Man: Reflections on BOM v BOK and the Court of Appeal’s
“Middle-Ground” Narrow Doctrine of Unconscionability for Singapore” [2019] SJLS
29 at 47.
[28] BOM, supra note 1 at para 155.
[29] BOM, supra note 1 at para 141.
[30] Amadio, supra
note 13 at 423.
[31] Ibid.
[32] Ong, Unconscionability, supra note 23 at 306.
[33] [2016] WASC 285.
[34] Ibid at para 158.
[35] Ong, Unconscionability, supra note 23 at 306-307.
[36] Ibid at 307.
[37] (1992) 110 ALR 1
(HCA) [Louth].
[38] Chong Yee Ka v Public Prosecutor [2017] 4 SLR 309 (HC) at
paras 55-56, where the court there noted that “psychiatry is an inexact
science” and that it would generally be acceptable for different psychiatrists
to have different expert opinions. Further, see Ngiam Kong Seng v Lim Chiew
Hock [2008] 3 SLR(R) 674 (CA) at para 97, where the court recognised that
the “recognised psychiatric illness” requirement at the threshold stage of the Spandeck
test was “more easily stated than ascertained”.
[39] Louth, supra note 38 at 28.
[40] BOM, supra note 1 at para 141.
[41] Ibid.