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Unconscionable Transactions

Unconscionable Transactions | Disinherited Vancouver

The Supreme Court of Canada in the decision Norberg v Wynrib (1992) 2 SCR 226 reviewed the law relating to unconscionable transactions. The Norberg decision involved a family doctor who prescribed drugs to an addict in return for sexual services.

An unconscionable transaction arises in contract law where there is an overwhelming imbalance in the power relationship between the parties – Morrison v Coast Finance LTD (1965) 55 DLR (2d) 710 BCCA where at paragraph 713 the court outlined the factors to be considered in the claim of unconscionability:

“ A plea that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscious use of power by a stronger party against a weaker.

On such a claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates a presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable”

In the English decision Lloyds Bank LTD the Bundy (1975) QB 326 the English court took a wider approach and develop the general principle of “inequality of bargaining power”:

“ I would suggest that through all these circumstances ie duress of goods, unconscionable transactions, undue influence, undue pressure, salvage agreements, the runs a single thread. They rest on inequality of bargaining power. By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair or transfers property for consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences are pressures brought to bear on him by or for the benefit of the other. When I use the word “undue”  I do not mean to suggest that the principle depends on proof of any wrongdoing. The one who stipulates for an unfair advantage maybe move solely by his own self-interest, unconscious of the distress he is bringing to the other. I have also avoided any reference to the will of the one being dominated or overcome by the other. One who is an extreme need may knowingly consent to most improvident bargain, so it to relieve the streets in which he finds himself. Again, I do not mean to suggest that every transaction is saved by independent advice, but in the absence of it may be fatal.”

An inequality of bargaining power may arise in a number of ways. A person may be intellectually weaker by reason of the disease of the mind, economically weaker or simply situationally weaker because of temporary circumstances. Alternatively, the weakness may arise out of a special relationship in which trust and confidence has been reposed in the other party. The comparative weakness or special relationship is in every case, the fact to be true than. As the last sentence of this passage suggest, the circumstances of each case must be examined to determine if there is an overwhelming imbalance of power in the relationship between the parties.

It may be argued that an unconscionable transaction does not, in fact, vitiate consent: the weaker party retains the power to give real consent that the law nevertheless provides relief on the basis of social policy. This may be more in line with the formulation of inequality of bargaining power in the Lloyds Bank LTD decision, where one takes into account his statement that it is not necessary to establish that the will of the weaker party was dominated or overcome by the other party. But whichever way one approaches the problem, the result is the same: on grounds of public policy, the legal effectiveness of certain types of contracts will be restricted or negated. In the same way, in certain situations, principles of public policy will negate the legal effectiveness of consent in the context of sexual assault. In particular, in certain circumstances, consent will be considered legally ineffective if it can be shown that there was such a disparity and the relative positions of the parties of the weaker party was not in a position to choose freely.

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