Published online by Cambridge University Press: 16 January 2009
In the Court of Appeal recently, Nourse L.J. declared Credit Lyonnais Bank Nederland NV v. Burch to be “as clear a case for the setting aside of a transaction against a mortgagee as it was possible to think of”. Curiously, however, relief on the basis of Barclays Bank pic v. O'Brien was given although: (i) the relationship between the surety and principal debtor, of employee and employer, clearly falls outside that of an “emotional or sexual nature” (and no such relationship existed in fact) particularised in O'Brien as one factor giving rise to a lender's constructive notice of the transaction's potential invalidity and; (ii) the Bank twice wrote to the proposed surety advising of the unlimited nature of the charge and of the desirability of obtaining independent legal advice; moreover, (iii) there is surprising dicta suggesting that the nature and extent of the manifest disadvantage in the transaction to the surety may be so severe that, to be enforceable, the lender must not only urge independent advice, it must insist upon it, and must reasonably believe that the advice was obtained, was competent and even, that it was followed.
1. [1997] I All E.R. 144 (hereafter “Burch”).
2. Ibid, at p. 152; and Milieu L.J. proclaimed “[t]jhis transaction cannot possibly stand].
3. [1994] 1 AC. 180 (hereafter, ““O'Brien”).
4. [1992] 3 W.L.R. 593, 624; and per Scott L.J. at p. 6 20.
5. Ryan, Blomley v. (1956)Google Scholar 99 C.L.R. 362, 415.
6. See generally, Wishart, M.Chen, Unconscionable Bargains (Butterworths, Wellington, 1989).Google Scholar
7. , Hart v.O'Connor [1985] A.C. 1000, 1024.Google Scholar
8. E.g. Morrison v. Coast Finance (1965) 55 D.L.R. (2d) 710; Buchanan v. Canadian Imperial B.C. (1979) 100 D.L.R. (3d) 624; McKenzie v. Bank of Montreal (1975) 55 D.L.R. (3d) 641; Bertolo v. Bank of Montreal (1986) 33 D.L.R. (4th) 610.
9. E.g. Commercial Bank of Australia v. Amadio (1983) 46 A.L.R. 402.
10. Eg. Bayer v. Preston, Court of Appeal 253/88, 10 February 1989; Contractors Bonding Ltd v. Snee [1992] 2 N.Z.L.R. 157,173–175; Bowkelt v. Action Finance Ltd. [1992] 1 N.Z.L.R. 449.
11. See , Turner and Sutton, , Actionable Non-Disclosure (Butterworths, London 1990),Google Scholar at para 24.29 and N.Bamforth “Unconscionability as a Vitiating Factor” [1995] L.M.C.L.Q. 538.
12. Burch, at p. 146.
13. Ibid, at p. 151.
14. Ibid., at p. 153.
15. Ibid, at p. 152.
16. Substantive unfairness in its objective sense (of deviation from market value) and subjective sense (of inappropriateness of the transaction to the particular circumstance of the complainant) are discussed in M.Chen-Wishart, op. cit., n. 6, at pp. 51–56.
17. Burch, at p. 150. See also Lloyds Bank v. Bundy [1974] 3 W.L.R. 501, 509; the lack of any parity between the advantage gained by the bank from old Bundy's security and the benefit it conferred on the son's company, “a short respite from impending doom”, was noted in giving relief.
18. Ibid, at p. 152.
19. (1993) 42 W.I.R. 175, 180.
20. Wishart, M.Chen, op. cit., n. 6. See also S.M. Waddams, “Unconscionability in Contracts” (1976)Google Scholar 39 M.L.R. 369; Atiyah, P.S., “Contract and Fair Exchange” in Essays in Contract Law (Clarendon, Oxford, 1986) 329;Google ScholarCollins, H., The Law of Contract (Butterworths, London, 2nd ed. 1993),Google Scholar ch. 11; Eisenberg, M., “The Bargain Principle and its Limits” (1982)Google Scholar 95 Harvard L.R. 74; Beale, H., “Inequality of Bargaining Power” (1986)Google Scholar 6O.J.L.S. 123.
21. This terminology is used in O'Brien [1994] 1 A.C. 180, 190.
22. Burch, at pp. 154–155 (emphasis added).
23. Ibid,.atpp. 150, 152.
24. C.I.B.C.v. Pitt [1993] 4 All E.R. 433.
25. See , Birks and Chin, , “The Nature of Undue Influence” in , Beatson and , Friedmann (eds.), Good Faith and Fault in Contract Law (Oxford 1995)Google Scholar 57, pp. 63ff.
26. O'Brien, at p. 196.
27. Burch, at p. 155. Recorder Harrod, Nourse and Swinton Thomas L.JJ. also adopt this reasoning.
28. O'Brien, at p. 198 (emphasis added).
29. That the Bank may have surmised, from Burch's letter, that she had discussed the matter with Pelosi, and may have noticed that her letter appeared to have been typed or printed on the same instrument as his letter to it of the same date.
30. Burch, at p. 155.
31. Ibid, at p. 158; and Nourse L.J., at p. 151.
32. O'Brien, at p. 196.
33. Ibid., at pp. 196–197.
34. Bank of Baroda v. Rayarel [1995] 2 F.L.R. 376, Midland Bank v. Kidwai [1995] 4 Bank L.R. 303.
35. E.g. Thornton v. Shoe Lane Parking Ltd. [1971] 1 All E.R. 686 and Interfolo Picture Library Ltd. v.Stiletto Visual Programmes Ltd. [1988] 1 All E.R. 348.
36. Burch, per Nourse L.J., at p. 152, per Millett L.J., at p. 155 and per Swinton Thomas L.J., at p. 158.
37. Ibid., at p. 155 (emphasis added).
38. Ibid, at p. 155.
39. As in B.C.C.I. v. Aboody [1990] 1 Q.B. 923, 952.
40. See Bank of Montreal v. Stuart [1911] A.C. 120, 137 in which serious substantive unfairness to the surety wife (she was described as “absolutely cleaned out”) triggered relief despite a refusal to obtain advice. “She says she acted of her own free will…and that she would have scorned to consult anyone…Her declarations…shew how deeprooted and how lasting the influence of her husband was.”
41. Burch, at pp. 156–157.
42. Ibid., at p. 157.
43. Ibid.
44. Ibid., at p. 156; and see note 40 above.
45. Ibid., at p. 155.
46. Ibid, at p. 155, expressed as a question of where the surety's interests lie in preserving the relationship with the debtor and the prosperity of the family. This extremely controversial question involves value judgements on how far the independent interests of individuals can, and should, be assessed apart from collective interests. Nevertheless, Purchas L.J. recognised in Barclays Bank v. Kennedy [1989] 1 F.L.R. 356, 369 that manifest disadvantage should not be negatived simply because the surety may stand to benefit vicariously from the debtor's business dealings.
