Source: http://salmankhurshid.com/unconscionability-in-contract/
Timestamp: 2019-04-24 08:28:09+00:00

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(1)	Penalties and Forfeiture clauses.
(2)	The latest child of Equity?
(3)	Imprudent bargains and unequal bargaining positions.
(7)	Remedies and the problem of adjudication.
(5)	mistake, subject to the provisions of Sections 20, 21 and 22.
Consent is said to be caused when it would not have been given but for the Existence of such coercion, undue influence, fraud, misrepresentation, or mistake.
Even though the contract is defined in terms of consent free of the above mentioned ingredients, Section 19 makes the agreement voidable at the instance of the party whose consent was so obtained.
(1)	A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other, and uses the position to obtain an unfair advantage over the other.
(b)	where he makes a contract with somebody whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.
(c)	where 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 such contract was not induced by undue influence shall lie on the person in a position to dominate the will of the other.
The illustrations that follow the main text of the section are very interesting. Two might be contrasted profitably.
(a)	A, having advanced money to his son B, during his minority, upon Bs coming of age obtains, by misuse of parental influence, a bond from B for the greater amount than the sum due in respect of the advance. A employs undue influence.
(b)	A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.
It would seem that the ambit of this section is limited to the doctrine of undue influence as it appears in English cases and does not include a wider principle that Lord Denning argued for in Lloyd's Bank v. Bundy. Then again all the concepts in the Act can be seen in terms of the conventional remedies within the law of contract. These will for the present be referred to as the Conceptual Remedies since they are related to the concept of agreement and contract. But as the illustration (g) above shows these remedies are severely limited. Clearly (g) is meant to cover economic duress which though it has some echoes of common law duress, cannot be put into the same categories. The reason is that in such a case there is conceptually an agreement. If one wishes to prevent injustice one has to look elsewhere. Public policy is too vague a notion to adequately meet the requirements of a comprehensive argument for justifying interference with perfectly good contracts that have got past the obstacles in the region of conceptual remedies. More important than the justificatory element is the ability of the argument to become the foundation for monitoring the efficacy of any purported interference. American research in this area suggests that a naÃ¯ve faith in fairness of striking at Oppressive bargains might have disastrous consequences for those whom the courts wish to protect in the first place. Difficult problems about risk allocation and price equilibrium cannot be ignored. The distinction between genuine unconscionability and the consequences of optimal risk allocation is often very difficult to make and all too easily overlooked. The Official Comments to article 2-302 of the US Uniform Commercial Code, which lays down a general doctrine of unconscionability, seek similarly to limit the doctrine: The principle underlying the section is one of prevention of oppression and undue surprise and not of disturbance of risks because of superior bargaining power. Shifting (post facto) the stipulated risk position is likely to have socially harmful results. (see Harbutts Plasticine).
In the UCC the terms unconscionability or unconscionable are left undefined. There is is no indication (express) as to the specific ingredients of the doctrine. Karl Llewellyn, the principal draftsman of section 2-302, said the unconscionable provisions of the UCC will lead appellate courts into a machinery for striking down where striking down is needed ¦. But the section does not provide the machinery; it merely leads the courts towards the machinery the courts themselves must create. The thought here is that requiring the courts to create their own standards of unconscionability will result in more predictability and allow them to develop the law in accordance with the needs of society. The courts will then be able to set their own standards for unconscionability and can decide subsequent cases on precedent instead of interpretation of statutes. If the draftsmen of the section had supplied a detailed definition of the word, the development of the case law would most likely have been choked off. The draftsmen probably came to the conclusion that with the continuing development of our economic system and the changing ideas, concepts, and values that accompany it, the law must be free to evolve at the same time. The easiest way to allow this is by not restricting the courts with rigid definitions and tests which may envelop only certain contingencies, but to give the courts a broad and flexible standard with which to work.
The situation must be quite familiar to students of Restitution and its component of unjust enrichment. To a large extent the problems of adjudication are similar in the two areas. But of course there are some important differences as well. The concept of unjust enrichment has been recognized as the unifying factor and the basis of restitutionary remedies given in such diverse areas as mistake, waiver of tort, breach of fiduciary duty etc. However, even Goff and Jones seem to rely on the intuitive meaning of the term unjust enrichment rather than provide a comprehensive definition. On the other hand there are pockets of unconscionability law where the term is used with a precise meaning, e.g. Mortgages, Bargains with expectant heirs, secret trusts. At the same time there is no common thread running through the areas of unconscionability already identified so that it might become possible for the courts to extend it to its logical conclusion, thereby rationalising and integrating the law. Lord Denning attempted to establish such a thread in Lloyds Bank v. Bundy in stating that all the traditional defences to contract enforcement, for example, duress, undue influence, breach of fiduciary duty, were properly seen as merely exemplary of a general doctrine of inequality of bargaining power. The House of Lords had an opportunity in Macaulay v. Schroeder Publishing to endorse Lord Dennings view unequivocally but they preferred to work the ground gradually. Unconscionability was not given independent status but it was also not rejected in a preemptory manner as was the fate of unjust enrichment in another case.
In terms of the judicial philosophy brought to bear on Macaulay, the judgment of Lord Diplock is particularly instructive. At the outset, his Lordship was prepared to categorise the contract as a contract in restraint of trade and therefore within one of those limited categories of contractual promises in respect of which the courts will retain the power to relieve the promisor of his legal duty to fulfill. For at least four reasons it would seem unwise to construe this limitation too literally. Firstly, because his reasoning has no unique applicability to restraint of trade cases. Second, in the Court of Appeal in Macaulay Russell LJ, in trying to sort out the earlier case law as to what contracts technically fall within the rules relating to restraint of trade, said that rather than attempt classifying some situations involving restrictions on trade as restraint of trade and other situations as not, we would prefer a quite general approach to all such situations. We are not ¦. afraid that that would lead to litigious abuse. Third, Lord Reid in the House of Lords said that the contract to provide exclusive services is not normally within the doctrine of restraint of trade but nevertheless if contractual restrictions appear to be unnecessary or to be reasonably capable of enforcement in an oppressive manner, then they must be justified before they can be enforced. Fourth, in a later and similar case, Clifford Davis Management v. W.E.A. Records, Denning MR cited approvingly Lord Reid as to the irrelevance of the restraint of trade categorisation and proceeded to construe the judgment of Lord Diplock as supporting the principle of unequal bargaining power. It might be useful to point out that the public policy element in restraint of trade was clearly kept separate from the enquiry about the nature of the transaction inter parties.
(3)	To arrive at the juridical nature of the doctrine and the consequent remedy (remedies?). Here it will be necessary to distinguish what have above been called the conceptual remedies in contract.
(7)	To look if possible at the consumer legislation like the Unfair Contract Terms Act and comment upon its protective techniques in light of the conclusions reached above.
1.	See Taylor Fashions Ltd. v. Liverpool Victoria Friendly Society 251 EG 159, Ch. D.
2.	Slator v. Nolan (1876) 11 ER Eq 367.
Earl of Chesterfield v. Janssen 28 ER 82.
Lanchire Loans v. Black (1934) 1 KB 380.
Evans v. Llewellin (1987) 1 Cox C.C. 333.
Fry v. Lane (1888) 40 Ch D 312.
Lakshmi Amma v. T.N. Bhatta (1970) 3 SCC 159.
Rajah Kokahm Singh v. Rajah Rup Singh IC (1893) 20 IA 127.
3.	Malhotra v. Union of India AIR 1976 (J&K) 41.
4.	Lloyds Bank v. Bundy (1974) 3 VER 757.
Clifford Davis Management v. WEA Records L 1975 1 AER 237.
5.	Yooman Credit Ltd. v. Apps (1982) QB 508.
710; Unfair Contract Terms Act 1977.
6.	Inche Noriah v. Shaik Allie AIR 1929 (IC) 3 Raghunath Prasad v. Sarju Prasad (1923) 51 IA 101.
7.	See section on Vocabulary of Unconscionability, post.
8.	(1920) 1 QB 447. And see Shell U.K. v. Lostock Garage (1976) 1 SLR 1187.
9.	See Coote, Exemption Clauses, pp. 4-14.
10.	See Saxena, (1974) JILI Vol. 16 at 187.
11.	(1980) 1 AER 198.
12.	ibid., and Russey v. Palmer (1972) 3 AER 744.
13.	Motilal Padampat Sugar Mills v. The State of U.P. AIR 1979 SC 621.
19.	See Law Commission of India, Report No. 13, Gajanan v. Madan AIR (1942) Bom 302.
20.	Section 16, Indian Contract Act, 1872. Kesavuhu v. Arithulai Ammal LLR 36 Mad 533.
22.	(1956) 1 AER 256; (1947) KB 130.
23.	(1975) 3 AER 865.
25.	Dunlop Pneumatic Tyre Co. v. Selfridge (1915) AC 847.
See also N.Z. Shipping Co. v. A.B. Satterthwaite (1974) AER 1015.
27.	ILR 5 Cal 669 (1880).
29.	Reported in Smiths Leading Cases.
29A.	Laurie & Forewood v. Dudin & Sons. (1926) 1 KB 223.
30.	ILR 29 Bom 580 (1905).
32.	1861-73 AII ER Rep. 384.
34.	(1952) 3 SCR 43.
36.	Banister v. Banister (1948) 2 AER 133.
37.	Raddison v. Alderson (1883) 3 App Cas 467.
38.	But see supra, n. 23.
39.	AIR 1961 Puj. 314.
40.	AIR 1968 SC 599.
43.	AIR 1976 J&K 41.
44.	(1972) 3 SCR 711.
46.	(1974) 1 SCR 575.
47.	AIR 1971 SC 1021.
48.	(1968) 2 SCR 366.
52.	But see post, nn 53 & 54.
FOOTNOTES 1.	A general discussion on public policy will be found in Ch. I, supra.
4.	Damenant v. Hurdis (1958) Moore KB 576.
5.	(ISIS) AC 59, 77.
6.	Atiyah, The Rise and Fall of the Freedom of Contract'.
7.	Nordenfelt v. Maxim “ Nordenfelt Guns and Ammunition Co. (1894) AC 535, 553. per Lord Herschell.
8.	Jansen v. Driefontein Consolidated Mines (1902) AC 491.
9.	See R. Devorkin, Liberalism'in Hampshire ed. Private and Public Morality.
10.	Astley v. Reynolds (1731) 2 Str 915; Williams v. Bayley (1866) LR 1 H.L. 200; North Ocean Shipping Co. Ltd. v. Hysindan Construction Co. Ltd. (1978) 3 AER 1170.
11.	Butterwworths, (1971) Ch. 11.
11A.	The model represents in Petrofina v. Martin (1966) 1 Ch 146, 181 an excellent exposition by Diplock L.J.
12.	(1974) 3 AER 616.
13.	Bigos v. Bonsted (1951) 1 AER 92.
14.	Shaw v. Groom (1970) 2 QB 504. See also Belvoir Finance Co. v. Stapleton (1971) 1 QB 210; C.J. Hamson, 10 CLJ 249; B. Coote (1972) 35 MLR 38.
15.	(1933) A11 ER Rep. 349.
16.	(1966) 3 AER 384.
19.	Ibid. The Judgment of the Court of Appeal (delivered by Jenkins LJ) is not a model of clarity and consistency. The court said it was deciding the case on the reasonableness of the agreement in the interests of the parties (both being employers) it was obviously considering the reasonableness from the point of view of the employees.
20.	This is Hyedon's view at p. 267. But according to him the aggregate of the equivalent private interests of the employees was also involved.
23.	The Restrictive Trade Practices Act 1956 and 1968 and the Fair Trading Act 1973 provide a comprehensive attack on agreements which benefit the parties but may prejudice third parties. The Acts specify certain agreements that have to be registered with the Director General of Fair Trading. They are then brought before the Restrictive Practices Court to have their validity determined.
24.	(1913) AC 781, 795.
25.	(1967) 2 WCR 871.
26.	That aspect of Esso v. Harper has been discussed in a later section on Mortgages.
30.	(1711) I.P. Wms 181; 24 ER 347.
31.	At this stage the phrase oppressive bargain is being used as pragmatic shorthand for the doctrine of unconscionability. The doctrine itself is made up of two essential parts “ procedural and substantive oppression. A detailed discussion will be found in the section on Vocabulary'in Ch I and Ch IV.
32.	(1969) 1 WLR 116.
34.	There are echoes of this in the area of mortgages. The attitude has crystallized at the core with the rule about inviolability of the equity of redemption.
42.	(1974) 3 AER 616.
44.	Ibid., at	emphasis added.
45.	No serious attempt shall be made to answer the question at this stage though the preference for the semantic approach will be obvious. In a later section on Mortgages the question will be discussed in some detail.
47.	Supra, n. 7, and see Heydon, op. Cit., at p. 78, n. 1.
48.	(1920) 3 KB 571.
49.	Ibid., at 581; emphasis added.
50.	(1837) 6 A & E 438.
51.	(1916-17) AER Rep. 396.
54.	(1933) ACL ER Rep 349.
55.	(19666) 3 AER 384.
56.	Supra, n. 52, emphasis added.
56.	(1917) 1 KB 305.
58.	(1928) AER 396, emphasis added.
60.	(1974) 3 AER 616.
61.	(1975) 1 AER 237.
63A.	(1966) 1 Ch 146, 190.
64.	(1414) 2 Hen 5, Pasch. pl. 26.
65.	(1711) 1 P. Wms 181.
66.	(1913) AC 724, 745-6.
67.	(1920) 3 KB 571.
68.	(1554) 2 AER 266.
69.	(1965) 1 QB 623.
70.	(1970) 1 AER 1227.
71.	(1977) 1 AER 481.
72.	A.G. of Australia v. Adelaide SS Co. (1913) AC 781; Esso Petroleum v. Harper's Garage (1967) 2 WCR 871.
75.	Lord Denning in Liverpool City Council v. Irwin (1975) 3 AER 664, CA.
76.	(1976) 2 AER 39, H.L.
79.	(1936)	3 AER 160.
80.	[1843-60] ACL ER Rep. 368.
81.	(1967) 3 AER 822.
82.	(1918) 1 KB 418.
83.	(1831) 1 Cr. & J 331.
84.	(1966) 1 AER 126.
85.	Whitwood Chemical Co. v. Hardman (1891) 2 Ch. 416-428.
86.	See Heydon, op.cit. 61-71.
87.	(1898) 2 Ch 451.
89.	See Supra, n. 72.
90.	38 LJ QB 20.
91.	Supra, n. 80 and Heydon, op. Cit., n. 65. Miss Davis says that Sir Patrick Hastings smiled that concrete smile and spoke of my slowly graduating salary that by 1942 would reach six hundred pounds [per week] If anybody wants to put me into perpetual servitude on that basis of remuneration, I shall prepare to consider it.'(The Lonely Life, 164).
1.	Public Policy in Restraint of Trade The Restraint of Trade doctrine is widely considered to be a part of the doctrine of public policy.1 But this is an inaccurate description or explanation of the doctrine. Public policy, in a manner of speaking, may have been the starting point of the Restraint doctrine, as of most other concepts and rules. But the law quickly develops from the goal based arguments of public policy to a rights based structure of principles.2 This may be called the institutionalization of the common law.
The fact that the Restraint doctrine has found it well nigh impossible to shake off its early associations may be explained on two grounds “ (1) The Restraint doctrine has much in common with Monopolies which according to Coke were contrary to the ancient and fundamental laws of the realm.3 Monopolies are considered undesirable by the law because they tend to bring about a state of affairs considered bad for society as such. Monopolies are seen as having their main effect at the social organization level (prices of goods etc.) and are therefore rejected or curtailed as a matter of policy.4 (2) The other reason why the Restraint doctrine has been unable to separate itself from public policy is due to confusion in the minds of judges and writers, between public policy and public interest. The former has, in effective terms, only a residual role left in the Restraint doctrine's operation, but the latter is an important ingredient.
(1)	A rule, originally settled for reasons of public policy but now a crystallized proposition which forms part of the ordinary Common Law, and is so definite that it must be applied without reference to whether a particular case involves the real mischief to guard against which the rule was originally introduced (e.g. the old Common Law rule against perpetuity).
(2)	A rule which does not apply to a particular instance if that instance discloses no mischief from the point of view of public policy (e.g. law regarding wagers).
(3)	A rule where public policy has partially precipitated itself into recognized rules which belong to law properly so called, but where these rules have remained subject to the moulding influence of the real reasons of public policy from which they proceeded (e.g. the Restraint of Trade doctrine).
II.	The Nature of Interests Involved J.D. Heydon, in his excellent book, The Restraint of Trade Doctrine11 provides a useful catalogue of the components and stages of the Restraint doctrine. He does not rush final conclusions on all points in view of the vast quantity of inconsistent and loose dicta concerning the basis of the doctrine. However, he sets out a comprehensive model which has been adapted to provide the one below that will help place the discussion that will follow in an attractive form.
(b)	legitimate proprietary interest, quasi-proprietary interest or specific expectation of protection of existing means of livelihood -(COVENANTEE'S INTEREST) (That itself shows clearly that (b) is based on a more tangible possession than (a).
(2)	PUBLIC	(a)	An aggregate of 1(a) (which would indirectly be INTEREST:	an aggregate balance of trade and contract freedom exercised or expected to be exercised by each individual).
(b)	A crystallized version of what the law considers a desirable state of affairs “ balance between the sum total of contract and trade freedom. (This is slightly different from (a) because that uses Private Interest as the basic raw material whereas (b) takes a more definite public posture.
(c)	What the law considers a desirable state of affairs either by itself or as a means of a further goal. (This is pure policy).
STAGE A	:	Protection of (1)(b) without altogether crushing (1)(a). At this (lexical stage the transaction is purely private. If courts interfere right priority)	away it is clearly to protect a weaker party. In fact, as we shall see later, most cases do not actually go beyond this point.
STAGE B	:	Either The balance (or rather an adjustment between (1)(b) and 2(a). That explains why covenants that are hold reasonable at Stage A are rarely if ever held to offend Stage B.
Or In addition to satisfying Stage A the covenant should also satisfy 2(b). Arguably 2(c) might apply. That of course would mean that the case could no longer be considered as having been decided under the Restraint doctrine.
Our present concern is with Stage A “ to show how it reflects the situations where a general test of unconscionability is applicable and indeed if Schroeder v. Macaulay is correct, actually applied. It will therefore be suffice to say something briefly about Stage B.
Stage B acts as an independent external constraint upon legal transactions between individuals (the product of Stage A). To that extent the Restraint decisions cannot be attributed to public policy any more than the theory of consideration. Illegal consideration (e.g. agreeing to perform a criminal act) would be on grounds of public policy no consideration at all.13 Even where proper consideration can be shown a contract might be unforceable if it offends public policy in the manner of its performance.
The English courts have only twice overtly rejected contracts on the ground of the public interest though the covenants concerned were considered reasonable between the parties. Besides Wyatt v. Kreglinger15 and Bull v. Pitney-Bowes16 decided on overt application of the public interest, there is also Pharmaceutical Society v. Dickson17 where that was an alternative ration, and Kores v. Kolok,18 where the interest of the employees not parties to the argument was perhaps taken, sub silentis to represent the public interest “ generally the interest of the public in mobility of labour.20 Clearly freedom of contract was not an important issue in the case.
Quite clearly then, Stage B can be taken by itself as an independent external constraint on Stage A. It does not directly influence the internal arrangement of Stage A. An examination of the leading cases will show that this model reflects the real foundation of the Restraint doctrine.
From the point of view of a general doctrine of Unconscionability, the House of Lords' decision in Esso Petroleum Co. v. Harper's Garage Ltd.25 might rightly be considered a case of missed opportunities. The facts were particularly interesting since they gave rise to possibilities under the doctrine of Restraint of Trade as well as the general law concerning Redemption in Mortgages.26 Since it is argued in the present work that the considerations that form the core of a general doctrine of unconscionability are prominent in cases in the two mentioned areas along with other areas discussed in this chapter, their Lordships could usefully have taken the opportunity to state the doctrine. Explicitly no such thing was either attempted or achieved. However, if one is to take a leaf out of Karl Llewellyn's book27 and actually look at what their Lordships in fact did rather than what they declared they were doing, the position appears more promising.
The facts of Esso are straightforward and familiar. The appellants, suppliers of motor fuel to dealers, entered into two agreements with the respondent in relation to two garages owned by the latter. These may be conveniently referred to as M and C respectively. The agreements were on the appellants' standard form. Agreement M was for a period of four years and five months. The appellants agreed to sell and the respondent agreed to buy for that period the total requirements for the garage at the appellants' wholesale schedule prices for dealers. The appellants further agreed to allow the respondent a rebate per gallon on the fuel sold besides providing the standard advantages under their dealer cooperation plan. The respondent covenanted not to purchase any other brand fuel and to keep the garage open during reasonable hours. Agreement C was in all respects identical except that it was for a period of twenty-one years. The difference in the agreement periods can obviously be explained by the fact that the second garage was also subject to a mortgage agreement entered about three months after the tie agreement. The appellants advanced 7000 to the respondents as loan. The respondents in turn covenanted (inter a to repay the loan with interest by installment over 21 years and charged the garage by way of legal mortgage. The mortgage could not be redeemed otherwise than in accordance with the covenant.
The House of Lords quite categorically stated that the existence of a mortgage did not exclude the doctrine of restraint of trade. That statement in itself is unexceptional. What their Lordships failed to assert with clarity was the relationship between the requirements of the two separate principles that were applicable.
Several brief observations may be made about this position.
(1)	(a)	Firstly, it is clearly stated that the doctrine is based in public policy. As discussed above in Section II the so called public policy test requires that the agreement be reasonable from the point of view of the parties as well as in the interest of the public. A balance between freedom of contract and freedom of trade is the focus in such cases.
(b)	Secondly, a related point is that the doctrine bites restraints of trade and not restrictions. Restrictions on trading activities are not per se condemned. It is only when they become detrimental to the existence of trade that they fall foul of the doctrine. Restrictions that amount to restraints on free trade are detrimental to the public interest and therefore unreasonable. Many restrictions on trading activities are in fact very useful for promoting trade in a planned manner. The solus agreements in the fuel trade are an example of this.
(c)	Contracts in Restraint of trade are perceived as being sui generis and attract special treatment.
If a contract is within the class of contracts in restraint of trade the law which applies to it is quite different from the law that applies to contracts generally. In general unless a contract is vitiated by duress, fraud or mistake its terms will be enforced though unreasonable or even harsh and unconscionable, but there a term in restraint of trade will not be enforced unless it is reasonable.29 As far as ordinary contracts are concerned there is a clear assertion of the 19th century attitude that the absence of what have been called conceptual hurdles to the formation of contract, there is no further obstacle in enforcing an agreement made for valid consideration. Courts do not look to the adequacy of consideration. However, Parker C.J. in Mitchell v. Reynolds while discussing an attempt to establish a distinction between promises and bonds in restraint cases, stated that the true distinction in that case was between contracts with and without consideration; and that wherever a sufficient consideration appears to make it a proper and a useful contract, and such as cannot be set aside without injury to a fair contractor, it ought to be maintained;	but with this constant diversity, viz. where the restraint is general and not to exercise a trade throughout the kingdom, and where it is limited to a particular	place; for the former of these must be void, being of no benefit to either party,	and only oppressive . In other words Parker C.J. telescoped the two elements Lord Reid prefers to keep separate.
Mitchell v. Reynolds is obviously obiter as far as the opinion as to the voidness of the general restraint is concerned, since the facts of the case did not give rise to arguments about it. However, preoccupation with consideration almost to the point of enquiring about its adequacy is important. One might interpret this in two possible ways assuming that the adequacy of consideration does not affect the public interest in any way. Perhaps there is no inherent prohibition on enquiring about the adequacy of consideration. In other words, agreements will be enforced only if they are fair in the circumstances and the standard of fairness in this case is that of the reasonable man. This in itself might sound very ominous to lawyers who view judicial discretion with some scepticism. Alternatively if the word ˜oppressive' is the operative word in that passage and is taken at its face value, we might have the beginnings of the unconscionability doctrine. Courts will not enforce oppressive bargains31 as a matter of public policy, even though they satisfy all conceptual requirements of binding contracts. This is type 2(c) in the model. The difference in the consequences of general and particular restraints, on the other hand has an obvious direct relevance to the public interest in free trade. But even that is at best a prima facie approximation. One can imagine general restraints in the case of sale and purchase of a large business which might not be detrimental to trade in the long run. This is type 2(b) in the model.
The real issue in Esso v. Harper, as in most cases on restraint of trade, was not whether the covenantor was giving up something he already possessed, but whether he was getting enough in return for it (the oppressive bargain point from unconscionability) an whether the public interest in reasonable supply of fuel and opportunity to trade was being safeguarded. Lord Reid himself emphasised that As the whole doctrine of restraint of trade is based on public policy its application ought to depend less on legal niceties or theoretical possibilities than on the practical effect of a restraint in hampering that freedom which it is the policy of the law to protect. One only has to add of the individual after freedom and we would have an ideal ground for unconscionability.
In other words only if the consideration is grossly inadequate will the courts take it up as a starting point for enquiring into the reasonableness or fairness of the contract. Even then something more is required before a contract is rejected -“inequality of bargaining position. In the familiar Restraint cases of employment contracts there is a prima facie presumption of inequality. Thus, a restriction as to time may be reasonable or unreasonable according to whether sufficient compensation has been given to the person restrained. The distinction between partial and general restraint is no longer alive. The extent of the restraint is now merely one factor to be considered.
The opinion of Lord Pearce stands out due to the somewhat different attitude he professes to take. In fact it is almost in the nature of a confession about what the courts have really been doing all along: Public policy, like other unruly horses, is apt to change its stance; and public policy is the ultimate basis of the courts' reluctance to enforce restraints. Although the decided cases are almost invariably based on unreasonableness between the parties, it is ultimately on the ground of public policy that the court will decline to enforce a restraint as being unreasonable between the parties. And a doctrine based on the general commercial good must always bear in mind the changing face of commerce. There is not, as some cases seem to suggest, a separation between what is reasonable on grounds of public policy and what is reasonable as between the parties. There is one broad question: is it in the interests of the community that this restraint should, as between the parties, be held to be reasonable and enforceable?38 With great respect that seems to be putting the cart before the horse. Lord Pearce has telescoped many points to confuse the picture somewhat. It was noted earlier that ultimately most doctrines of common law and more so Equity, are derived from public policy but it is hardly enough to chant that magic formula and hope to deal with cases on an ad hoc basis. Certainly it is advisable to resort to a logical system of checks if one is easily available. Lord Pearce should really have addressed himself to the question, Does the public policy supporting freedom of contract include the concept of fair bargaining opportunity? In other words there might be a public policy argument for not enforcing unconscionable contracts. Even on his own terms, Lord Pearce fails to provide a clear lead towards training the unruly horses, for having given a carte blanche to public policy (in the loose sense in which he used it in the passage above), when it came to enumerating the factors that he considered relevant for the actual decision in the case, the discussion tilts heavily towards the individual's predicament.
Clearly, Lord Wilberforce's ˜broad and flexible' rule of reason uses social acceptance of contract for the job that the court would otherwise have to attempt itself and for which the courts had the advesarial system is very badly equipped “ to judge the merits of a particular practice in terms of the economic structure and social commitments. It is important to note that he is thinking of the public interest yet he categorically states later that the case was fought exclusively on the first limb of the Nordenfelt test of reasonableness (in reference to the interest of the parties) the respondent explicitly disclaiming any reliance on the second limb (in reference to the interests of the public). Therefore the requirement of justification in this case must have come from elsewhere. In fact, for Lord Wilberforce there is a closer nexus between the public interest and individual interest than appears in the other speeches. At one stage he goes to the extent of saying, I venture to think it important that the vitality of the second limb, or as I would prefer to put it, of wider aspects of a single public policy rule, should continue to be recognized. This seems to be against the trend of the other speeches. The criticism that was made of the sudden shifts between the two limbs in the other speeches implies in itself an acceptance of the two limb doctrine. Lord Wilberforce's attempt to unify the two completely not only are a crucial deviation from Nordenfelt but also suspect in principle. Many areas of the restraint doctrine involve sensitive balancing of public and private interest. They do not always act in the same direction. Employment cases quite often, though not directly offending the public interest, will involve unreasonable restrictions upon the behaviour of a party unable to negotiate better terms.
There are cases where only Stage A is involved and taking the two stages together would lead to obfuscation of the important factors that are pertinent to Stage A only. Schroeder v. Macaulay42 is a good example. In that case a 21 year old song writer entered into a very one sided argument with music publishers in their Standard form. It was a 5-year agreement subject to a further 5-year extension at the publishers' option if the writer received more than 5,000 in royalties during the first term. Only the publishers could determine the agreement (at a month's notice). Full copy rights for the whole world were assigned to the publishers.
The emphasis is clearly on the bargaining position of the parties. The standard form itself can work either way depending on the bargaining position.
It is, in my view, salutory to acknowledge that the in refusing to enforce provisions of a contract whereby one party agrees to for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th century economic theory about the benefit to the general public of the freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Under the influence of Bentham and of laissez-faire the courts in the 19th century abandoned the practice of applying the public policy against unconscionable bargains to contracts generally as they had done formerly to any contracts considered to be usurious; but the policy survived in its application to penalty clauses and to relief against forfeiture ad also the special category of contracts in restraint of trade. If one looks at the reasoning of the 19th century judges in cases about contracts in restraint of trade one finds lip service to current economic theories but if one looks at what they said in the light of what they did, one looks at what they said in the light of what they did, one find that they struck down a bargain if they though it was unconscionable as between the parties to it, and upheld it if they thought it was not.
In that case the defendant had assigned the lease of a bake house to the plaintiff for five years, and gave a bond undertaking to pay a penalty if he worked as a baker during that term. The court found for the plaintiff because there was a special consideration ¦ set forth in the condition, which shows it was reasonable for the parties to enter into it. However Parker C.J's decision is far more interesting for his masterly review of trade restraints, whether imposed by contract, royal charter, custom, or by-law. The original affinity between monopolies and restraint of trade is obvious. Parker C.J. said that these cases could not be put into two categories “ either involuntary restraints, or voluntary restraints. We shall consider the latter category only.
Parker CJ said that the reasons that applied to involuntary restraints had no direct reference to voluntary restraints. The true reasons why the law frowned on voluntary restraints were as follows. First, a contract in restraint of trade causes the covenantee to lose his livelihood and brings sufferings to his family. Secondly, it deprives the public of a useful worker. Thirdly, such contracts can be abused to give covenantees unfair advantages “ masters trying to protect themselves from future competition from their apprentices, and corporations, who are perpetually labouring for exclusive advantages in trade, and to reduce it into as few hands as possible. Fourthly, restraints may often be excessive, inflicting hardship on the covenantor without conferring benefits on the covenantee.
Already in Mitchell v. Reynolds there was a noticeable difference in attitude towards covenants entered into by traders selling of their business and covenants by employees and apprentices. Since Lord MacNaughten's judgment in Maxim Nordenfelt v. Nordenfelt47 it has become commonplace to stress that employee covenants are regarded more strictly than covenants on the sale of goodwill. In Attwood v. Lamont,48 almost thirty years after Nordenfelt Younger L.J. addressed himself to this distinction directly.
The facts of the case actually involved a covenant by an employee. The plaintiff carried on a business as a draper, tailor, and general outfitter. The defendant was employed as an assistant in the tailoring department and covenanted not to engage in a similar business within a radius of ten miles for an indefinite period after leaving the employment. The Court of Appeal held the covenant to be in restraint of trade.
Younger L.J. made the most of the opportunity. At the very outset he indicated the scope of his review.
Of course it is possible to say that now once again the public view of employer covenants is shifting since employees are now able to protect their interests through collective bargaining and union muscle. But where such is the case the contracts might pass into the ˜accepted' category already mentioned in the discussion of Esso v. Harper's Garage. Significantly enough the covenant in Attwood v. Lamont was in standard form.
Hitchcock v. Coker is cited as authority for overruling a whole line of cases that required adequacy of consideration in restraint cases even though generally in contract there was never any such rule. The main reason for the Hitchcock decision seems to be the usual reluctance of courts to perform a very difficult task “ to judge by looking at the record, [and], to say whether, in any particular case, the party restrained has made an improvident bargain or not. There is seldom any dissent from that view though at the same time courts constantly look inter alia to what the covenentee has got for what he is giving away in order to decide whether the restraint is a reasonable one. Lord Shaw seems to have put his finger on the pulse in Herbert Morris v. Saxelby, reiterating at the same the distinction discussed above.
Adequacy of consideration is relevant to this analysis even though the position has been presented in terms of property transfers. In the sale of goodwill the buyer has paid for goodwill and can enjoy that only if the vendor is prevented from continuing to exploit it. A covenant against doing that expresses the complete bargain. In employment cases there is a limited exchange “ the employer gives the opportunity to earn by working and the employee offers services in return (including his subjective52 knowledge). The subjective knowledge may be added to during the course of employment by a process of accumulation. The employer does not promise to give objective knowledge which is his property (or quasi-property) and therefore he is permitted to prevent the employee making use of it for his personal benefit.
Consideration comes into all this implicitly since the judges look at what the real agreement is and therefore bound to see whether that consideration is being provided in performance. The next step is to inquire whether the consideration provided is reasonable in the circumstances.53 How else would they judge the reasonableness of the agreement? In view of that, and subject to the public interest argument there is no reason why an employee in a comfortable bargaining position should not be able to sell his subjective knowledge for a good price. Wyatt v. Kreghinger is just such a case where the court failed to appreciate this point. The advantage of applying the unconscionability test is that the courts will be able to pay more attention to the actual facts of every case.
VIII	DO COURTS JUDGE ADEQUACY NEGATIVELY?
Though the courts may deny that they look at the adequacy of consideration it cannot be avoided if the courts have to look at a covenant and say whether it is reasonable between the parties. Generally speaking, apart from Wyatt v. Kreghinger54 and Bull v. Pitney-Bowes55 nothing special is offered by the covenantee to offset acceptance of a special restraint by the covenantor. In that sense there was no special consideration to be taken into account when deciding the reasonableness point. The employees had provided their services to the employers in return for remuneration and other benefits of employment. These included the right to a pension on retirement. The employees had not contracted to sell their subjective knowledge. Pension, as it is understood by the reasonable man in the street, is not an exchange consideration for subjective knowledge.
In 1916 when Saxelby was decided the courts had yet to articulate the link between a one sided bargain (result) and the unequal bargaining position of the parties (cause) that are cumulatively necessary for the doctrine of unconscionability to apply. They were content in arriving at the right result behind the faÃ§ade of the Restraint doctrine. They did not consider it necessary to explore the limits of fraud, deceit, and duress along with the basis of the Restraint doctrine to discover a substantial overlap and common concern.
In Horwood v. Miller's Timber57 a particularly harsh contract was struck down as attempting to impose servile obligations. Once again there is no specific reference to the unequal bargaining positions of the contracting parties but the facts of the case could hardly have been considered without conveying that impression. By an indenture made between the mortgagor (a clerk in the employment of the defendants) and the plaintiff (a money-lender) the mortgagor, who was indebted in various sums to creditors whom the money-lender agreed to pay on having the repayment secured to him, assigned to the plaintiff (inter alia) all the salary, wages, or other moneys then or thereafter during the continuance of the security to become due to him under his employment with the defendants or with any other employers to hold to the plaintiff absolutely, but subject to a proviso for redemption. The mortgagor then covenanted that he would repay the plaintiff by certain installments; that during the continuance of the security he would not, without the express sanction in writing of the plaintiff determine his engagement with the defendants or his other employers for the time being; that he would not borrow or attempt to borrow any money or part with, sell or pledge his furniture, chattels, or effects, etc.
By 1974 this position becomes entrenched in Schroeder v. Macaulay,60 a House of Lords decision already discussed above. In Clifford Davis v. WEA Records61 the Court of Appeal attempted to shatter the narrow confines of the restraint doctrine and to subsume the cases that would otherwise fall to be decided under it, within the broad compass of unconscionability.
The plaintiff in Clifford Davis was the manager of a ˜pop group'. He got two talented members of the group to sign a publishing agreement in standard form. M & W were bound for 5 years extendable for a further 5 years at the plaintiff's option to assign to him worldwide copyright in all of their compositions. The plaintiff had wide discretion in promotion and was obliged only to pay 1s. per work plus royalties. Later the group acquired a new manager, and the plaintiff brought an action to prevent the defendants from infringing his copyright in the songs composed by M & W.
(1)	Generally speaking the terms of the contract were manifestly unfair.
(2)	More specifically the consideration given by the covenantee was grossly inadequate.
(f)	The composers had no legal advice. In the event the Court held that the contracts were unenforceable.
Lord Denning conceded that these agreements were not ˜in restraint of trade' strictly so called. That may be a concession he did not really need to make and very little turns on it. Historically courts have been concerned about the mischief of sterlizing a person's capacity once he has left the covenantee's service. Cases that have arisen during the course of employment have been treated somewhat differently by default and shall be examined later. For the present it will suffice to say that the concession is somewhat redundant in view of Lord Denning's emphasis on a general principle going beyond the special confines of the restraint doctrine.
THE REAL SANCTION Some confirmation of the view that the courts consider restraint contracts as an unfair advantage taken by one party of another's weakness comes from the manner in which courts look upon such contracts when it comes to interpreting them or enforcing them to the extent that they can be without offending the principle.
Younger LJ took up the strain in Attwood v. Lamont.67 He thought the strict rule would encourage employers to stay within permissible bounds in which case they will not without success apply to the courts to exercise their primary function of seeing to it that such bargains like any others fairly entered into are duly observed. Ronson Enterprises v. Green68 took a more generous attitude towards the covenantee but it was a case of the sale of his share by one partner to another.
(a)	LITIGATION RISK INEQUALITY or the threat of litigation and the stronger (richer) party's advantage in being better provided for such enterprises. In Restraint cases it is obviously a very important element but its relevance to unconscionability generally can hardly be overemphasized. Surprisingly, however, courts, even when consciously providing an impetus to the doctrine of unconscionability, have failed to examine this aspect. Undoubtedly with the advent of legal aid this factor will have its importance diminished but it will not become irrelevant.
Most conventional formulations of the inequality “ unconscionability thesis foucs on the inequality in the process of bargain “ a pre-contractual emphasis: Commercial Plastic Ltd. v. Vincent69 and Home Counties Dairies v. Skilton.70 But if one is to look at the ˜litigation risk inequality' it is really the stronger party's position during the contract period and his ability to make the weaker party go through with his onerous obligation which seems to become prominent. The case merely gives a hint of post bargain inequality perhaps unwittingly, as being a relevant factor. It was not till Lord Denning's Judgment in Shell v. Lostock Garages71 that a categorical statement was made to that effect.
Unfortunately Lord Denning was unable to carry Bridge LJ and Ormrod LJ on that point primarily due to their misgivings about the uncertainty it would introduce in the law. With respect that seems a hollow objection, especially in the case of Ormrod LJ who was content to accept Lord Denning's alternative ground of the equitable remedy of injunction. It makes sense to say that the procedural unconscionability component can figure at any time and not just at the time of negotiations. What might appear a balanced bargaining position to begin with might in retrospect become most unfair due to the unforeseen manner in which one of the parties has the ability to influence conditions that affect the performance by the other party of his obligations.
XI.	IS THERE A DUTY TO ENFORCE BARGAINS IN GOOD FAITH?
Lord Denning mentioned, with obvious delight, that his view of restraint cases was in keeping with the law on Exemption clauses.74 In either case the courts step in to prevent any dictation at the time of the formation of contract. The fact that a lot of cases in those areas involve Standard form contracts strengthens this view. But a fair and reasonable contract between parties can be turned into an unexpectedly onerous one by manipulation by the stronger party, while performance is due. The litigation risk inequality is relevant to this.
Since most cases of unconscionable behaviour between unequal parties can be fitted into relationships of common occurrence77 one might still be able to reach the same result under (a) as Lord Denning wished to use the fair and reasonable formula to reach. In Shell v. Lostock itself Lord Denning reluctantly accepted that a solus agreement would not fall under category (a). But an employment contract with restraints or a contract of sale of goodwill should certainly qualify on category (a) contracts.
The record of English courts in exclusive employment cases seems unimpressive. Cases like Warner Brothers v. Nelson79 and Lumley v. Wagner80 seem to have been considered purely from the point of view of remedies, i.e. the requirements for claiming the equitable remedies of injunction and specific performance. Even on that count Page One Records v. Britton81 shows the infirmities in the approach adopted.
It all started with Branson J. in Warner Brothers v. Nelson where Bette Davis pleaded that a contract forbidding her to work as an actress for anyone but Warner Bros. was in restraint of trade. The Judge rejected that plea because the covenants are all concerned with what is to happen whilst the defendant is employed by the plaintiff and not thereafter. Branson J. was not referred to Joseph Evans & Co. v. Heathcote82 and Young v. Timmins.83 In recent years, however, the courts seem to have taken a different approach. In Petrofina v. Martin84 the Court of Appeal expressly rejected Branson J's position though their remarks were strictly speaking obiter.
He then proceeded to lay down the rule that in a case like the one before him the court would grant an injunction unless to do so would in the circumstances be tantamount to ordering the defendant to perform her contract or remain idle or unless damages would be the more appropriate remedy.
We have seen in the discussion above that there is nothing that supports Branson J's view of restraint of trade covenants being illegal in the strict sense of the word. They are merely unenforceable in a court of law.89 In fact Bishop v. Kitchen90 is a strong authority against Branson J's view. The Court of Queens Bench held in that case that the plaintiff having submitted to a restraint and his part of the agreement having been executed, he was clearly entitled to recover consideration due in respect of it.
(1)	The Restraint doctrine has its origins in public policy and close resemblance to the area of Monopoly and Restrictive Trade Practices. But in its developed form it seems to reserve only a residual role of veto over private transactions on account of public interest “ in freedom of trade and the competing freedom of contract. From the point of view of the public interest it is really a question of balancing or where and when possible, of reconciling the two.
(2)	Most Restraint cases are really decided on the other limb of competing private interests even though judges like to pay lip se4rvice to public interest. By its very nature the doctrine was thought to apply to those special situations where a person's freedom to do as he pleased in the long run was threatened albeit by what appeared top be his own free choice.
(3)	In recent years courts have begun to put a gloss on the concept of free choice. There may be choice so as not to render an obligation void and yet it may have been such a restricted choice that the courts would refuse to enforce the obligation. Such a restriction on choice can be placed by the unequal bargaining position of the parties in the subsequent ability of one to take more than he was reasonably entitled under the bargain. The Restraint doctrine here is using what are essentially the tools of unconscionability.
(4)	English courts have failed to recognize, or at least to state that contracts of exclusive employment or engagement can suffer from the same vice as contracts sustaining post contractual behaviour. However, Higgs v. Olivier suggests that given the right facts they will willingly strike down the artificial barrier.
(5)	Due to the existence of the barrier between the two types of restraints “ during and after the contractual period “ the courts have failed to develop the use of injunctions to cut down on undue restraints. Another explanation may be that such unconscionable attempts to take advantage are greeted with hostility and primitive consequences.
The law of estoppel is quasi contractual because it looks like contract and some of its main ingredients are similar to those of contract. Some writers have even suggested that estoppel is used to overcome a colossal mistake made by judges in following Lord Mansfield.15 Common law or fact estoppel is relatively simple and generally used as a rule of evidence.16 It is the more recently created or rediscovered equitable estoppel that is more difficult and interesting. Depending upon what view one takes of the new estoppel it can be considered part and parcel of the contractual scheme or falling outside it in the area of quasi contract. In either case it would be relevant to the present enquiry but as a quasi contractual devise its link with Restitution would support an argument for a general extra contractual jurisdiction of which both estoppel and Restitution are two examples.
The Substitute school see the equitable estoppel acting as a pragmatic substitute for a mistaken technical rule about considerations which prevents the courts from enforcing promises that are intended to be binding. Such intention is conclusively proved if it can be shown that the promisor intended the promisee to act upon the promise or at least as a reasonable person would have known that the promisee would do so. Of course, the promisee must in fact act upon the promise though it is not very clear whether he needs to show any potential detriment to himself in doing so.
The Third alternative school provides a neat and compact argument: a promise intended to be binding is enforced by the courts if there is a complete bargain, i.e., an exchange of promises satisfying the requirement of consideration. It is also enforced if the promise is made in a solemn manner, i.e. by deed under seal. Finally, it may be enforced as the third alternative “ a promise made in circumstances that would lead a reasonable promisee to act in reliance and thus acted upon is enforced to prevent detriment to the promisee. On this view there is no need for an existing contractual (statutory) relationship between the parties. However, some relationship will be necessary and it seems as though the idea of Special Relationship' may have to be borrowed from the tort of negligent misrepresentation. Although the two schools mentioned till now would probably wish to accommodate estoppel within the contractual framework, its link with tort is strong enough to suggest a parallel with the second head of Restitution, waiver or tort.
Finally, the Qualified Claim school is most obviously a contractual rather than an extra contractual concept. On this view reliance upon a representation by one party to a contractual (statutory) relationship that the strict legal rights will not be enforced is made binding if the other party acts to his potential detriment. This view extends the common law estoppel to representations regarding future behaviour but is more limited in its strict requirement of an existing relationship. The merit of this is that it leaves the doctrine of consideration intact, perhaps even reinforces it by making an important exception.
Before proceeding to look at the three schools more carefully to establish which one best explains the existing corpus of case law and whether it provides an argument for the doctrine of unconscionability, it is important to make one further distinction between Promissory and Proprietary estoppels. That will also provide the link with the third head of Restitution, i.e., construction trust.

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