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Report No. 199

He observed (p. 539):

"To summarise, there are two separate social policies which are embodied in the equity unconscionability doctrine. The first is that bargaining naughtiness, once it reaches a certain level, ought to avail the practitioner naught. The second is directed not against bargaining conduct (except in so far as certain results often are strong evidence of certain conduct otherwise approved) but against results, and embodies the doctrine (also present in laisio enormis statutes) that the infliction of serious hardship demands special justification"

(g) This distinction between the two concepts was highlighted by Lord Brightman in the Privy Council in Hart vs. O'Connor :1985 A.C. 1000 at p 1017-18 (1985(2) All ER 880 at 887). He said:

"If a contract is stigmatised as 'unfair', it may be unfair in one of two ways. It may be unfair by reason of the unfair manner in which it was brought into existence; a contract induced by undue influence is unfair in this sense. It will be convenient to call it 'procedural unfairness'. It may also, in some contents, be described (accurately or inaccurately) as 'unfair' by reason of the fact that the terms of the contract are more favourable to one party than to the other. In order to distinguish this 'unfairness' from procedural unfairness, it will be convenient to call it 'contractual imbalance'.

The two concepts may overlap. Contractual imbalance may be so extreme as to raise a presumption of procedural unfairness, such as undue influence or some other form of victimization. Equity will relieve a party from a contract which he has been induced to make as a result of victimization. Equity will not relieve a party from a contract on the ground only that there is contractual imbalance not amounting to unconscionable dealing. Of the three indicia of unfairness relied upon by the Judge in Archer vs. Cutler (1980)(1) NZLR 386 (assuming unfairness to have existed), the first was contractual imbalance and the second and third were procedural unfairness".

It is because Equity may not grant relief in case of 'contractual imbalance' i.e. substantive unfairness, that the legislatures have come forward to remedy not only procedural unfairness but also substantive unfairness.

(h) The distinction between 'procedural' and 'substantive' unfairness was also explained in the Judgment of the New South Wales Supreme Court by McHugh JA in West vs. AGC (Advances) Ltd. (1986)(5) NSWLR 610.

Summary:

In the light of the views expressed as above, it appears to us that if any legislation is to be more effective and realistic, it is necessary to make separate provisions dealing with 'procedural' and 'substantive' unfairness.

We are aware that in certain quarters it has been considered that it is difficult to put these concepts in separate compartments in a statute but we do not agree. We have not found any difficulty. In fact, as pointed by several authors, the focus should not be confined only to 'procedural unfairness' and we must move forward to deal with 'substantive unfairness' also rather than merely state that where parties have signed contracts with the eyes wide open, if such contracts contained a term which was unfair in itself, the party had himself or itself to blame.

This was the method of interpretation of contracts at a time when principles of substantive unfairness were not effectively developed. Today, we find in practice that there are a large number of substantively unfair terms in different types of contracts i.e. contracts or terms which are by themselves unfair. Therefore, the law must be reformed to be able to stretch its hands to rectify such substantive unfairness.



Unfair (Procedural and Substantive) Terms in Contract Back




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