Undoing the unconscionable
An Unconscionable Bargain is a useful equitable doctrine in tackling cases of what could broadly be described as civil fraud.
A transaction will be unconscionable if it is (1) oppressively disadvantageous to B, who, (2) when entering it, was acting under a particular form of weakness which (3) was exploited by A in a morally culpable manner (Peter Miller QC in Alec Lobb Garages Ltd v Total Oil Great Britain  1 WLR 87). There are three components to the test, identified above. Not all unfair transactions are unconscionable bargains. The transaction must satisfy the 3-part test in order to invoke the Court’s equitable jurisdiction, which could result in the transaction being set aside.
Each case is fact sensitive and cannot be approached with a broad brush. In Boustany v Pigott (1995) the Court held that it is not sufficient that the parties had unequal bargaining power or that the terms of the bargain were more favourable to one party than another. To prove that the transaction was unconscionable B must establish that A was aware that B was under a special vulnerability and knowingly took advantage of that in the transaction. In cases of civil fraud, A may no longer be on the scene, perhaps having fled with the proceeds of the transaction. B would be faced with the difficulty that A might not be available for cross examination to prove that A intended to take advantage. Thankfully for B, the Court is concerned with the overall result of the parties’ dealings, rather than solely with the specific question of A’s state of mind. Lord Walker’s famous phrase that the result of the transactions must “shock the conscience of the Court” encapsulates the approach.
If B proves that the transaction is unconscionable it can result in it being set aside. However, in cases where the transaction involves the purchase or sale of a property, that may not be possible where a third party mortgagee has acquired an interest.
In the recent case of Mortgage Express v Laura Lampert  EWCA Civ 55 the Court of Appeal considered the interplay between the equitable right to have the transaction set aside on the grounds of unconscionability, the right of the mortgagee, and how the equitable right fits in to the land registration scheme. In this blog, I consider the facts around the unconscionable bargain. My next blog, will examine the claim against the mortgagee and the impact of the land registration rules.
The facts of the case are briefly these. In 2007 Ms Lampert was in financial straits. She was unemployed and had borrowed money on the security of her leasehold flat in Maidstone; but was unable to keep up with the repayments. She was facing repossession at the behest of her mortgagee, Blemain Finances Ltd. She owed approximately £24,500 although her flat was worth £120,000. Through the internet she made contact with a company called Amonna ltd, which was run and owned by Mr Sinclair and Mr Clement. They visited the flat and told her that the flat was only worth about £30,000 and offered to buy her lease for that sum. They also told her that she could continue to live in the flat rent free for the first year and thereafter for £250 per month. She accepted the proposal. On 7 September 2007 Mr Sinclair and Mr Clements applied for a secured loan from Mortgage Express. On the application form they declared the value of the property as £120,000. Contracts were exchanged with Ms Lampert on 4 October 2007 with completion on the same day for the purchase price of £30,000. On 26 October 2007 Mr Sinclair and Mr Clements completed on their mortgage with Mortgage Express drawing down £102,000 secured by a charge against the property. By July 2008 the Mortgage Express mortgage was in arrears. Mr Clements had transferred the lease to Mr Sinclair, who had disappeared. The mortgage company began possession proceedings against Ms Lampert to enforce the security.
Ms Lampert applied to have the 2007 transaction between her and Sinclair and Clements set aside on a number of different grounds, including actual undue influence, misrepresentation, and an unconscionable bargain. Note that these can also be powerful equitable doctrines to challenge a transaction, although evidentially difficult. The undue influence and misrepresentation claims failed, but the court held that the transaction should be set aside on the basis that it was an unconscionable bargain. HHJ Simpkiss, applying the 3 stage test, found that Ms Lampert was desperate, vulnerable, naïve, and lacking in any business common sense or acumen; and that Mr Sinclair took advantage of that by making her an offer which he knew to be dishonest. The case is a useful example of the kind of property transactions that are unconscionable.
The Court at first instance held that that Ms Lampert was entitled to have the transaction against Mr Sinclair and Mr Clements set aside and there was no challenge to that. However, the Court ordered that such entitlement was not binding on Mortgage Express.
As the majority of the equity in the property was consumed by Mortgage Express’ charge, and Sinclair was essentially impecunious, Ms Lampert’s relief had little practical benefit in the circumstances. She appealed the order of HHJ Simpkiss to assert her equitable right against the mortgagee.