Equity Law Assignment

Name :Elaine Foong Sook Yen

Matric No :LEB130024

Lecturer :Dr. Usha a/p P Balasingam

Content

1.0 Introduction …………………………………………………………………1

2.0 The relationships between unconscionability and reasonable expectation….1-2

3.0 Unconscionability and promissory estoppel…………………………………3-4

4.0 Development of unconscionability in Malaysia……………………………...4-8

5.0 Australia’s position on unconscionable conduct…………………………….8-9

6.0 Conclusion……………………………………………………………………10

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Discuss with reflection on contemporary cases the development and scope of unconscionable

doctrine in Malaysia.

1.0 Introduction

Unconscionability is often addresses by the law practitioners as well as academicians

as something similar to unfairness. The issue of unfairness can always be found in the

contract cases especially in the modern contracts which are a bit more complicated and not so

straightforward as compared to the past. Thus, doctrine of unconscionability plays a vital role

to ensure justice is served to the aggrieved party. In the court of equity, doctrine of

unconscionability is used to correct men’s conscience against conducts and bargains that are

unconscionable. This idea is derived from the early cases such the Earl of Oxford’s Case

(1615), Earl of Chesterfield v Janssen (1751) and Earl of Aylesford v Morris (1873).

Although such doctrine are critically important to ensure justice is served ,it should be noted

that the doctrines application as an independent doctrine are still vague .In relation to this

matter ,there is a positive development in Australia ,but in Malaysia ,the development of

unconscionability as an independent doctrine is still debatable.

2.0 The relationships between unconscionability and reasonable expectation

In the early England cases, judges relate unconscionability to reasonable expectation.

Reasonable expectation is said to be the foundation of the contract whereby it arises when

one person promise another to whom he binds himself. Hence, what is a reasonable

expectation, who is the maker for the expectation and the importance of such expectation. In

the case of National Steel & Shipbuilding v The United States, the court states the great

function in the law of the word reasonable is to enable a standard of decision to be

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accommodated to all circumstances1.Does this statement actually suggest the idea that

expectation can only be reasonable if it made by reasonable man. According to Lord Bowen,

reasonable man refers to the man on the Clapham omnibus2. This has been further affirmed

by the Australia Federal Court case in Mckinnon v Secretary Department of Treasury “the

man on the Clapham omnibus” meant a person whose state of mind was still reasonable even

though another reasonable man might come with different view.

In the local case ,however the judges does not appeared to agree to the aforementioned

arguments .This can be noted in the case of Prism Leisure Sdn Bhd v Lumut Marine Resort

Bhd whereby Abdul Malik Ishak J stated that subjective expectations and the unexpressed

mental reservations of the parties’ practically has no place in law3. Nonetheless ,in the case of

Preston Corp Sdn Bhd v Edward Leong ,the judge stated the test of reasonableness is what a

reasonable ,honest and right-minded person considers the usage concerned to be fair and

proper.4So, it seems the court refers reasonableness to honest and right minded to decide

whether the disputes act is fair or proper. In the contract law, reasonable expectation is ought

to mean the expectation of the result of entering the contract. Sometimes reasonable

expectation is used interchangeably with the legitimate expectation. 5However, in the

Government of State of Sabah v Suwiri6, Court of Appeal has narrowed down the definition

legitimate expectation as expectation comes from the government or its agencies. There is no

implication to the term of reasonable expectation. Thus ,it is undeniable that reasonable

unconscionability is the reason to protect the reasonable expectation to the parties.

1 190 Ct. Cl. 247; 419 F 2d 863 at p 876; 1969 US Ct Cl LEXIS 167. 2 McQuire v. Western Morning News [1903] 2 KB 100 3 [2002] 5 CLJ 391 at p 413. 4 [1982] CLJ 302 5 C Mitchell `Leading a Life of its Own? The Role of Reasonable Expectation in Contract Law' (2003) 23 OJLS 639. 6 [2005] 4 CLJ 727 at p 746.

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3.0 Unconscionability and promissory estoppel

Promissory estoppel is an equitable principle meant to prevent injustice caused by the

promisor in backing out from his promise which led the promisee to act to his detriment.

Initially, this doctrine is limited in many ways. Firstly, it restricts one to use this doctrine as a

sword and only as a shield.7Secondly, there must be a pre-existing contractual obligations.

Thirdly, the promise made must be precise and unambiguous. Fourth, there must be a

detrimental reliance on the representation. Fortunately in Malaysia, we have step out from

this strict requirements to invoke promissory estoppel. It was held in the landmark case of

Boustead Trading Sdn Bhd v Arab-Malaysian Merchant Bank Bhd 8 at page 344, is a clear iof

how promissory estoppel is being treated by the courts, “The time has come for this court to

recognise that the doctrine of estoppel is a flexible principle by which justice is done

according to the circumstances of the case. It is a doctrine of wide utility and has been

resorted to in varying fact patterns to achieve justice. Indeed, the circumstances in which the

doctrine may operate are endless.” This principle was also established in the case of

Amalgamated Investment and Property Co Ltd9where the court held that it cannot be right to

restrict estoppel as only a defence but not cause of action .The court further stated such

flexible doctrine requires some formulas so that it does not open up floodgates. If the

injunction is sufficient as a remedy, then estoppel will be function as a shield. If is not

sufficient to serve justice, then proprietary estoppel will provides additional remedies. This

theory of law also supported by the high court case ;Walton’s Store v Maher 10 found that

promissory estoppel can be created from the cause of action which rejects the principal set in

the case of Combre.

7 Combe v Combe [1951] 2 KB 215 ; Denning Lj, held that promissory estoppel operates as shield not as a sword. It does not

generate a contract , can't have the doctrine of consideration overthrown be a side-wind' 8 [1995] 3 MLJ 331 9[1977] 1 WLR 164 10(1988) 164 CLR 387

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The following words of Gopal Sri Ram JCA in the Malaysian landmark Boustead Trading

(1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331, at page 344, is a

clear indication of how promissory estoppel is being treated by the courts, “The time has

come for this court to recognise that the doctrine of estoppel is a flexible principle by which

justice is done according to the circumstances of the case. It is a doctrine of wide utility and

has been resorted to in varying fact patterns to achieve justice. Indeed, the circumstances in

which the doctrine may operate are endless.”

4.0 Development of unconscionability in Malaysia

Many cases of unconscionability in Malaysia has been shown to support in the case of undue

influence, constructive trust11 ,equitable estoppel ,fraud in relation to land12

matters ,insurance13and others. The earliest cases whereby this doctrine was seemed to be

recognize was Fui Lian Credit & Leasing Sdn Bhd v Kim Leong Timber Sdn Bhd14,whereby

the court cross refer to the English cases of Multiservice Bookbinding Ltd v Marden15 by

stated that “In order that a party may free himself from complying with an agreement he had

entered into, he must show that, in the eyes of the court, it was unreasonable. A bargain

cannot be unfair and unconscionable unless it is shown that one of the parties to it has

imposed an objectionable term in a morally reprehensible manner, that is to say, in a way

which affects his conscience or has procured the bargain by some unfair means.”

However, up till now there is no exact definition of unconscionability by the court in

Malaysia .It seems to suggest the court will decides based on the facts of the case. The

11 Transfield Projects (M) Sdn Bhd v Malaysian Airline Systems Bhd [2000] 7 MLJ 583; Cheng Hang Guan & Ors v

Perumahan Farlim (Penang) Sdn Bhd& Ors [1993] 3 MLJ 352; Holee Holdings (M) Sdn Bhd v Chai Him & Ors [1997] 4

MLJ 601; and others 12 2004 US Dist LEXIS 10363. 13 Lim Yoke Kong v Sivapiran a/l Sabapathy [1992] 2 MLJ 571 14 [1991] 1 CLJ 522 15 2004 US Dist LEXIS 10363.

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circumstances that have been taken into account as unconscionability are such as the special

relationship between the parties as well the dirty hands in taking advantages of another party.

As such this support the equity maxim “He who comes equity must come with clean hands”.

This principle can be seen from the case of Lim Yoke Kong v Sivapiran a/l

Sabapathy16whereby Mohamad Azmi SCJ found that the special relationship between the

insured and insurer as well the delayed tactic used by the insurer were an act of fraud based

on unconscionable conduct of an insurer accordance to s29(b) of the Limitation Act 1953.

Besides that, there are also cases whereby the court employed the term unconscionable in

passing the extent of the plaintiff entitlement or in granting damages. For instance, in the

Zubaidah v Zulkathar 17,Adams J said that : “it would clearly be unconscionable to permit the

plaintiff to obtain possession of the defendant's share merely because the condition of the

contract as to the time of repayment had been broken the plaintiff would be obtaining very

much more than the sum lent”. Another remarkable case decided in Malaysia is Chia Keng

Beng & Anor v MTA Taynappa Chitty18 whereby at the lower court ,Hyndman Jones J set

aside the defendant’s defence of no knowledge that the plaintiffs were the expectants of the

estate and held the bargain was unconscionable and set aside the mortgage. However, on

appeal both judges overruled the decision and held that the position of the parties in the

transaction is the paramount factors to determine the conscionability of the bargain. The court

further stated that high interest charged in the transaction between the parties of this case was

not sufficient to invoke the doctrine of unconscionable. Apparently, some may think the court

has not do justice for the expectants of the heirs but I’m of the opinion that this is a fair

judgement for a commercial transaction cases on the ground that it is impossible to have a

fair dealing. Another interesting finding can be seen from the case of Chait Singh v Budin b

16 [1992] 2 MLJ 571 17 1963] MLJ 63 at p 65. 18 (1900 & 1901) 6 SSLR 6

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Abdullah 19 whereby the court are seen to make unconscionable bargain exist separately from

undue influence. In this case, Innes J accepted the existence of unconscionable bargain on the

basis of the position of the parties without the need to prove the requirement under section

16(1)20.He held that the transaction is unconscionable as the farmer was illiterate and of no

means to understand the bargain. Hence, illiteracy of the party in this case was the reason for

the court to set aside the agreements. Apart from this ,in my humble opinion the judge came

to this decision most importantly is because the transaction was entered by an illegal

moneylenders .To combat this problem, the judge has to recourse to the doctrine of

unconscionability as the time of the decision, Moneylender Act 1951 has yet to be

introduced . Prior to moneylender act, illegal moneylenders charged extortionate interest rate

and use intimidating methods to recover the loan from the borrowers. In Alexander John Shek

Kwok Bun v Rich Avenue Sdn Bhd & Anor21, the court held that terms of the agreements are

absurd and unconscionable as any other ordinary consumers will be burdened by these terms.

In this case, the plaintiff is required to pay full purchase price before he can obtained the

possession of the property while the defendant has no reciprocal obligation to deliver vacant

possession of the property as well no timeline for the defendant to connect water and

electricity supply to the property, Not only that there is also no timeline for the defendant to

obtain the certificate of fitness from the authorities for the property. In short, plaintiff is of

obligation to pay full purchase price without having a reciprocal obligation from the

defendant to deliver the vacancy of the property. Another case which the court held the terms

of the agreement are unconscionable can be seen in Tan Yang Long & Anor v Newacres Sdn.

Bhd,22 the terms prescribed in the sale and purchase agreement was that no matter how long

the delayed for the delivery of the property, no damages will be paid until the building is

19 (1918) 1 FMSLR 348. 20 Contract Act 1950 21 [2008] 7 CLJ 754 22 [1992] 3 CLJ (Rep) 666; [1992] 1 CLJ 211.

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completed and vacant possession is delivered. These terms was held unconscionable because

the defendant is urging the plaintiff to wait indefinitely without knowing when the

completion will take place.

Apart from these, in the appellate court, in the case of Saad Marwi23, Gopal Sri Ram JCA has

said that “This is an important case. It has to do with whether our jurisprudence recognizes a

doctrine of inequality of bargaining power independent of the well-established doctrine of

undue influence. This is the first time, at least as far as I am aware, that this issue has come

up for decision at the appellate level”. In short, he wanted to bring this doctrine as an

independent doctrine whereby the approach will be much more flexible to achieve justice as

accordance to the facts of the particular case as broad and liberal as in Canada. Nonetheless,

his lordship’s suggestion was not applied by the courts in the subsequent cases. For instance,

the case of American International Co Ltd v Koh Yen Bee24, chose not to follow the Saad

Marwi judgement stating that the that the specific provision of section 14 of our Contracts act

1950 only recognizes coercion, undue influence, fraud, misrepresentation and mistake as

factors that affect free consent which included unconscionability .The learned judge also

distinguish the facts of the case from Saad Marwi so it seems to suggest that in particular

circumstances contract law might not avail if unconscionability is accepted as a separate

doctrine. This has also been expressly noted in the case of Yewpam Sdn Bhd v Mohd Salleh 25

whereby the court stated s.16 of the Contracts Act 1950 on undue influence has so much

similarity with unconscionability and thus the latter can be development within s.16. This

shown the reluctance of the court to recognise unconscionability as a separate doctrine from

the concept of undue influence. Fortunately all the uncertainties about the application of

23 [2001] 3 CLJ 98 24 [2002] 4 MLJ 301 25 [2001] 1 LNS 43

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unconscionability have now been clear in the Federal Court case of Sumatec26. Sumatec

recognised unconscionability as a separate and distinct ground to restrain a beneficiary from

making a call on a performance bond. The court also set a high threshold to prove

unconscionable conduct whereby a bare assertion will not suffice as well the unconscionable

conduct must provide a strong evidence of some degree in respect of the alleged act.

5.0 Australia’s position on unconscionable conduct

It is best to refer and learnt from the development in Australia in terms of doctrine of

unconscionability because the apex court decision in Sumatec ,the judge has referred to the

legislation of Australia and cited “In Australia unconscionable conduct is prohibited by her

Trade Practices Act 1974 with the introduction of the new Pt IV A in 1992, in both

commercial dealings (ss 51AA and 51AC) and in consumer transactions (s 51AB). The

Victorian Court of Appeal in Olex Focas Pty Ltd v Skodaexport Co Ltd (1998) 3 VR 380 (a

case involving the autonomy of standby letter of credit) observed that the effect of this Act 'is

to work a substantial inroad into well-established common law autonomy of letters of credit

and performance bonds and other guarantees'. The Victorian Court of Appeal however

affirmed the Supreme Court decision of Batt J at first instance to disallow an injunction on

the ground of unconscionability under s 51AA opining that the calling of a performance bond

in order 'to exert commercial pressure on the account party to achieve an advantageous

settlement of a dispute is not itself unconscionable'.” In short, Australia has the very own

legislation dealing with unconscionable conduct which is the Trade Practices Act 1974. Such

findings based on the Trade Practices Act were applied in the Amadio case27. In this case, the

court taken into account the vitiating factor to invoke unconscionability. Mason J’s findings

decision can be found at the page 461 as follows “Relief on the ground of unconscionable

26 [2012] 4 MLJ 1 27 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

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conduct will be granted when unconscientious advantage is taken of an innocent party whose

will is overborne so that it is not independent and voluntary, just as it will be granted when

such advantage is taken of an innocent party who, though not deprived of an independent and

voluntary will, is unable to make a worthwhile judgment as to what is in his best interest.”

Before reaching to the decision that it would be unconscionable for the bank to enforce the

guarantee, the court looked into the following material facts; that the Amadios’ English was

poor. They did not seek legal advice and the bank did not suggest them to do so .The bank

also aware of the son’s financial condition but was not known to Amadio as well the bank did

not advise them of their unlimited liability of the guarantee. Another Australia case; Blomley

v Ryan28 which the court found it’s unconscionable in consideration of the victim’s illiteracy,

lacking in education, suffering from intoxication, mentally and physically weak, without

proper advice and the fact that the contract price was less than the market value. Kitto J stated

about this at page 415 “The court has power to set aside a transaction whenever a party to a

transaction is at a special disadvantage in dealing with the other party because of illness,

ignorance, inexperience, impaired faculties, financial need or other circumstances affecting

his ability to conserve his own interests, and the other party unconscientiously takes

advantage of the opportunity thus placed in his hands”

28 (1956) 99 CLR 362

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6.0 Conclusion

From the aforementioned cases above, it can be seen that Malaysia judiciary are coming to

recognise such doctrine as independent or as a wider doctrine and separate from the concept

of undue influence. Even though, the purpose of this doctrine is much similar with the

inequality of bargaining power or undue influence, it is still critically important to ensure the

security of the contract .Besides; such doctrine should receive a wider recognition to serve

the ultimate purpose of it that is to correct men’s conscience. In the end, it can be concluded

that such independence of the doctrine will be greatly benefit the Malaysian legal system by

providing a more certainty in litigation.

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Reference

Fong, C.M., 2005. A Malaysian Doctrine of Inequality of Bargaining Power and

Unconscionability After Saad Marwi?, Malayan Law Journal, 4: i-xiii.

Fong, C.M., 2006. Interaction of the Doctrines of Undue Influence and Unconscionability in

Malaysia: A Merger or Separate Development?, The Law Review, 220-234.

Fong, C.M., 2009. Contract Law in Malaysia. Sweet & Maxwell Asia

P Parkinson The Principles of Equity

(Thomson Information (SE Asia) Singapore and Malaysia 1996) 30.

Seah, Weeliem. (2001). Unfulfilled Promissory Contractual Terms and Section 52 of the

Australian Trade Practices Act. Retrieved from http://www.murdoch.edu.au/elaw

(November 21, 2009).

Wan Izatul Asma. The Boustead Case: The Departure from the Traditional Parameters of the

Equitable Doctrine of Promissory Estoppel. Current Law Journal, 3, pages i–xi, 2003