Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 W.L.R. 173

Key points

  • The doctrine of unconscionable bargain is not subsumed by Lord Denning’s doctrine of inequality of bargaining power
  • For a bargain to be set aside for unconscionable bargain, there must have been unconscionable conduct by one party

Facts

  • A small company (C) that ran a petrol station entered into a tie agreement to only purchase oil from Total (D)
  • Facing financial difficulty, C entered into a lease and lease-back agreement with D (where C leases the petrol station to D in return for a premium and nominal rent, and D grants a sub-lease back to C for an annual rent) and a new tie agreement
  • 10 years later, C sought to have the contract set aside on the ground that there was an inequality of bargaining power, relying on Lord Denning’s dictum in Lloyds Bank v Bundy
  • C argued that a contract should be set aside if: 1. there was an inequality of bargaining power; and 2. the terms were not fair and reasonable; but it is not necessary to consider whether D’s conduct was unconscionable

Held (Court of Appeal)

  • The tie agreement was void as a restraint of trade (not our focus here)
  • The lease and lease-back agreement was not set aside despite the unequal bargaining power of the parties as D’s conduct was not unconscionable

Dillon LJ

Application of the doctrine of unequal bargaining power was rejected) for two reasons (pp. 182 – 183):

  1. The possibility of relief should not have invariably denied whenever the weaker party has independent advice
  2. The doctrine does not take into account whether the stronger party acted unconscionably

(1) On the role of independent advice

  • C had no access to alternative sources of financing and thus had no choice but to enter into the agreement
  • In these circumstances ‘it would be unreal…to hold that if the transaction is otherwise tainted it is cured merely because Mr Lobb and the company had independent advice’

(2) On the role of unconscionable conduct

  • Inequality of bargaining power is a relative concept, seldom in any negotiation are the parties absolutely equal, thus contracts entered under circumstances of unequal bargaining power should not, without more, be reviewed for reasonableness – the court will only intervene where there was unconscionable conduct and exercise of coercive power by the stronger party
  • In the present case, D’s conduct was not unconscionable, coercive or oppressive