An Unconscionable Contract

AN UNCONSCIONABLE CONTRACT

An unconscionable contract is one that is so one-sided that it is unfair to one party and therefore unenforceable under law. It is a type of contract that leaves one party with no real, meaningful choice. This is usually due to major differences in ‘bargaining power’ between the parties.

"Inequality of bargaining power" is a term used in English law to express essentially the same idea as unconscionability, which can in turn be further broken down into cases on duress, undue influence and exploitation of weakness. In these cases, where someone's consent to a bargain was only procured through duress, out of undue influence or under severe external pressure that another person exploited, courts have felt it was unconscionable to enforce agreements.

In a claim or dispute, if the court finds a contract to be unconscionable, they will typically declare the contract to be void.  No damages award or specific performance will be issued, but instead the parties will be released from their contract obligations.

A contract may be found to be unconscionable based on three different factors:

  • Undue Influence: This is where one party exercises unreasonable pressure in order to get the other party to sign the contract (especially where one party takes advantage of the other in some way)
  • Duress: This where one party uses threats in order to get the other to agree to the contract terms. This can take the form of physical threats, or other types of threats (such as not releasing goods in the proper way until the other party signs)
  • Unequal Bargaining Power: This occurs where one party has an unreasonable advantage of the other. This is usually proved if one party is aware that the other obviously did not understand the contract terms
  • Unfair Surprise: When the party who creates the contract includes a term in the contract without the other parties knowledge and is not within the other parties expectations
  • Limiting Warranty: A contract would be unconscionable if one party tries to limit their liability to a breach of contract or to any damages that he may incur on other party

The basic characteristic of most unconscionable contracts is that one party signed the contract under situations involving pressure, lack of information, or by being misled.

A typical example of an unconscionable contract is where one party is an experienced dealer in a type of business, while the other party is an average customer.  Or, in the case of most of you, an owner or director of a small-to-medium enterprise.  See the case reported on here: 

Business sales firm RTA demanded £10k despite failing to sell a client's business dated 14th April 2016

Suppose that the business dealer requires the customer to sign a contract. Within the contract, they have buried very complicated, technical language that most people would not understand or recognize. The business dealer used very small font and inserted the clause in a way that would purposefully mislead the consumer into signing on unfair terms. 

In this case, the contract might be declared unconscionable due to the unequal bargaining power between the parties, and the fact that one party used their knowledge and experience to take advantage of the other.  If the court finds the contract unconscionable, it will be declared void and unenforceable.

In other words, an unconscionable contract is one, which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept on the other. BELOW IS A DEFENCE FOR A CLAIM OF LIQUIDATED DAMAGES. IT NEEDS EDITING AND CEBTA TAKE NO RESPONSIBILITY IF IT IS USED WITHOUT LEGAL HELP

IN THE COUNTY COURT MONEY CLAIMS CENTRE CLAIM NUMBER [INSERT]

LOCAL COURT: [INSERT]

DATE of SERVICE [e.g. 14th August 2017] CLAIMANT CLAIMS £

BETWEEN

RTA (BUSINESS CONSULTANTS) LIMITED CLAIMANT

AND

[Name of DEFENDANT

DEFENCE

1. ANSWERING PARTICULARS OF CLAIM

Paragraph 1 is admitted in part as the Defendant did sign an 'agreement' dated [ .........2016] but did so because of the verbal and written representations of the Field Sales Agent. Said agreement has at least one clause that attempts to exclude the verbal representations made by the Field Agent but the Defendant alleges such exclusion/non reliance clauses breach UCTA 1977, specifically its test of reasonableness. The Field Sales Agent is the only person from the Claimant's premises that the Defendant meets, so what is the point of the visit if nothing the agent says can be relied upon? Moreover, it was an Estate Agency Agreement and no actual sale of the business was guaranteed. The Particulars of Claim do not refer to any specific agreement clauses but hopefully this Defence document will save the Judge's time.

Paragraph 2 is denied. [say why] The figure is handwritten into a space on the ‘agreement’ at Clause 5. There is no evidence or statement from the Claimant that the Agent’s handwritten insertions were shown to the Defendant. The Field Sales Representative kept the ‘agreement’ on the signing pad the whole time he delivered the ‘sales pitch’.

Paragraph 3 is denied. The non-payment of a low monetary amount cannot lead to the ‘penalty’ of having to pay a much higher amount ‘agreed’ ‘liquidated damages’ without considering that the higher amount is unconscionable (disproportionate and exorbitant compared to the lower amount, and compared to the work the Claimant could have done in the time the Claimant was instructed). Case law supports the unconscionable argument and such precedents will be supplied in evidence.

Paragraph 4 is denied. The Defendant avers that there were many alternatives to taking court action. The Defendant complained about the misleading nature of the Claimant’s contract, and from that point on (a) was not provided with the Claimant’s complaints Policy; (b) was not provided with details of the Claimant’s Redress Scheme; (c) received flat verbal refusals to any offer to settle the matter via Dispute Resolution.

Paragraph 5 is denied. The wording of the Claimant’s Paragraph suggests that they are aware of the unconscionable nature of the higher claimed amount. The Claimant lost the case of RTA v Sue Tootal in Colchester Court, District Judge Simon Mitchell (April 2016) on the grounds of a penalty clause and the claimed amount’s unconscionability. The Defendant had no concept of the term ‘liquidated damages’ so could not possibly agree to the imposition of them.

DETAILS OF THE PARTIES

2. The Claimant is a Limited Company acting as an Estate Agent with a controversial history of taking its clients to court after a field sales agent has had the owner of a building or business owner/Director sign an “off trader's premises” written standard terms 'agreement'. Proof of 132 Claims is provided via the answer to a Freedom of Information Request result from the Ministry of Justice – evidence in the forthcoming Evidence Bundle. The Defendant is a litigant-in-person, unfamiliar with Court procedures. The Defendant did not understand the legal wording in the 'agreement' he was persuaded to sign. The Defendant therefore suffered inequality of bargaining power.

DETAILS OF THE CLAIM AND DEFENDANT'S SUBMISSIONS

3. It is assumed that the Claim is based on the handwritten Registration fee figure in Clause 5 of the agreement. Alternatively, it could be based on the additional Clause written by the Field Sales Agent. It is for a Judge to decide. The remainder of the Terms are on the small-print written standard terms of the Claimant, which the Defendant alleges do not pass the test of reasonableness as per the Unfair Contracts Act 1977.

4. Particularly confusing is that the contract has the words ‘TWELVE MONTHS’ in capitals which misleads the reader into believing that is the maximum term of the ‘agreement. Further reading reveals that is just an initial term and the contact remains in force ad infinitum until a fee is paid to withdraw. The fee is hidden in a later-numbered clause, in words only with no numbers and no pound (£) sign. Lord Denning’s Red Hand Rule states that onerous terms should have prominence, but with the Claimant’s ‘agreement’ the reverse is the case.

5. Under the Statutory Instrument The Money-Laundering Regulations 2007 Regulation 5, (see Annexe to this Defence) it is required that the Agent for the potential sale of a business must carry out ‘Customer Due Diligence’ as to Beneficial Ownership; and as an Estate Agent, the Claimant – RTA (Business Consultants) Ltd, is a ‘relevant person’ under the Money Laundering Regulations.

6. The 'agreement' was signed BEFORE the Claimant had carried out any Identification or other checks as to whether there were any other Beneficial Owners or whether a valid lease was held. The Field Agent pressed for a signature before checking the full situation with the Defendant regarding Beneficial Ownership or lease and failed to obtain any identification documents belonging to the signee. That practice is a clear breach of the Statutory Instrument The Money Laundering Regulations 2007 requirement for Customer Due Diligence.

7. The requirements of the Regulations are reproduced exactly as an Annexe to this Defence. The Claimant cannot even verify the signature without proof of ID. The Claimant claims that Electronic verification after signing is sufficient, but that cannot verify the signature, nor can it check any beneficial owners unknown to the Claimant. Evidence of non-conformity to the requirements for full ID will be provided. Regulation 11(1) provides the detail, which is shown in the Annexe to this Defence. The meaning of “customer due diligence” is set out at Regulation 5, the full requirements are laid out in Regulation 7 (1) (in the Annexe to this Defence) especially because of this being an occasional transaction. Due Diligence entails identifying the customer and his/his Beneficial Ownership of the business or property. Ownership and Identification documents should be examined and copied before a business relationship is established. The aforementioned Defence Annexe sets out the actual Regulations. The Claimant and the Field Representative failed to check any Beneficial Ownership or “picture” Identity at all, or even to identify whether the Defendant was in a position to legally instruct the marketing of this business.

8. The Claimant should have abided by The Property Ombudsman Service (TPOS) Guide for Commercial and Business Agents which in itself is based on The Estate Agents Act 1979 and the 1991 update. The Claimant company is a Member of TPOS yet in contravention of TPOS rules, it fails to display the TPOS logo; so customers cannot know to whom they can complain. The TPOS Rules state that the logo should be displayed, together with the Claimant's complaints procedure. Both are absent from the Claimant's web site and correspondence.

9. The Claimant has contravened the 1991 Provision of Information Regulations, as zero written pre-contract information regarding remuneration were sent to the Defendant prior to the 'agreement' signing date. The Claimant was at all material times carrying out Estate Agency work as defined in, and for the purposes of section 1 of the Estate Agents Act 1979 and the Statutory Instrument The Estate Agents (Provision of Information) Regulations 1991. This is accepted by the Claimant's Membership of The Property Ombudsman Service (TPOS) Redress Scheme – though the Claimant's contravention of the need to display a TPOS logo shows the Claimant's contempt of the rules.

10. The Defendant signed in good faith on the claims made by the field Agent that the Claimant is an 'industry leader' as detailed in the High Court case RTA lost - RTA v Bracewell 2015. Therefore the Defendant seeks an order or declaration pursuant to Section 18(5) of the Estate Agents Act 1979 and/or the provisions of the Statutory Instrument The Estate Agents (Provision of Information) Regulations 1991 that the 'agreement' is not enforceable as alleged or at all.

11. The Defendant was under the impression from the Field Sales Agent's representations that any fee would only be chargeable if the business sold through the Claimant's efforts. Yet the clauses have wording additional to, and different from, those for Sole Selling Rights quoted in The Estate Agents (Provision of Information Regulations) 1991. The most operative difference is the use of the wordtermination’ as opposed to the Regulations use of ‘expiry’. The Claimant deems that the 'agreement' remains in force until terminated and termination involves a fee as per Clause 14 which itself has a fee that is 'hidden' in words only. Clauses 6 and 7 are worded ambiguously. Claiming a 2-year extension of Commission Rights in Clause 6 but only six months in Clause 7.

12. If Clause 12 is deemed in force, the Defendant avers that the Defendant Claimant Company themselves ‘lost the opportunity’ to claim commission because of their intransigent attitude. The Defendant instructed the Claimant not to market the business, so any advertising/marketing costs should be at the Claimant’s own expense.

13. Further details of the Field Agent's techniques are supplied in the Defendant's Witness Statement. Briefly, the Commission fee handwritten by the Field Agent Mr …………... is a high percentage - a fixed fee of £…. based on his recommended minimum selling price of £…... The Claimant claims the fixed fee regardless of the eventual selling price.

14. The 'agreement' has only one clause with wording that describes what the Claimant will do (the 'offer') in return for any fee proffered or owing by the Defendant (the 'acceptance'). The only part 'consideration' (what the Claimant promises) is in Clause 15 which is not an actual 'promise'; instead it is the Defendant 'agreeing' that the Claimant “will produce sales particulars and advertise on the Claimant's [own] web site'. The Defendant therefore avers that such 'consideration' is not drafted properly. Moreover, prospective purchasers of the properties or businesses on the Claimant's site need to Register on the site in order to view a property or business – a disincentive nowadays with the amount of junk mail and spam the average individual can receive. The Defendant avers that the 'agreement' thus fails the test of being a contract between the Claimant and the Defendant.

15. The history of this case is as follows: After several unsolicited telephone calls from the Claimant, the Claimant's ‘Free’ 'Consultant'/Sales Agent Mr [first name] [surname] attended the Defendant's place of work known as [name of company] Mr ………….. claimed that RTA had a strong database of potential customers looking for businesses just like [this], and that it  was a really good time to sell this business. Further details of the Field Sales Agent's representations and misrepresentations will be supplied in the Defendant's Witness Statement. The Defendant alleges the Agent's breaches were innocent, negligent or fraudulent according to The Misrepresentation Act 1967. The Defendant would not have entered into the 'agreement' except that he was persuaded by the written and verbal misrepresentations.

16. At all material times the Defendant relied upon the supposed professionalism of the Claimant's Sales Representative to explain the legal terms of the agreement. Yet the 'agreement' contains two Clauses at Clause 8 and Clause 16 that could be deemed exclusion/non-reliance clauses which the Defendant avers do not pass 'the test of reasonableness' as defined in the Unfair Contract Terms Act 1977 in that the Defendant was visited by the only person representing the Claimant on whose word he signed the agreement, yet both clauses seek to deny reliance on any words uttered by the said Representative.

17. The Claimant may argue that it has been audited by HMRC and its methods have been approved but has yet to produce any evidence of said audit or approval. To the contrary, the Defendant has evidence from HMRC that electronic identity checks alone are insufficient to prove a customer's ID.

18. At least two District Judges have ruled that the 'agreement' is 'tainted with illegality' because of the Claimant's method of seeking a signature at the time of the Field Sales Representative's short visit; which does not give the chance for the signee to read or understand this complex legal 'agreement' that demands a fee from the signee whatever happens – yet the Claimant expects the signee to somehow be able to understand, and to lose the right to 'cool off', just because he or he runs a business. No Notice of Right to Cancel is given with the 'agreement' as the Claimant claims a lack of all its customers 'Cooling off' period even though the person signing may do so as an individual.

19. The Defendant notices that Clause 1 of the 'agreement' makes the individual, a 'natural person' responsible for the Claimant's fees for the business. Yet [name of company] LIMITED is an entirely separate legal entity. The Limited Company itself was never invoiced by the Claimant. The monetary accounts of the business/limited company are kept entirely separately from the accounts of the Defendant, in different bank accounts. The Claimant may argue that the Defendant is a business person, but that does not make him any more able to understand the 'agreement' terms. Being in business makes no difference as the Defendant is a 'natural person' contracting with the Claimant 'outside [the Defendant's] usual trade, profession or craft – he/she is a person who …………… [type of trade] from a leased building. He was persuaded to enter into this 'occasional transaction' – a 'one-off' transaction in fact. For these reasons his case is different to the RTA v Bracewell (sole trader) case and he wishes the Judge to consider that his status is either a consumer or has lower bargaining power like a consumer.

20. There is no wording in the Claimant’s ‘agreement’ that warns that the Claimant treats it is a ‘business to business’ agreement.

21. In providing its services, the Claimant owed the Defendant a duty to carry out those services with 'reasonable care and skill' as defined in the Supply of Goods and Services Act 1982. In breach of such duty and obligations to the Defendant, the Claimant:

(a) Failed to explain fully, or at all, the ‘onerous’ clauses in the agreement; (b) Failed to advise the Defendant, properly or at all, of the lack of a 'cooling off' period and (c) failed in all matters explained above.

22. The Claimant company, RTA, is attempting to sue the Defendant for £……. including VAT yet it has failed to supply any strict proof that it has incurred such costs and expenses. It has procedural irregularities in that it has not produced a dated invoice with a tax point and VAT number as required by HMRC. The Claimant has no contractual right to this figure because, according to HMRC Regulations (proof of which will be in the Evidence Bundle) EEC rules dictate that VAT is only chargeable on goods or services, not on a breach of contract – evidence to be supplied in the Bundle. As such the claim is entirely unfounded and should fail as being defective.

23. If it is found that the Defendant entered into a legal agreement with the Claimant then it is the Defendant’s case that he did so exercising his rights under the The Consumer Rights Act 2015 because the Defendant entered the agreement as an individual having received unsolicited calls and having entered into an 'agreement' away from the trader's premises. The Consumer Rights Act has provision for part business, part personal transactions so there can be no reliance by the Claimant on the verdict of France v Di Pinto. The Defendant had agreed to a meeting in his place of work, to get a ‘Free Consultation’ of the business with a view to ‘possibly’ marketing it. The Defendant acted wholly as an owner of a ……. business, who was not in business to value, market or sell businesses.

24. The Claimant may seek to rely on a High Court case lost by the Claimant RTA v Bracewell where Judge Seymour ruled that Mr Bracewell was not a consumer. As Mr Bracewell was running two businesses from his premises, the Honourable Judge's comments are understandable in that he used EEC case law, Council Directive 85/577/EEC. In English Law 85/577/EEC is now repealed and replaced with The Consumer Rights Act 2015 which allows for part business, part personal. Judge Seymour could not have used the 2015 Act as Mr Bracewell signed in 2010. The Defendant pleads that his circumstances bear no resemblance to those of sole trader Mr Bracewell.

25. The entire agreement is written in very small print, with no highlighted, bold or underlined clauses at all. The various clauses cross-reference to one another so there is ambiguity – the legal terminology is nearly impossible for the non-legal signee.

26. For the reasons set out in this Defence, the Claimant's Claim is denied in its entirety and the Claimant is put to strict proof of all matters alleged by the Claimant Company, in particular the amount spent on any advertising.

27. To sum up, the Defendant alleges that the Claimant has procedural irregularities; the agreement has conflicting clauses that switch back and forth making reading and understanding one's obligations at least difficult, if not impossible; The Claimant demands [half/full Commission fees/a withdrawal fee/a ‘Registration’ Fee] without proof of spending and seeks to rely on unfair terms which conflict with many Acts and Regulations. For points of law the Defendant relies on the following: Lord Denning's 'Red Hand Rule' as cited in Spurling v Bradshaw because of the use of small print, together with a 'termination or withdrawal' clause written only in Clause 14 but not mentioned in Clause 2; The Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991;The Unfair Contract Terms Act 1977and/or The Consumer Rights Act 2015; The Supply of Goods and Services Act 1982; The Misrepresentation Act 1967; The Money Laundering Regulations 2007 applying to Estate Agents since 2010; specifically Regulations 5, 7, 9 and 11.

STATEMENT OF TRUTH

I believe the foregoing Defence Document represents a True Statement of the Facts

Signed …………………………… [type name] Date ……………[Month] 2017

IN THE COUNTY COURT MONEY CLAIMS CENTRE CLAIM NUMBER [INSERT]

LOCAL COURT: [INSERT]

DATE of SERVICE [e.g. 14th August 2017] CLAIMANT CLAIMS £

BETWEEN

RTA (BUSINESS CONSULTANTS) LIMITED CLAIMANT

AND

[Name of DEFENDANT

COUNTERCLAIM

If the Claimant's Claim is dismissed, the Defendant would like to Claim costs as follows:

Paragraphs 1 to 27 of the Defence are repeated

Printing and Recorded Delivery postage – details will be provided at Hearing

Mileage and/or Public transport @ £0.45 per mile to deliver documents to Court

For the Judge's ease of reference, the defence annexe containing Regulations 7, 9 and 11 of The Money Laundering Regulations 2007 follows overleaf:

IN THE COUNTY COURT MONEY CLAIMS CENTRE CLAIM NUMBER [INSERT]

LOCAL COURT: [INSERT]

DATE of SERVICE [e.g. 14th August 2017] CLAIMANT CLAIMS £[   ]

BETWEEN

RTA (BUSINESS CONSULTANTS) LIMITED CLAIMANT

AND

[Name of DEFENDANT]

DEFENCE ANNEXE Regulations 5, 7, 9 and 11 of The Money Laundering Regulations 2007

Regulation 5 of the Money Laundering Regulations reads as follows:

Meaning of customer due diligence measures

5. “Customer due diligence measures” means—

(a) identifying the customer and verifying the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source;

(b) identifying, where there is a beneficial owner who is not the customer, the beneficial owner and taking adequate measures, on a risk-sensitive basis, to verify his identity so that the relevant person is satisfied that he knows who the beneficial owner is, including, in the case of a legal person, trust or similar legal arrangement, measures to understand the ownership and control structure of the person, trust or arrangement; and

(c) obtaining information on the purpose and intended nature of the business relationship.

Regulation 7 of the Money Laundering Regulations reads as follows:

Application of customer due diligence measures

7.—(1) Subject to regulations 9, 10, 12, 13, 14, 16(4) and 17, a relevant person must apply

customer due diligence measures when he—

(a) establishes a business relationship;

(b) carries out an occasional transaction;

(c) suspects money laundering or terrorist financing;

(d) doubts the veracity or adequacy of documents, data or information previously obtained

for the purposes of identification or verification.

Regulation 9 of the Money Laundering Regulations reads as follows:

Timing of verification 1) This regulation applies in respect of the duty under regulation 7(1)(a) and (b) to apply the customer due diligence measures referred to in regulation 5(a) and (b).

(2) Subject to paragraphs (3) to (5) and regulation 10, a relevant person must verify the identity of the customer (and any beneficial owner) before the establishment of a business relationship or the carrying out of an occasional transaction..

Regulation 11 states: (1) Where, in relation to any customer, a relevant person is unable to apply customer due diligence measures in accordance with the provisions of this Part, he—

(a) must not carry out a transaction with or for the customer through a bank account;

(b) must not establish a business relationship or carry out an occasional transaction with the customer;

(c) must terminate any existing business relationship with the customer.

In Regulation 9 (2), Note the use of the word before. Mr O'Reilly, the Claimant's Executive Chairman, has in previous cases attempted to use Regulation 9 (3) 'Such verification may be completed during the establishment of a business relationship if— (a) this is necessary not to interrupt the normal conduct of business'. However, judges have criticised Mr O'Reilly's methods of getting the 'agreement' signed on the sales agent's one and only visit as being 'tainted with illegality' and Mr O'Reilly has yet to prove that his company have been audited (and passed said audit) like he has claimed in previous cases. The Defendant will provide evidence from HMRC including evidence that electronic checks alone do not prove a person's ID – electronic checks must be supplemented with genuine documents provided by the subject of the checks.