Portman Building Society v Dusangh & Ors

An improvident transaction is not an unconscionable bargain merely because one party is elderly, poor, illiterate, inexperienced or badly advised. Equity requires serious disadvantage, exploitation or morally reprehensible conduct by the stronger party, and a transaction that is overreaching or oppressive so as to affect the court’s conscience.

Where a lender is said to be bound by unconscionable conduct by an intermediary, the lender must have actual or constructive notice of the relevant impropriety. Independent legal advice may ordinarily dispel constructive notice unless the lender knows, or ought to know, that the advice is inadequate or that no competent solicitor could properly advise entry into the transaction.

The appellant, aged 72 and with limited English and literacy, had charged his home to Portman Building Society to raise funds for his son’s supermarket business. The mortgage was guaranteed by the son, who agreed to make the repayments.

The Derby County Court rejected defences based on non est factum, undue influence, misrepresentation and unconscionable bargain, and ordered possession and payment of the mortgage debt. The appeal concerned only the alleged unconscionable bargain. The central issues were whether the son’s conduct was unconscionable and binding on Portman, whether Portman had constructive notice, and whether the mortgage was directly liable to be set aside against Portman.

1. The appeal was dismissed unanimously. Simon Brown LJ held, and Ward LJ agreed, that the mortgage was improvident but not an unconscionable bargain.
2. The doctrine requires more than hardship, unequal bargaining power, poor judgment or objectively unreasonable terms. The transaction must involve serious disadvantage, exploitation or morally culpable conduct by the stronger party, and resulting terms that are overreaching or oppressive and shock the conscience of the court.
3. The son had not exercised undue influence or misrepresented the transaction. Although the father assumed the risk and the son obtained the benefit, there was no morally reprehensible exploitation of the father’s illiteracy, lack of business experience or paternal generosity.
4. The principles in Barclays Bank plc v O'Brien applied by analogy to unconscionable conduct as another legal wrong. However, Portman had no actual or constructive notice of any equity arising from the son’s conduct. It was entitled to take account of the independent legal advice given by the solicitor.
5. Independent advice does not invariably protect a lender. The lender cannot rely on it where material information is unavailable to the solicitor, or where the transaction is one into which no competent solicitor could properly advise the complainant to enter. This case did not meet that threshold.
6. Ward LJ added that the evidential burden discussed in Fry v Lane arises only where the circumstances sufficiently indicate wrongdoing. Poverty, ignorance, disadvantage and absence of advice do not themselves establish unconscionable conduct.
7. The building society was not morally culpable merely because it accepted a mortgage application that was commercially unwise or failed to follow safeguards designed to protect its own lending interests. The mortgage was not overreaching or oppressive, and the court’s conscience was not shocked.

• Court of Appeal (Civil Division): dismissed the appeal from the order of Mr Recorder Goldring QC in the Derby County Court dated 9 March 1999.
• Derby County Court: declared Portman entitled to a legal mortgage over the property, granted possession and ordered payment of £61,428.69 and costs.