Cresswell v Potter [1978] 1 WLR 255

Facts

  • Mrs. Cresswell transferred her interest in the matrimonial home to her husband, Mr. Potter, as part of a divorce settlement.
  • Mrs. Cresswell had limited education, lacked independent legal advice, and was experiencing significant emotional distress due to divorce proceedings.
  • Mr. Potter was more experienced and knowledgeable regarding business and legal matters.
  • The Court of Appeal found the circumstances surrounding the transaction placed Mrs. Cresswell at a special disadvantage, which Mr. Potter exploited.

Issues

  1. Whether the transfer by Mrs. Cresswell constituted an unconscionable bargain due to her special disadvantage and lack of independent legal advice.
  2. Whether Mr. Potter knowingly exploited Mrs. Cresswell's vulnerability in securing the property transfer.
  3. Whether the court should set aside the agreement on grounds of unfairness arising from a significant imbalance of bargaining power.

Decision

  • The Court of Appeal held the transaction to be an unconscionable bargain.
  • It was determined that Mrs. Cresswell was at a special disadvantage owing to her lack of education, emotional vulnerability, and absence of legal advice.
  • Mr. Potter was found to have been aware of her disadvantage and to have taken unfair advantage of her position.
  • The court set aside the property transfer, affirming the need for fairness in divorce settlements involving unequal bargaining power.

Legal Principles

  • An unconscionable bargain may be set aside where one party is under a special disadvantage, the other party knows of this, and unconscientiously takes advantage of it.
  • The absence of independent legal advice and the presence of emotional or educational vulnerability are relevant indicators of special disadvantage.
  • Courts will scrutinize divorce settlements and other contracts for fairness where significant power imbalances exist.
  • The principles established in this case extend to contractual situations beyond divorce settlements, permitting broader judicial intervention to protect vulnerable parties.

Conclusion

Cresswell v Potter established that agreements, especially in divorce settlements, may be set aside as unconscionable bargains when one party suffers a special disadvantage, lacks independent advice, and is exploited by a stronger party. The decision marked a significant development in protecting vulnerable individuals from unfair contractual obligations arising out of unequal bargaining positions.

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