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
- Whether the transfer by Mrs. Cresswell constituted an unconscionable bargain due to her special disadvantage and lack of independent legal advice.
- Whether Mr. Potter knowingly exploited Mrs. Cresswell's vulnerability in securing the property transfer.
- 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.