• In the case of Multiservice Book Binding v Marsden [1978] 2 All ER 489, the High Court held that a term in a mortgage transaction can be valid if it is unreasonable, so long as it is not ‘unconscionable’.

Facts of the case:

  • C executed a mortgage charging their business premises as security for a loan from D of £36,000.
  • Under the mortgage agreement, the capital advanced was repayable with interest thereon of two per cent per annum.
  • It was also provided, inter alia, that any sum payable by way of principal of interest was to be ‘increased or decreased proportionately’, if at the close of business on the day preceding the day on which payment is made the rate of exchange between the Swiss franc and the pound sterling shall vary by more than three percent.
  • Subsequently, following an alteration because of the ‘Swiss franc uplift’ clause, proceedings began relating to the redemption of the mortgage, and C claimed that the Swiss franc uplift clause was void on the basis that it was contrary to public policy.

Issues in Multiservice Book Binding v Marsden [1978] 2 All ER 489

  • The issue in the present case for present purposes was whether the index-linked Swiss franc uplift clause was contrary to public policy, and thus whether it was void.

High Court held:

  • The High Court held that even though the clause was unreasonable, it was not void, as it was not unconscionable.
  • Therefore, unreasonable terms can exist in a mortgage transaction insofar as they are not unconscionable.

Browne-Wilkinson J

  • [544] “I have had the point elaborately argued before me by distinguished counsel, and after, considering the arguments I do not feel that in 1977 I can declare that an index-linked money obligation is contrary to public policy… Today a large number of obligations originally expressed in pounds sterling are varied by reference to an external yardstick. Long-term commercial contracts frequently include index linked obligations: so do many contracts of employment. The rent payable under certain leases has for centuries been made variable dependent upon the price of corn. More important, Parliament itself has authorised the linking of public service pensions to the cost of living and the issue of Savings Bonds similarly linked. It would be strange if Parliament had authorised transactions contrary to public policy.”
  • [549] “I therefore approach the second point on the basis that, in order to be freed from the necessity to comply with all the terms of the mortgage, the plaintiffs must show that the bargain, or some of its terms, was unfair and unconscionable: it is not enough to show that, in the eyes of the court, it was unreasonable. In my judgment a bargain cannot be unfair and unconscionable unless one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a way which affects his conscience.”