Duress & Undue Influence
Duress & Undue Influence
The reasoning behind duress and undue influence is to protect the freedom of contracts, which has been achieved by the courts invalidating a contract that has been formed by any coercion.
A person who enters into a contract is often under some sort of pressure to do so
If the pressure is excessive—this is “duress”
Contracts entered into under “duress” can be voidable and set aside with the insistence of the party subjected to it
Duress concerns consent and whether it has been vitiated thus leading to the contract becoming voidable. If a contract is voidable you are only entitled to rescission.
The consent is still there, but you are consenting under unlawful pressure.
1) Improper/illegitimate pressure
a. Nature of the Pressure:
The pressure must be of an illegitimate nature and two things have to be decided whether the pressure is improper/illegitimate to amount to duress:
2) Pressure leaves you with no reasonable alternative but to consent
a. Legitimacy of the pressure:
R v Attorney General for England & Wales: Lawful conduct may still amount to illegitimate pressure if it leaves the victim with no reasonable alternative.
3) There is a causal relationship between the pressure exerted and the inducement into the contract
a. Causative effect of the pressure:
Dimskal Shipping Co SA v ITWF: The threat to breach a contract must be a significant cause to induce the victim of duress to enter into a new contract (Illustrates the causative nature – there must be a link).
Three types of Duress:
1) Duress to the person
2) Duress to goods
3) Economic duress
I. Duress to the person:
Serious threat or serious harm to another person
The threat must be a reason for entering into the contract
There is little guidance regarding how serious the threat must be
- Barton v Armstrong: The threat to enter into the contract has to only be a reason to enter into the contract not the only or most significant reason.
o Chairman of a company threatened to kill the managing director if he did not execute a deed in his favour
II. Duress to goods:
Courts were reluctant to extend the doctrine of duress beyond threats against a person but development occurred through:
- Skeate v Beale: Traditionally for duress to be accepted, the threat should be against the person and not their property.
o Defendant agreed to pay an amount which was not actually due to his landlord because of a threat to sell his goods which had been seized
o Landlord succeeded in enforcing the agreement to pay even though the threatened sale would have been unlawful
o Court believed defendant should have relied on his lawful remedies against wrongful seizure and sale of his goods rather than entire into a contract which he didn’t intend to keep
- However, courts recognized an obligation to return money actually paid in response to a threat against goods
Dimskal Shipping Co SA v International Transport Workers’ Federation: Skeate has been criticised, duress to goods can be relied upon to rescind out of a contract, as long as the requirements are met.
III. Economic Duress: (Main form of duress used now)
Economic pressure that a threat to break a contract can impose, no
doubt reflecting increased value of economic rights enshrined in
contracts relative to the value of property rights in goods
Economic Duress involves a threat by a party to cease performance of a contract or otherwise breach of contract may be used to extract a promise of more payment
The consequence of such a threat might be that any new agreement entered into on the basis of such a threat may be voidable for duress
- The Siboen and the Sibotre (1976) : Economic duress is a modern area where in a commercial contract a party is coerced into a change of arrangements under the threat of a commercially damaging cause of action.
- Was held that to succeed in a claim of economic duress, it must be shown that the economic pressure must overbear the will of the party in question
- The more modern approach is based on establishing illegitimate pressure and the causative effect thereof
- North Ocean Shipping Ltd v Hyundai Construction Co (1979):
o Similar in nature to the Sibeon
§ Both cases no successful because they could not be proved—took too long in claiming
§ After these cases, it was clear that a contract could be avoided for economic duress but the right facts had not come before a court for such a claim to succeed
The party subject to the duress must a) protest immediately and b) shown a reluctance to enter into the arrangement otherwise you may lose the right to a remedy.
DSND Subsea Ltd v Petroleum Geo-Services ASA: current test for economic duress.
1) There must be pressure
2) The pressure has to have a lack of practical choice leaving the victim with no reasonable alternative
3) The pressure has to be illegitimate/unlawful
4) Has to be a significant cause of inducing the claimant to enter into the contract
Factors courts take into account:
· Is there an actual or threatened breach of contract? Has the person acted in good or bad faith?
CTN Cash & Carry Ltd v Gallagher: Lawful conduct will amount to economic duress if the party applying the pressure is doing so in bad faith.
· Did the victim have any practical alternative, rather than submitting to the pressure?
· Did the victim protest at the time?
The Atlantic Baron: The contract was voidable for duress; however, since the claimants had left it so long in bringing their claim they had affirmed the contract and lost their right to rescind.
Borelli v Ting: Even if there is ED, the party loses the right to rescind the contract if sufficient time has elapsed or if they affirm the contract.
Implicit or overt pressure:
Williams v Bayley: Pressure can be implied and therefore be implicit. Therefore amounting to economic duress.
The threat need not be unlawful OR illegitimate (it can be either):
R v Attorney General for England & Wales : The threat can be unlawful or illegitimate.
B & S Contractor’s v Victor Green Publishing: Even if the strike is lawful, the pressure caused by the strike was illegitimate and amounted to ED.
Atlas Express v Kafco: If the threat amounts to illegitimate pressure it will amount to ED.
Lawful threat or pressure:
CTN Cash & Carry Ltd v Gallaher : Duress can arise from lawful count.
The Siboen: If the pressure does not vitiate the owner’s consent as to entering into a new contract it will not amount to economic duress.
Adam Opel Gm. v H – Mitras Automotive UK: If there is no reasonable alternative to the victim at the time he enters into a contract, the contract can be void for ED.
Remedies for Duress:
1) Contract becomes voidable
The Atlantic Baron: Confirmed this. You are only entitled to rescind the contract under duress, not claim damages.
Essentially courts must take into account the legitimacy of the
looking at whether there has been an actual or threatened breach of contract
whether person allegedly exerting the pressure has acted in good or bad faith
whether victim had any realistic practical alternative but to submit to the pressure
whether victim protested at the time
whether he affirmed and sought to rely on the contract
**Illegitimate pressure must be distinguished from the pressures of normal commercial bargaining
Examples of Illegitimate Pressure:
- Threat to commit a crime or tort
- Threat to do a lawful act will not usually be illegitimate but will be if made in bad faith
- Illegitimacy more likely when the threat was made by stronger party to a party in a weaker position and/or in bad faith
** Have to look at both legitimacy of pressure and causation of pressure
Traditionally undue influence is an equitable remedy where one party
has been induced by coercion to enter into a contract. It is a question
of degree what persuasion is acceptable and what amounts to undue
Invoked when the influence which induced a party to enter into a contract is such that it is seemed by equity to be unconscionable for the other party to enforce his legal rights
Essentially a form of equitable fraud
Two Categories of Undue Influence:
BCCI v Aboody: Established two categories – presumed and actual undue influence.
Class 1: Actual undue influence
When there is proof that there was improper pressure which induced the
party to enter into the contract
The person alleging the undue influence must prove it
Usually direct evidence of one party having too much influence in a relationship (example: a husband screaming at his wife before signing a document)
- CIBC Mortgages v Pitt: The victim of the alleged undue influence must show that the other party was dominant and the influence that was used that vitiated the victims consent to the contract to the extent it wasn’t genuine. Onus is on the claimant.
- Royal Bank of Scotland v Etridge (2002): The party seeking the relief from the contract must show that actual undue influence existed & the transaction resulting from the contract was a result from that undue influence.
o Concerned appeals where banks were seeking possession of homes where a wife had signed a charge or mortgage agreeing to secure the debts of the husband on the family home
o The bank had to prove that the wife was aware of the relationship
Class 2: Presumed undue influence
The courts will presume that there was undue influence exerted on the
victim if they fall into the list within section 2A; if they do not, the
victim will have to prove that there was a special relationship to allow
the courts to presume undue influence. (Onus is on the defendant).
àClaimant often unable to prove that one party exercised too much influence over them—instead the courts can infer form the facts that one party preferred his own interests and failed to safeguard the other parties’ interests
For presumed undue influence there are three elements:
1) A relationship of trust & confidence (Class 2A always satisfies this, no need for anything else)
2) Something which calls for an explanation (Presumption of Undue Influence for group 2B used to rely only on requirement 1, following Etridge No.2 this requirement is now needed.)
3) Opportunity for rebuttal (Only in class 2B opportunity for rebuttal following Etridge)
Class 2A consists of:
- Parent – Child (Lancashire Loans Co v Black)
- Religious leader – Disciple (Allcard v Skinner) OR (Curtis v Curtis)
- Trustee – Beneficiary (Benningfield v Baker)
- Doctor – Patient (Dent v Bennett)
- Solicitor – Client (Wright v Carter)
Class 2B consists of everyone one else including husband and wife (POST ETRIDGE)
** NOTE: For presumed undue influence, it has to be an evidential presumption.
Now, the major rules are contained in HL Judgement in Etridge.
· The bank should takes steps to see that the wife is fully informed
· Solicitor can act for both parties unless he realizes it is a conflict of interest
· Solicitor should inform the wife of the nature of the documents, seriousness of the rise, and that she has the choice to back out
· The bank should get confirmation of advice from the solicitor
Doesn’t have to prove anything, if you fall into the category, the presumption is irrefutable.
Has to satisfy the 3 requirements, but the presumption can be rebutted.
Hammond v Osborn : Independent legal advice is the easiest way to rebut the presumption of presumed undue influence.
RBS v Etridge (No.2): Independent legal advice does not necessarily rebut the presumption (e.g. husband forcing the wife to get legal advice).
Hart v Burbidge: If the complainant does not seek legal advice the defendant will struggle to rebut said presumption.
R v Attorney General of England & Wales: Following Etridge, the test was confirmed here.
Current three-stage process for presumed undue influence under category 2B :
1) Relationship of trust & confidence
2) Something calling for an explanation
3) Opportunity for defendant to rebut said presumption
Undue Influence and 3rd Parties:
This usually concerns husbands putting undue influence on their wives to enter into contracts with banks to secure borrowing for their husband.
Banks should make reasonable ‘inquiries’ with cases revolving around non-commercial relationships to ensure they enter into it freely without any influence that is improper, if they fail to do so, the courts will impose ‘constructive notice’ which is in effect the court pretending the banks have taken notice of the undue influence to reach a just decision.
Barclays Bank v O’Brien : The bank has a duty to ensure the party understands the implications of their decision.
Remedies for Undue Influence:
Any contract which has been created through undue influence is voidable, therefore creating the opportunity to rescind said contract.
The bars to rescission of a contract under undue influence:
1) Time lapse – Allcard v Skinner – Cannot rely on undue influence if sufficient time has elapsed to presume you have affirmed the contract.
3) Bona Fide (GENUINE) 3rd Party Purchaser – If a 3rd party obtains goods honestly through a previous contract where said goods have been obtained through undue influence you are entitled to keep the goods.
a. The victim of undue influence can only claim the value of goods through damages.