Contract - Duress and Undue Influence

Question 1

What is the effect of a contract made under duress or undue influence?

Answer 1

Voidable
- Remains valid until rescinded
- Damages are not available

Question 2

5 conditions for Duress (DSND Subsea)

Answer 2

1. Coercion of will; pressure on contracting party
2. Pressure was illegitimate
3. Pressure influenced claimant to enter into the contract
4. Claimant had no real choice to enter into contract
5. Claimant protested at the time or shortly after the contract was made

Question 3

Illegitimate pressure cases

Answer 3

Physical duress - Barton v Armstrong
Economic Duress - The Sibeon and The Sibotre, North Ocean Shipping v Hyundai, Altas Express v Kafco

Question 4

Pao On v Lau Yiu Long

Answer 4

Commercial pressure, but duress claim failed here because the defendants had an adequate legal remedy in action for specific performance (consideration)

Question 5

Atlas Express v Kafco (Illegitimate pressure)

Answer 5

A threat to do an unlawful act will always be regarded as illegitimate

Question 6

CTN Cash and Carry v Gallagher (illegitimate pressure)

Answer 6

A threat to resort to law does not constitute duress

Question 6

Barton v Armstrong test (influenced claimant into contract)

Answer 6

Physical duress - must show the illegitimate pressure was a cause of the claimant’s decision to enter into the contract

Economic duress - illegitimate pressure must be a ‘significant’ cause of the decision to enter into the contract

Question 7

The Atlantic Baron - how long after a contract can you protest?

Answer 7

Claim failed in this case as C waited 8 months after ship was delivered

Question 7

The Universal Sentinel (claimant had no choice)

Answer 7

The threat must have affected the way in which a party saw its position, in effect leaving it to feel that it had little choice but to agree to the contract

Question 8

What is Undue Influence?

Answer 8

One party uses their influence other the other party to persuade them to make a contract

Question 9

What are the two forms of undue influence?

Answer 9

1. Actual
2. Presumed

Question 10

What is actual undue influence?

Answer 10

• The claimant must prove that the ability was exercised and they had the power to influence and that the influence was unconscionable
• Also have to prove that it induced the other party to enter into the contract

Question 11

What is presumed undue influence? (incl. case)

Answer 11

A pre-existing relationship of confidence between the two parties to a contract; the transaction between the two must be suspicious and ‘call for an explanation (Royal Bank of Scotland v Etridge (No2)

Question 12

What is a fiduciary relationship?

Answer 12

one party (the fiduciary) is placed in a position of trust and confidence in relation to another party and acts on their behalf or in their interests in some respect

Question 13

Examples of a fiduciary relationship

Answer 13

• Parent and Child
• Guardian and Ward
• Solicitor and Client
• Doctor and Patient

Question 14

Examples of non-fiduciary relationships

Answer 14

• Husband and Wife
• Employer and Employee

Question 15

Lloyds Bank v Bundy

Answer 15

The innocent party places a considerable amount of trust in the advice given by the fiduciary

Question 16

Allcard v Skinner; CIBC v Pitt

Answer 16

Exceptionally large gifts and loans wouldn’t be accounted for a present

Question 17

Undue influence and 3rd parties

Answer 17

Rights of the contracting party are affected by the impropriety of the 3rd party if they know of it or are deemed to have constructive knowledge

Question 18

3-part test from Barclays Bank v O’Brien

Answer 18

1. Is undue influence established between A and B?
2. Does the 3rd party have actual or constructive notice of the undue influence?
3. If yes, the 3rd party will be bound by the undue influence unless it has taken reasonable steps to avoid it