CONTRACT - WEEK 8 Flashcards
Barton v Armstrong [DURRESS]
FACTS: Power struggle for control of a company (Landmark, L). The C (B) agreed in a deed to buy out the D (A’s) interest in L. The C sought a declaration that the deed was ‘void’ on the grounds that he had entered into the contract because of the D’s threat to have the C killed if he did not.
It was held that the threat had been made but that the primary reason why the contract was entered into was not the threat but was in fact commercial necessity and on those grounds duress could not be claimed.
RATIO: In favour of the C. Duress upheld.
Lord Cross of Chelsea (delivering judgement of majority)
This is a very unusual case as in most instances the threat will be the reason for inducement. In this case “the proper inference to be drawn from the facts is … that though it may be that Barton would have executed the documents even if Armstrong would have made no unlawful threats/pressures to induce him to do so, the threats and unlawful in fact contributed to his decision to sign the documents and to recommend their execution to the other parties.
- The state of mind of the man threatened was held to the of “very real mental torment: and he truly believed that he would be killed and that signing the document would alleviate these worries.
Lord Wilberforce (Joint dissenting judgement)
Disagree on this case as to issues of fact has the contract been made voluntarily
Propose that in an action such as the present (to est. duress)
a) Show illegitimate means of persuasion was used
b) Est. a relationship between the 2: the illegitimacy was a reason why the C acted as he did
* On this point it follows that the reason for action must be a conscious reason that the C can give evidence of e.g. “I acted because of X”
In this case it was believed that only commercial necessity was the reason that B entered into the contract
Pao On v Lau Yin Long
[DURRESS]
FACTS: P owned shares of a private company which owned a building that the D wanted to buy. The D were shareholders in a public company. P agreed to sell their shares in the private company to D so that D could acquire the building and in return P would get shares in the public company. Worrying about a drop in the share valye P and D made an agreement that P would not sell their shares for a while, however P realises that D might profit from the agreement (if the share price fluctuated) and demanded that a second agreement be replaced with on in which P was indemnified for any fall in share value but may also benefit from any rise in share value. Fearing that not agreeing to this would delay the main contract the D agreed.
The share value did drop and P sought to rely on the indemnity contract. D refused to comply with this and the case reached the privy council.
–> D claimed that the consideration for the indemnity agreement had been given under duress and was past consideration
RATIO: The court found for the plaintiffs.
Lord Scarman:
Reiterating the decision of Kerr J in Worldwide Investment corporation : in a contractual situation commercial pressure =/ economic duress there must be “present some factor which could in law be regarded as a coercion of his will so as to vitiate his consent”
* held that this was in line with the decision in Barton v Armstrong
In determining where there was a coercion “[of will such that there was no consent] it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently legally advised; and whether after entering the contract he took steps to avoid it” (all these matters are relevant to determining where the acted voluntarily.
On the facts of this case this there was no coercion, however on ‘economic duress’ (“the lordships will very briefly indicate their view”)
- “there is nothing contrary to principle in recognising economic duresas a factor which may render a contract voidable, provided always that the basis of such recognition is that it must amount to a coercion of will which vitiates consent. It must be shown that the payment was made or the contract entered into was not a voluntary act”
Universe Tankships of Monrovia v International Transport Workers Federation [DURRESS]
FACTS: The C ship has been ‘blacked’ by the D trade union while it was docked at Milford Haven. This consisted of procuring tugmen to refuse to operate their tugs in breach of contract with employment authority. In order to stop the ‘blacking’ the C, inter alia, agreed to pay (and did so) $6,480 into the D’s seamen’s welfare fund. After completing the trip the C sought to recover the money on 2 grounds
A) That the $ was subject matter of failed trust (not relevant)
B) That the payment was made under economic duress
(on point B) The D admitted that subject to a trade dispute immunity, the payment was made under duress. It was argued, however, that it was protected by virtue of the immunity against torts conferred by sections 13 and 29 of the Trade Union and Labour Relations Act 1974 because the threat had been made in connection with a trade dispute.
RATIO: The HOL by a majority that the D did not have immunity it asserted and that the money was therefore recoverable for economic duress.
It is clear that duress was present (and as per Pao On obiter statement economic duress can be recognised) … however it is “crucial in the decion of the instance appeal to identity the rationale of this development of the common law”
The use of economic duress is not a tort per se as the form duress takes may or may not be tortious and the actions perused are not for damages but are more restitutionary in nature. Accordingly when extending the contrine it is not appropriate to ddevlop a concept of ‘waiving the tort’.
“it is only in this way that the provision of the Trade Union and Labour relations Act 1974 are relevant to the duress point. Immunities from liability in tort provided by s13/14 are not applicable.
* However it was noted that in line w/ s29 the definition of trade dispute “where public policy requires that the line should be drawn between what kind of commercial pressure by a trade union ought to be treated and what kind of commercial pressure in that field does amount to economic duress that entitles the employer victim to resitutionary remedies”
Lord Scarman (Dissenting)
Accepted that durress as economic durress is viable as per Pao On
* Made point that threats (for the purpose of durress) can be made even if the threat is lawful = in this case whether the blacking was lawful/unlawful determines its actionability under tort (although in this case no actual tortious liability questions arose)
Atlas Express Ltd v Kafco
FACTS: D imported baskets and hired C to transport them to D’s customer. C realised the price it quoted was too low, as the baskets were heavier than expected. C sent D an empty truck with a message in it that unless D agreed to a minimum charge per load, the truck would drive away. D signed the agreement thinking there were no alternatives, as a breach of contract with the customer would be disastrous. When C sought payment under the agreement, D claimed economic duress and that there was no consideration.
RATIO: Outcome: There was economic duress as there was pressure amounting to compulsion of C’s will which was illegitimate. There was also no consideration provided for the renegotiated agreement.
Pressure amounting to compulsion of C’s will: D was a small company, fulfilling their order was “essential to the defendants’ success and to their commercial success”, it would be “difficult, if not impossible” to find alternative carriers in time and D had no bargaining power in signing the agreement (which he did unwillingly and under compulsion).
“Economic duress must be distinguished from commercial pressure, which on any view is not sufficient to vitiate consent”, although the borderline may be “indistinct”
Williams v Roffery Bros [DURRESS]
FACTS:
Builders were contracted to refurbish flats belonging to a housing corporation. The contract had a penalty clause for late completion. The A subcontracted some work to Williams, a carpenter. When Williams fell behind with his work the appellants offered him bonus payment to finish on time. Williams carried on working until the payments stopped. He sued the appellants for breach of contract.
RATIO: The promise to pay was unenforceable
Had there been good consideration (see wk1)
Gildwell LJ: a promise to make bonus payments to complete work on time was enforceable if the promisor obtained a practical benefit and the promise was not given under duress of fraud as it was the idea of the appellants to give the extra $ as incentive there was no duress.
Dimskal shipping Co SA v International Transport Workers Federation, The Evia Luck [DURRESS]
FACTS: C were owners of the Evia Luck which was loading at a Swedish Port. They were informed by the D trade union that their ship would be blacked unless they entered into contract with the trade union. The C therefore entered into contract with the trade union under which they made various contracted payments to the union, totalling some $140,000.
* The contracts were expressed to be governed by English law.
The C bought an action seeking declaration that they had validly avoided the contracts for duress and restitution of the sums paid to the defendant.
* The primary focus in the case was on the ‘conflict of laws’ point as to whether the illegitimacy of the pressure should be judged by either English law (under which the pressure was illegitimate) or Swedish (where it was not). for the purposes of duress point the blacking was decided to be unlawful and constituted duress.
RATIO: Outcome: There was economic duress, as 1) blacking is sufficient to constitute pressure amounting to the compulsion of C’s will and as 2) the actions were illegitimate as they were unlawful under English law (even if they were lawful in Sweden, where the threats took place). Therefore, C was entitled to restitution.
Causation test: Economic pressure can amount to duress “provided at least that the economic pressure may be characterised as illegitimate and has constituted a significant cause inducing [C] to enter into the relevant contract”.
Requirements for economic duress: 1) Illegitimate pressure amounting to the compulsion of C’s will that 2) were a significant cause inducing C to act as he did.
OBITER: Residuary role of the common law: While at common law, a trade union is guilty of economic duress if they force an employer to increase wages through a strike, Parliament has intervened to confer immunities on unions through the TULRA and the Employment Act 1980.
“The Acts of 1974 and 1980 are only two illustrations of the fact that the relationship between economic duress, industrial action and the law is governed by legislative powers rather than by the judicial common law”.
On The Universal Sentinel: “English law says generally that a contract induced by coercion (whether tortious or not) can be avoided at the instance of the party coerced”, but this case is an example of an exception, as it says C cannot rely on coercive conduct which was legitimised by English law.
On the “coercion of will” approach: I “doubt whether it is helpful” to use this language.
Huyton v Peter Cremer [DURRESS]
FACTS: C (Huyton) agreed to buy wheat from Cremer (D). C refused to pay for the wheat due to discrepancies with documents presented by D. D claimed arbitration but later agreed to a compromise to withdraw the arbitration in return for payment from C.
Later, D once again sought arbitration in breach of the compromise agreement, C sought an injunction from the court against D’s claim for arbitration. D argued that the compromise agreement had been avoided by duress.
RATIO: Injunction granted; it was held there was no duress on two alternative grounds:
1) C’s refusal to pay did not amount to illegitimate pressure since it was not in breach of contract
2) But even if it did, it was not a sufficiently significant cause of D entered into the compromise agreement
- The minimum test to est. causation for economic duress is the ‘but for test’ but the test is not deceives as the illegitimate pressure must be a sufficiently significant cause and not just a but for cause
There are two basic ingredients of economic duress, per Lord Goff in The Evia Luck:
- Illegitimate pressure by one party
- Constituting a significant cause inducing the other party to act as he did
Burden of proof
The burden of proof causation in economic duress is on the person seeking relief, unlike in duress to the person where the burden of proof is reversed in Barton v Armstrong
see more on notes
R v Attorney General of England and Wales [DURRESS]
FACTS: During the Gulf War, D (soldier) was told to sign a confidentiality agreement or be demoted. After the war, D sought to have the agreement avoided on the grounds of duress, undue influence and unconscionable bargain
RATIO: Duress claim was dismissed - the threat was legitimate (alongside undue influence and unconscionable bargain).
- Two “aspects” to the legitimacy of pressure requirement: 1) The nature of the pressure. 2) The nature of the demand which the pressure is applied to support.
o 1) Unlawful threats: The threat of unlawful action will be illegitimate.
o 2) Lawful act duress: A threat being lawful does not necessarily make the pressure legitimate.
Applied here: The threat was lawful and was legitimate because the demand supported by the threat could be justified. It is justified for the MOD to see anyone as unwilling to sign an NDA as inappropriate for the SAS. D was not forced by military law to sign the contract (if he had been, there would be “much force in this reasoning”)
Boreille v Ting [DURRESS]
economic durress
FACTS: D was chairman of A (a company). A collapsed after a sudden disappearance of assets. D opposed C’s (the liquidators) scheme of arrangement, which required his consent. D agreed to stop his opposition for a settlement from C to drop any future claims against him. When C discovered his misappropriation of company funds, they sued D, suggesting the settlement agreement had been avoided as they were under duress in signing it.
RATIO: Duress was established, so the settlement agreement was void and C could sue D.
1) Illegitimate pressure: Established in two ways.
Unlawful acts constituting duress: D forged documents and gave false evidence to defeat C’s proposed scheme. Unlawful acts constitute illegitimate pressure.
Lawful acts constituting duress: D opposed the scheme and failed to assist the liquidators. This amounted to “unconscionable conduct”.
D’s opposition was not “made in good faith, but for an improper motive” - “there were no bona fide grounds for opposing the scheme”.
In agreeing to withdraw his opposition, D did what he should have done had he acted in good faith from the outset.
^Another reason for avoiding the agreement is therefore that there may have been no consideration, but it was unnecessary to decide.
2) Causation: C entered into the agreement as a result of D’s opposition and forgery. C had “no reasonable or practical alternative” but to make a deal with D, as the only other alternative was abandoning the scheme and preventing the liquidators from recovering anything from the company.
Times Travel (UK) Ltd v Pakistan International Airlines [DURRESS]
economic durress
FACTS: The C travel agency was very largely dependent on selling tickets on the D airline for flights to and from Pakistan. The D was the inly airline offering direct flights between the UK and Pakistan. When a number of the D agents bought proceedings to recover substantial aums alleged to be due by way of commission, the D lawfully reduced ticket allocations, gave notice of termination of the existing agency contracts, and offered each a new contract provided there was a term waiving the agents claim for unpaid commission. The C entered into a new contract on those terms but subsequently brought proceedings to recover the commission and other payments that it said were due under its previous contract.
RATIO: Overturning Warren J, the COA held that the C were not entitled to rescind the new contract for economic duress because Warren J have found that, albeit acting unreasonably, the D had not acted in bad faith.
David Richard LJ
This concerns the scope of economic duress in cases where the threat results from a lawful act or omission:
As per CN
* Where lawful acts are made by A in support of a demand which A genuinely believes he in entitled to make. If that belief is held reasonably as well as genuinely, I can see no basis on which a plea of economic duress can success what is the case when genuine but unreasonable
- In CNN emphasis was but on whether the claim was ‘unfounded’.
- Leggat LJ also suggested transposing into objective terms the elements of the offence of blackmail no support from authorities however
The doctrine of lawful duress does not extend to the use of lawful pressure to achieve a result to which the person exercising the pressure believes in good faith they are entitled (and that it so whether or not, objectively speaking, they/it have reasonable grounds for that belief)
* Promotes commercial certainty as while it wasn’t the case here: “there is no yardstick to judge such demands” however there is a sharp distinction between good faith/bad
If lawful and made in good faith allowed (even if unreasonable)
The Law debenture Trust Corporation [DURRESS]
FACTS: Ukraine issued Eurobonds (the note) to Russia and Russia paid the subscription money with a due date for 2015. (among other issues) Ukraine alleged that it undertook the transaction following massive political and economic pressure from Russia not to enter into the EU and to accept Russian financial support in the form of the Notes.
- The pressure is alleged to have been unlawful under international law and in any event illegitimate
RATIO: Ukraine can claim Dod but only to the extent that it is based on duress of the person or goods as opposed to any economic/political point
* Held that when a parties consent to contract is induced by threats or pressure, the contract is voidable by the aggrieved party, provided that;
a) The threat or pressure was illegitimate under English law
b) There is a sufficient causal connection between the threat or pressure and the aggrieved party’s decision to enter into the contract
Ukraine’s allegations in relation to duress concern two different kids of pressure (economic and duress of the person)
Economic = all of the alleged elements of economic duress are not illegitimate and are normal aspects of statecraft
* It is not necessary to consider whether the economic pressure was in breach of international law, as the applicable test is whether it was illegitimate under English Law
Duress of the Person (the person Ukraine and its citizens/may also have duress of goods) = these are trailable as they are may be illegitimate under English law
- Will be needed to consider the causal connection between the threats of force and Ukraine’s decision to enter into the contract. The onus will be on ukr to prove that the threats of force did not contribute to ukr’s decision
Lord Carnwarth (Dissenting)
Would allow Ukraine’s DoD to proceed to trial it is unneeded to separate economic and physical duress as they were all part of a single course of action AND disagrees that the international legal standards are irrelevant for determining illegitimacy
Williams v Bayley [UNDUE INFLUENCE]
FACTS: William’s (D) son took out a loan from Bayley (C) by forging the D’s signature. C forced D to entered into a mortgage to secure the loan by threatening to report his son to the police. C sued under the mortgage agreement.
RATIO: D was entitled to set aside the mortgage for undue influence.
* In the past the scope of the modern doctrine of undue influence extended to overt threats but in the modern law, the such claims would now fall under the doctrine of duress.
Allard v Skinner
[DURRESS]
FACTS: Allcard inherited her family’s wealth and then later became and member of a sisterhood which rules demanded her obedience to the lady superior (Skinner). Under the expectation that she should do so, C gifted her property to the sister hood. Upon leaving C wanted to reclaim her property however she waited 6 years after before taking action.
RATIO: There was undue influence present however the transfer was affirmed due to a combination of delay and acquiescence.
- The categorisation made is that between actual and presumed undue influence!
Cotton LJ
a) Where the court has been satisfied that the gift was the result of influence expressly used by the done – here the court intervenes to ensure that no one can retain benefit arising from a wrongful act
b) Where the relations between the donor and done gives rise to a presumption that the done had undue influence over the donor – here the court intervenes on the ground of public policy to ensure no one can retain benefit arising from abuse of relations between the parties
this case was considered of the 2nd class: at the time of the gist, C was bound to render to absolute submission and could not obtain any independent advice (!)
* Cotton Lj dissenting on the delay/acquiesce affirming the transaction
Lindley LJ
a) There is some “unfair and improper conduct, some coercion from outside, some overarching, some for of cheating, and generally, though not always, some personal advantage obtained by a done placed in some close and confidential relation to the donor”
b) The “position of the donor to the done has been such that it has been the duty of the done to advise the donee, or ever to manage his property for him’ i.e “gift is made to a person standing in a confidential relation to the donor” :
* The burden is on the donee to prove that he has not abused his position/ no undue influence was present (by showing that independent advice was removed from the influence when the gift was made
- However if the gift was of a small amount the BOP is on the donor to prove that the influence of the donee was exercised: the mere existence of the influence is not enough but if the gist is so large as not to be reasonably accounted for on the grounds of friendship, relationship, charity or other ordinary motives or which ordinary men act, the burden is upon the donee to support the gift
Barclays Bank Plc v O’Brien
FACTS: Mr and Mrs O’Brien (D’s) agreed to execute a second charge over their home for an increased overdraft from the claimant back for a company which Mrs O’Brien hand interest. The bank manager had instructed that the O’Brien’s should be made fully aware of the effect of the documentation but those instructions were not carried out. T
The second defendant (Mrs OB) signed the guarantee without independent advice, having been falsely told by her husband that the liabilities were limited to $60k and would only last 3 weeks. When the companies debt rose to excess of 150k the bank sought to enforce the charge. Mrs OB sought to defend the claim relying on undue influence and misrepresentation by her husband.
A) The claim based on undue influence was rejected in the COA and was not perused by the HOL (while it was still considered carefully)
B) Misrepresentation claim
RATIO: The bank was caught as it had constructive notice of the husbands misrepresentation (contract was able to rescinded but not because of undue influence because of misrepresentation).
If the husband (or X) is acting as an agent for the bank = the creditor will be fixed with the wrongdoing.
Apart from this scenario, if the bank has notice (actual or constructive), of the undue influence exercised but the husband, the creditor will take subject to that equity and the wife can set aside the transaction against the creditor.
1) D must be aware that C is in a relationship of trust and confidence with X so that there is a substantial risk of undue influence (or misrepresentation)
2) The transaction on its face must not be to the financial advantage of C
3) D must have failed to take reasonable steps to be satisfied that the transaction was entered into by C freely and w knowledge of the full facts.
- The first 2 elements go to putting D on inquiry, while the 3rd element goes to what D, who has been but on inquiry, must do to avoid being fixed with constructive notice
Lord Browne-Wilkinson
Est. 2 classes of undue influence and 2 subclasses
Class 1: Actual undue influence
* In these cases, it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the impugned transaction
Class 2: Presumed undue influence
* In these cases, the complainant only has to show that there was a relationship of trust and confidence between the complainant and the wrongdoer, it is presumed that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction
There are two sub-classes under Class 2 (at p. 189 – 190):
Class 2(A): Certain relationships (e.g. solicitor and client, medical advisor and patient) raises the presumption of undue influence as a matter of law
Class 2(B): Where there is no relationship falling within Class 2(A), the complainant has to prove the de facto existence of a relationship of trust and confidence
Relationship between husband and wife (at p. 190)
It does not fall under Class 2(A), but in any particular case, it can fall under Class 2(b) if the wife can prove that de facto she did leave decisions on financial affairs to her husband and simply does what he suggests
The law treats wives with ‘special tenderness’, thus a wife is more likely to establish presumed undue influence of class 2(B) than others due to the sexual and emotional ties between husband and wife
Royal Bank of Scotland v Etridge [DURRESS]
FACTS: There were 8 combined appeals heard by the House of Lords, all which involve a wife who charged her interest in her home in favour of a bank as security for her husband’s debt or debts of his company. In 7 of the 8 appeals the bank sought to enforce the security and the wife raised the defence that the bank had notice of the husband’s undue influence over her. In the 8th appeal the wife claimed damage damages from a solicitor who advised her before she entered into a guarantee obligation under the undue influence of her husband
Lord Nichols (leading judgement)
RATIO:
Actual UI
The general rule is that the burden of proof of undue influence is on the party claiming to have been wronged: [13]. The amount of evidence required depends on the circumstances, including the parties, their relationship and the nature of the transaction: [13]
Presumed UI
A presumption of undue influence is raised by proving (1) the complainant placed trust and confidence in the other party in relation to the management of financial affairs and (2) a transaction which calls for explanation: [14]
This is the equitable equivalent of the principle of res ipsa loquitur in common law: [16]
The law presumes trust and confidence where one party has influence over another who is vulnerable and substantial gifts by the vulnerable person are not normally to be expected: [18]
- Husband and wife does not fall under the presumption of trust and confidence, since there is nothing unusual or strange in a wife, from motives of affection or other reasons, conferring substantial financial benefits on her husband: [19]
Lord Scott
While Class 2A is useful in identifying particular relationships where the Class 2 presumption of undue influence will arise, the utility of Class 2B is doubtful since it does no more than recognising that evidence of the relationship and other evidence is relevant to establishing undue influence on a balance of probabilities; it has the same function as res ipsa loquitur in negligence: [161]
* In surety wife cases undue influence is unlikely, O’Brien itself was a misrepresentation case and undue influence actual or presumed was not found: [162]
Lord Hobhouse
Agreed with Lord Scott that Class 2B is not useful, and that it should not be adopted; a person that does not fall in Class 2A will have to prove a prima facie case that there was a wrong on a balance of probabilities, after which the evidential burden shifts to the opposite party, similar to res ipsa loquitur in negligence: [107]
see notes for more! important case
