Duress and Undue Influence Flashcards
What is the general rule of setting aside contracts for the courts?
Courts are reluctant to put aside contracts just because of a perceived inequality of bargaining power
What is the exception of this general rule
Courts will not allow the strong to take advantage of the weak in the formation of an agreement
What is the doctrine of duress and economic duress under common law?
when a party is induced to make a contract by force or threat of force to the person, property or financial interests.
What is the doctrine of undue influence under equity?
Doctrine of undue influence: seen as improper influence or exploitation of a relationship of influence
What are the remedies available for duress/undue influence?
Common law and equity:
* Rescission
Statute:
* Unfair Contract terms Act 2015
* Consumer rights Act 2015
What is bargaining power and its the general rule of inequality of bargaining power?
also explain what inequality of bargaining power is
- Bargaining power: a party’s ability to ensure that the terms of a transaction they enter into serve their own objectives
- Inequality of bargaining power: one party having a greater ability to do so than the other party
What is duress?
- Duress occurs where one of the parties (stronger party), exerts illegitimate/illegal pressure on the other party (victim),
leaving the other party with no reasonable alternative but to enter that contract- Must be a causal link between the coercive conduct and the decision to enter the contract (although that link need not be strong)
What is the relevance of physical duress in common law?
- Historically first form of duress recognised by common law was physical duress to the person,
- contract would be treated as voidable, the person who was coerced can set it aside with any money paid being recovered
Give a case law example of physical duress
Barton v Armstrong (1976)
- Both parties were the major shareholders in a company
- Following business negotiations, Barton entered into an agreement with Armstrong to buy his shares in the company
- Later Barton brought an action alleging that Armstrong had coerced him into the agreement by threatening to have him murdered
○ There is a causal link between the contract being made and the threat of force
Held:
* Onus on Armstrong to show that the threats made to Barton did not contribute to his decision to sign
* In the circumstances, duress had played a part and Barton was entitled to the relief sought
What is economic duress?
Threat to a person’s financial or business interests
Give an example of what economic duress can look like in practice
e.g. Where one party threatens breach of contract unless the contract is renegotiated and the other agrees to avoid the consequences that may follow from the breach
This has been historically denied and only recognised in recent years
What are requirements of duress and what third element did economic duress include?
To rescind the contract, Claimant needs to establish:
- the threat or pressure by the Defendant must have been illegitimate/Illegal;
- the threat must have caused the claimant to enter the contract
Third element:
* the claimant must have no reasnable alternative
Give a case law example that paved the way for the development of the concept of economic duress
Include what Kerr J stated in this case
The Siboen and The Sibotre [1976]
- There was a worldwide recession in the shipping industry with the result that the charter rates fallen substantially
- The charterers (C) of 2 ships renegotiated the rates of the charters, having warned the owners (D) that they would become insolvent unless this was done; also stated that if an action be taken against them for breach of contract no benefit would accrue to D since they had very little assets against which such clam could be made
- C also knew that D would be highly unlikely (given the recession) that D would be able to recharter the ships if C were to break the contract which would likely force D into liquidation
- D agreed to reduce their rates but later withdraw both ships from the charter
- C sued claiming that the contract had been wrongly repudiated, D claimed that they renegotiated the contract only because of duress placed upon them by C
Held - Contract set aside for fraudulent misrep., but D’s claim for duress failed
Kerr J. opened up a possibility for the development of the notion of economic duress but stated that a mere commercial pressure was not sufficient for economic duress to be recognised
Give a case law example of economic duress
Universe Tankships of Monrovia v International Transport Workers Federation (The Universe Sentinel) (1983)
- The Universal Sentinal, owned by Universe Tankships was blocked by a union, the ITWF, which refused to make tugs available to help the ship into port.
- after negotiations ITWF agreed to lift the blacking in return for an undertaking from Universe Tankships to improve crew pay, and conditions on the ship, and make a contribution to an ITWF fund.
- The company later sought to recover their £6,480 contribution as the payment had been made under economic duress and was recoverable by restitutionary remedy because it was unconnected with a trade dispute.
Held - they were entitled to its return, since it had been paid under economic duress. The agreement was voidable.
Give a case law example of where ‘lawful conduct’ could amount to illegitimate pressures
Progress Bulk Carriers Ltd v Tube City IMS LLC (The Cenk Kaptanoglu) (2012)
- Progress chartered its vessel to Tube for carriage of a cargo from the US to China. The charter did not give any right to substitute the vessel, but Progress fixed the vessel to another charterer without informing Tube.
- Progress conceded that it had made a mistake and said that it would find an alternative vessel and would compensate Tube.
- Tube accepted a substitute vessel with a discount on the freight rate but sought to reserve its rights in respect of all claims for damage arising out of breach of the charter. Progress then made a “take it or leave it” offer requiring acceptance of the vessel with the reduction of the freight rate with Tube’s agreement to waive all claims for loss and damage.
Held - from the authorities, ‘illegitimate pressure’ could be constituted by conduct which was not in itself unlawful, although it would be an unusual case where that was so, particularly in the commercial context.
Give case law examples that demonstrate lawful action does not give rise to duress
CTN and Carry Ltd v Gallagher Ltd [1994]
- D had mistakenly sent a shipment of cigarettes to the wrong place of business for C
- C undertook to remedy the situation but before the cigarettes could be moved, they were stolen
- D genuinely but mistakenly believed that the cigarettes were at C’s risk and so invoiced them for the price, threatening to withdraw credit facilities if the price was not paid
- Under the terms of the agreement, the credit facilities could lawfully be withdrawn at any time
- Faced with no choice between the 2 evils, C opted to pay the price and subsequently reclaimed the money paid on the basis that the payment had been made under duress
Held – no duress on the facts because of three key elements:
(1) the arm’s length commercial dealings between the two trading companies
(2) the lawful nature of the threat
(3) the bona fide belief in their entitlement on the part of D
Pakistan International Airline Corporation v Times Travel (2021)
- C were travel agents, business focused on selling airline tickets to British Pakistani Community
- D offered only direct flights between UK and Pakistan
- D changed calculation of commission paid to travel agents and asked C to sign new agreement giving up contractual rights to commission or not be allowed to sell PIA tickets
Held
* insufficient evidence for economic duress
* threat to end contract was within contractual and legal right because renegotiating a new contract
* commercially hard bargain but no legal repurcussions
Give another case law example demonstrating no duress due to lawful/justifiable actions
R v Attorney General for England and Wales (2003)
- A former member of SAS regiment was captured and tortured. Eventually released when the war was over.
- After the war, members of another patrol published books about their account of the war. Not seen as good practice and the Ministry of Defence required the remaining members of the squadron to sign a confidentiality agreement or they would be demoted.
- In 1997, the defendant left the army and published his memoirs about the war.
Privy Council held - no duress. The demand supported by the threat was justifiable, since the Ministry of Defence had legitimate concerns and was reasonably entitled to regard anyone unwilling to accept the obligation of confidentiality as unsuitable for the SAS.
Give a case law example of duress due to Defendant having no alternative
Atlas v Kafco (1989)
- Kafco, a small company importing and distributing basketware, secured a large contract to supply to
Woolworths (prominent national chain of high-street shops) - Kafco entered into a delivery contract with national carrier, Atlas, to distribute the goods to Woolworths at an agreed price per carton
- Atlas underestimated the size of the cartons, so the agreed delivery price was uneconomically low
- After the first delivery, Atlas refused to deliver anymore cartons unless Kafco agreed to amend the contract with better terms for Atlas
- It was essential to Kafco’s commercial survival that it could meet delivery for Woolworths and Kafco could not easily find another carrier
○ Atlas had pushed Kafco into a corner because they knew that it they were Kafco’s only option and did not have any other choice
Held:
These circumstances amounted to economic duress and Kafco could rescind the contract
What case outlined the elements of unnaceptable and acceptable commercial pressure?
Per Lord Scarman in Pao On v Lau Yiu Long (1980)
* Did the person protest at the time?
* Did the person have an alternative course of action open to them?
* Was the person independently advised?
Did the person take steps to avoid the contract once they entered into it?
