Duress and Undue Influence Flashcards
What are the three types of duress?
- Duress to property
- Duress to person
- Economic duress
What constitutes duress to person?
Duress can vitiate a contract when it amounts to actual or threatened violence. Duress to the person is the least controversial and most long established category of duress.
The leading case on duress to the person is Barton v Armstrong [1976] AC 104. The Privy Council concluded in this case that once it is established that the physical threats contributed to the decision to enter into the contract, duress will be found, so long as the threats were one of the reasons for contracting. They further stated that the burden of proof was on the party who
exerted the pressure to show the threats and unlawful pressure contributed nothing to the victim’s decision to contract. Consequently, it can be seen that the causation test for duress to the person
is not a difficult one to overcome – the duress need be only one factor influencing the wronged party’s behaviour.
What constitutes duress to goods?
A contract can also be avoided where there is a threat to seize the owner’s property or to damage it (Occidental Worldwide Investment v Skibs A/S Avanti (The Sibeon & The Sibotre)) [1976] 1 Lloyds Rep 293.
To succeed in establishing duress to goods it seems likely that it must be shown that the agreement would not have been entered into if there had not been the duress. Unlike duress to the person, it is unlikely to be sufficient to show that duress will be one factor (but not a decisive factor) influencing the wronged party’s behaviour.
What constitutes economic duress?
Economic duress is a doctrine which has developed more recently than duress to the person or duress to property. It poses particular difficulties, and it appears to be less well settled than the other two doctrines.
‘The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice, for the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into the contract’ [emphasis added].
The courts have subsequently clarified that ‘significant cause’ means it must be shown that the agreement would not have been entered into if there had not been the duress.
What is the legal effect of duress?
A person who enters a contract under duress has not done so under their own free will. This results in the contract being ‘voidable’, which means whilst it remains in force unless some action is taken, the party subject to duress may choose to avoid the contract after the duress has ceased.
The remedy is rescission. Rescission is not detailed in this chapter, but broadly involves attempting to return the parties to the situation each was in prior to the contract being entered into.
Voidable: A contract which is capable of being voided (annulled) but which remains in force unless some action is taken to void it.
Rescission: A remedy which involves returning the parties to their pre-contractual position. The remedy of rescission may be lost where the contract is affirmed, as affirmation operates as a bar to rescission. The court might conclude that a contract is affirmed if, after the duress has ceased, the innocent party fails to challenge the contract in a timely way and/or acts in compliance with its terms.
What constitutes lack of practical choice in economic duress?
The pressure must result in a lack of practical choice for the victim. They have no practical alternative but to acquiesce to the demand.
In Carillion Construction Ltd v Felix (UK) [2001] BLR 1, Carillion was the main contractor employed to carry out the construction of an office building. Carillion subcontracted the supply of the cladding to Felix. Felix’s work was delayed, and there was no certainty as to when it would be
completed. Although Felix’s liability to Carillion for this delay was potentially substantial, Felix was in a strong position to renegotiate with Carillion. Felix knew that a number of trades were dependent upon it completing the work in order to ensure the building was watertight. Moreover, Felix knew that it would be impossible for Carillion to find an alternative supplier in time to meet the main contract completion date. Felix got Carillion to agree to pay substantially more money to Felix in return for Felix delivering the cladding by the original deadline in the contract. Before
paying the money, Carillion wrote a letter protesting against Felix’s demand. The court accepted that Carillion had paid this sum under duress. If Carillion were to complete
the main project on time, and so avoid the heavy fees for late completion, they had no viable alternative but to agree to Felix’s demands. It was held that it would be unrealistic to expect the other party to seek a mandatory injunction because of the delay of six weeks caused if Carillion
had sought such an injunction. Following the test set out in DSND Subsea Ltd v Petroleum Geo Services, Mr Justice Dyson held that there was illegitimate pressure or a threat, the practical effect of which was that Carillion had no practical choice but to enter into the agreement.
In Atlas Express v Kafco Ltd [1989] 1 All ER 641, the claimant, a firm of road hauliers, contracted with the defendants to deliver cartons of basket ware to various branches of a particular store throughout the UK. A manager of the claimant’s firm fixed the contract price at a rate of £1.10 per carton, based on an estimate that each load would consist of between 400 and 600 cartons. The first load fell significantly below his estimates, comprising only 200 cartons. The manager then refused to take any further loads unless the defendant agreed to renegotiate the contract price to
a minimum of £440 per load. The defendant, a small organisation, was heavily reliant on the contract with the store and unable to find another carrier, so reluctantly agreed to pay the imposed minimum charge. At a later stage, the defendant refused to pay the minimum charge and, when sued for the transport charges, lodged a claim of economic duress as a defence. It was held that, where a party has no alternative but to accept revised terms that were detrimental to its interest, this amounted to economic duress.
In B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419, the plaintiff contracted to erect stands at Olympia for the defendant. A week before the exhibition, the plaintiff’s workmen went on strike, refusing to work until a pay demand was met. The plaintiff demanded an additional £4,500 to continue with the contract. The defendant paid the extra
£4,500 to get the contract performed: the cancellation of the contract would have caused serious damage to the defendant’s economic interests. However, the defendant then deducted this figure
from the contract price paid to the plaintiff. The plaintiff then claimed the balance. It was held by the Court of Appeal that, since the cancellation of the contract would have caused serious damage to the defendant’s economic interests, they had no practical choice but to pay the sum demanded by the plaintiff. The plaintiff was therefore not entitled to the extra £4,500 which the
defendant had paid under economic duress. In Kolmar Group AG v Traxpo Enterprises PVT Ltd [2010] EWHC 113 (Comm) the defendants had an agreement to sell methanol to the claimants at a fixed price within a set timeframe. Knowing
that the claimants needed the methanol to satisfy an order for an important client who had an urgent requirement for it, the defendants gave the claimants a ‘take it or leave it” ‘roposal for delivery of less methanol at an increased price. The Court held that the claimants had no alternative but to accept the revised proposal. The defendants had made demands that they
knew would cause the claimants loss that were backed by coercive and unlawful threats that they would not perform their obligations, and the claimants had complied with those demands as a result of those threats.
What constitutes illegitimate pressure in economic duress?
- Has there been a threatened breach
of contract?
The refusal to complete on time amounted to a threatened breach of contract (ie was
unlawful). - Was the pressure applied in good or
bad faith?
The threat was made in bad faith to extort
money from Carillion. - Did the victim protest?
Before paying the money Carillion wrote a
letter protesting against Felix’s demand. - Did the victim affirm?
Carillion did nothing that would amount to
affirming the contract.
How does consideration relate to economic duress?
The court is increasingly likely to find ‘consideration’ by way of practical benefit to support a variation. This means that more variations would appear (from the perspective of consideration) to be binding, and the doctrine of economic duress is therefore increasingly important in ensuring that a party can seek relief from such variations where the circumstances justify this.
How are the two types of undue influence?
First, there are instances of overt acts of improper pressure or coercion such as unlawful threats. This type has much overlap with the idea of duress.
Second, there are situations where one party has influence or ascendancy over the other, and the first party takes advantage of that influence/ascendancy. In these cases there may be no specific or overt act of pressure or coercion, but the underlying relationship is sufficient for the undue
influence to be exercised. The lack of an act of pressure or coercion makes this quite distinct from duress.
What constitutes an overt act of improper coercion?
Insofar as the first type is concerned, these cases are necessarily rare. Many cases which fall into this category would today probably be decided on the basis of duress.
In so far as the behaviour constituting undue influence is of a deceitful/fraudulent nature, the causation test is the same as for duress to the person. It is necessary only for the innocent party to establish that the undue influence is a factor in inducing the claimant to enter into the contract.
The innocent party does not need to establish that the undue influence was a decisive factor. If the behaviour is not deceitful/fraudulent, then the situation is less clear, and it may be that the ‘but for’ test applies: but for the behaviour constituting undue influence, would the innocent party have entered into the contract?
What constitutes taking advantage of influence or ascendancy in a relationship?
A common situation is where a husband or wife (the ‘business owner’) wants their spouse to enter into an agreement with the effect that the spouse’s share in the matrimonial home is used as security for a loan to the business owner’s business. The effect is that the spouse might lose their
interest in the home. If the spouse has placed trust and confidence in the business owner and the business owner abuses this trust in seeking the spouse’s consent to the transaction (for example, by misrepresenting the nature of the transaction), then this can amount to undue influence. Note the absence of a specific act of coercion or pressure. There is no definitive list of relationships of influence or ascendancy. Commonly, the influence will
come from the trust and confidence which one party has in the other. However, a relationship where one party is very vulnerable or dependent might also allow the other party to have significant influence, even if the innocent party has not positively placed trust or confidence in the other party.
There are a number of relationships in which there is an irrebuttable presumption that one party has influence over the other. In these cases, the court will not allow any argument that, in fact, there was no influence in that relationship. Such relationships include those between parent and child, guardian and ward, trustee and beneficiary, solicitor and client and doctor and patient. However, parent and adult child, or (crucially) spouses do not give rise to this presumption. The influence will therefore need to be positively shown.
Note that it is not every transaction between parties to such a relationship that gives rise to undue influence. It is only where the relationship is taken advantage of that there will be undue influence,
for example because the party with influence has deceived the innocent party, or simply taken a decision entirely in their own interests.
What is the burden of proof for taking advantage of influence or ascendancy in a relationship?
If a party wishes to allege it has been the victim of undue influence, it must prove this. The court has established some basic principles as to how this might be proved.
If a party can show that there is a relationship of trust and confidence (or presumably one of the categories of irrebuttable presumption) and also a ‘transaction which requires explanation’, then this will be enough for the court to determine that the transaction is the product of undue influence, unless the alleged wrongdoer can produce evidence to convince the court that there was no such undue influence.
A transaction will require explanation if it does not fit with what would usually be expected in the relationship concerned. It might be a suspicious type of transaction, or be for a suspiciously high value.
Note that the court has indicated that, in the majority of cases, a husband/wife offering their interest in the matrimonial home as security for a loan to their spouse’s business is not a transaction which requires explanation, so the party alleging undue influence would need to prove that unfair advantage had been taken of the relationship.
Where a party has shown a relationship of trust and confidence and a transaction which requires explanation, then the wrongdoer might argue (for example) that the innocent party received comprehensive independent advice about the transaction, and therefore that they could not have
been subjected to undue influence. Whether such an argument would succeed will depend on all the facts. The court has made clear that even when someone fully understands a transaction having received independent legal advice, it is possible that their consent to it is still being given only as a result of undue influence.
What are the limits on equitable relief?
Where undue influence is proven, a contract (or gift by deed) may be set aside. However, this relief is equitable and, therefore, discretionary. The court may not allow this relief where the innocent party has delayed making its claim because ‘delay defeats equity’. Also, it may be disallowed where the claimant’s conduct has been underhand because those who come to equity must come with clean hands.
When are third parties responsible for undue influence?
When considering whether a spouse has exercised undue influence over the other spouse in these circumstances, there are two specific points worth noting/remembering.
Firstly, a relationship between spouses is not one where there is an irrebuttable presumption of a relationship of influence/ascendancy. The spouse will therefore need to prove such a relationship,
most likely by establishing that they placed trust and confidence in their spouse. In most cases, it will be relatively easy to establish this.
Secondly, the court has indicated that, in the majority of cases, a spouse offering their interest in the matrimonial home as security for a loan to their spouse’s business is not a transaction which
requires explanation – so it will be for the party offering security to show more explicitly how their spouse’s influence has been used unduly. It is only if undue influence is established, that the issue of the notice of the bank will be relevant.
What are the reasonable steps that a creditor and solicitor must take?
The purpose here is to ensure that the innocent party is fully aware of the risks being taken and advise them to take independent advice.
Lord Nicholls, in Etridge said:
(a) There is no obligation on the creditor to have seen the wife itself as it is ordinarily reasonable to rely on a confirmation from a solicitor that they have advised the wife in an appropriate manner, unless the creditor is aware that this has not been done. It is for the solicitor to determine whether there is a conflict of interest if the wife’s solicitor also advises the husband.
(b) The creditor must provide the solicitor with sufficient information about the transaction for the solicitor to be able to explain it fully to the wife.
(c) If the creditor is aware, either actually or constructively, that the wife may have been misled, then the creditor must tell the solicitor of this.
According to Lord Scott in Etridge, the solicitor should start by warning the wife that their involvement may be relied upon by the bank to counter allegations that she could not properly understand the transaction or had given her consent to it. If the wife then consents to advice being given, the core minimum the advice should contain is:
(a) An explanation of the documents and their practical consequences, including the risk that the wife may lose her home.
(b) The seriousness of the risk, including the duration and terms of the security and the wife’s assets and means.
(c) The fact that the wife has a choice.
The solicitor should then obtain any necessary information from the lender/creditor. If the solicitor fails in his duty to the wife, then she will have an action in negligence against the solicitor, but she will have no recourse to the lender/creditor which is entitled to assume that the solicitor has properly advised the wife.
