Duress and undue influence

Question 1

What is duress to the person?

Answer 1

Actual or threatened violence against a person.

Amounts to one factor influencing the decision to enter into the contract (need not be decisive).

Burden is on the party who exerted pressure to show the threats and unlawful pressure contributed nothing to the victim’s decision to contract.

Question 2

What are the three types of duress?

Answer 2

1. Duress to the person
2. Duress to property
3. Economic Duress

Question 3

What is duress to property?

Answer 3

Seizure or damage to owner’s property (or threat of this).

But for the duress, the agreement would not have been entered into.

Question 4

What is economic duress?

Answer 4

Lack of practical choice caused by illegitimate pressure.

But for the duress the agreement would not have been entered into.

More difficult to prove. Must be a significant cause which means it must be shows that the agreement would not have been entered into there had not been the duress.

Question 5

What are the two types of undue influence?

Answer 5

1. Overt acts of improper pressure or coercion - clear overlap with duress
2. Relationship of influence/ascendancy … of which unfair advantage is taken.

Question 6

What happens if a contract or variation is entered into under duress?

Answer 6

The contract or variation will be voidable.

A contract which is voidable remains in force unless some action is taken to void (annul) it.

The remedy is rescission - which involved returning the parties to their pre-contractual position.

Remedy may be lost where the contract is affirmed, as affirmation operates as a bar to rescission. 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.

Question 7

What is the test for economic duress?

Answer 7

Pressure:

a) whose practical effect is that there is a lack of practical choice
b) which is illegitimate
c) which is a significant cause inducing claimant to enter into the contract (but for test)

Question 8

Economic duress: lack of practical choice

Answer 8

Pressure must result in a lack of practical choice for the victim. They have no practical alternative but to acquiesce to the demand.

Where a party has no alternative but to accept revised terms that were detrimental to its interest, this amounted to economic duress.

Question 9

Economic duress: illegitimate pressure

Answer 9

Court has taken into account a range of factors which include:

• Has there been an actual or threatened breach of contract?
• Was the pressure applied in good or bad faith?
• Did the victim protest? (evidence)
• Did the victim affirm?

Question 10

Undue Influence: Overt acts of improper pressure or coercion

Answer 10

Rare. Most cases of this kind would be decided on basis of duress.

Behaviour is deceitful/fraudulent: necessary only for the innocent party to establish that the undue influence is a factor in inducing the claimant to enter into the contract.

If no deceitful/fraudulent: unclear but may be that the but for test applies.

Question 11

Undue Influence: taking advantage of influence or ascendancy in a relationship

Answer 11

Majority are of this type.

Abuses relationship of trust to advantage. Common situation: mortgaging spouse’s share of house for benefit of own business.

Question 12

Which relationship give rise to an irrebuttable presumption of influnce?

Answer 12

• parent/child (minor)
• guardian/ward
• trustee/beneficiary
• solicitor/client
• doctor/patient

Does not apply to spouses or parent/adult child.

Question 13

How do you prove undue influence?

Answer 13

Party alleging undue influence shows:

• relationship of trust and confidence; AND
• transaction which requires explanation

If show this, the burden will shift to the defendant to show there was no undue influence.

Question 14

What is a transaction which requires explanation?

Answer 14

A transaction will require explanation if it does not fit with what would usually be expected in the relationship concerned. May be of a suspicious type or be for a suspiciously high value.

Most cases: husband/wife offering their interest in the matrimonial home as security for a loan for their spouse’s business is not a transaction which requires explanation. - party would need to prove an unfair advantage had been taken of the relationship.

Question 15

What is the relief for undue influence?

Answer 15

Where undue influence is proven, a contract may be set aside. However, this relief is equitable and therefore discretionary.

Court may not allow this relief where the innocent party has delayed making its claim because delay defeats equity. Or unclean hands.

Question 16

When will a creditor be put on notice of undue influence?

Answer 16

When:

a) the transaction is on its face not to the financial advantage of the wife and

b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.

A bank should be put on inquiry whenever one party in a non-commercial setting is standing as surety for the other party.

Question 17

What are the reasonable steps a bank should take regarding undue influence?

Answer 17

Should ensure innocent party is fully aware of the risks being taken and advise them to take independent advice.

a) no obligation on the creditor to have seen the wife itself - reasonable to rely on solicitor having advised in an appropriate manner. For solicitor to determine whether there is a conflict if he also advises the husband.

b) creditor must provide 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.

Question 18

What is the core minimum advice a solicitor should give when advising on undue influence:

Answer 18

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 duration and terms of the security and the wife’s assets and means

c) the fact the wife has a choice.

If solicitor fails in duty, wife will have an action in negligence against the solicitor but no recourse against creditor as they are entitled to assume that the solicitor has properly advised the wife.