Duress and undue influence Flashcards
What are duress and undue influence
Doctrines which deal with situations where free and independent consent to contract has not been given, and accordingly the contracts concerned are not allowed to stand.
What is ‘duress’?
Duress involves one party coercing another party into a contract: consent is not present or not given freely.
What happens if there is duress?
A contract or variation of a contract which has been entered into under duress is voidable, meaning that the wronged party may be able to take action to have it set aside.
Types of duress
- Duress to the person
- Duress to goods
- Economic duress
Duress to the person
- can void a contract when it amounts to actual or threatened violence.
- leading case Barton v Armstrong: once it is established that the physical threats contributed to the decision to enter the contract, duress will be found, so long as the threats were one of the reasons for contracting. Burden of proof is on the party who exerted the pressure to show the threats contributed nothing to the victim’s decision to contract.
Duress to goods
- A contract can also be voided where there is a threat to seize the owner’s property or to damage it (Occidental Worldwide Investment v Skibs)
- 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 was just one factor
Economic Duress
- less well settled than the other two doctrines
- DSND Subsea Ltd v Petroleum Geo Services:
‘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,
(c) which is a significant cause inducing the claimant to enter into the contract’ - 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.
Legal effect of duress
The contract will be voidable. The proper remedy is one of recission, involving attempting to return the parties to the situation each was in prior to entering the contract.
‘Voidable’ definition
A contract which is voidable remains in force unless some action is taken to void (annul) it.
‘Recission’ definition
A remedy which involves returning the parties to the situation each was in prior to the contract.
When will the remedy of recission be lost?
The remedy of recission will be lost when the contract is affirmed, as the affirmation will operate as a bar to recission. The court might concluded that the 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.
‘Lack of practical choice’
Carillion Construction v Felix: If Carillion were to complete their main project on time, and avoid heavy fees for late completion, they had no choice but to agree to Felix’s demands.
Atlas Express v Kafco: where a party has no alternative but to accept revised terms that were detrimental to its interest, this amounted to economic duress.
‘Illegitimate pressure’
In DSND v Subsea, Dyson J stated the following subset of factors to consider when assessing the legitimacy of pressure:
- whether there has been an actual or threatened breach of contract;
- whether the person allegedly exerting the pressure has acted in good or bad faith;
- whether the victim protested at the time;
- whether he affirmed or sought to rely on the contract
Threatened breach of contract
- A threat to breach a contract is an unlawful threat. A breach of contract is a failure to comply with the terms of the contract, which will normally give rise to a right of the innocent party to claim damages.
- A threat to breach a contract will therefore amount to illegitimate pressure.
Pressure applied in good or bad faith?
If the unlawful threat to breach a contract is made for illegitimate ends, then this is made in bad faith. In Carillion and Atlas, the threat was made in order to extort money from the other contracting party that they were not entitled to.
Bad faith distinguished from driving a hard bargain
Alec Lobb v Total Oil: terms were in Total Oil’s favour, and had been able to negotiate such favourable terms because Lobb’s credit history was very poor and he would have struggled to obtain financial help elsewhere.. Lobb sought to allege the contract had been entered into under duress. The court disagreed. Hard bargaining did not amount to duress, and Lobb had chosen to enter the contract despite receiving legal advice not to.
Did the victim protest?
- The victim should demonstrate evidence of protest at the time the alleged duress was exerted.
- Carillion: Before paying the money, Carillion wrote a letter protesting against Felix’s demand. Carillion’s registering of their dissastisfaction was material in their claim succeeding.
- North Ocean v Hyundai: North Ocean’s claim failed because they failed to protest at the threatened breach
Affirmation - did the victim affirm?
North Ocean v Hyundai: North Ocean delayed in taking action to set aside the contract. It was not until 8 months later that the owners claimed the return of the extra 10%. Although the agreement to pay the extra money might initially have been voidable for economic duress, the fact that the shipping company waited 8 months before taking steps to avoid the contract meant they lost their right to have the contract for the increased payments set aside. They had, in effect, affirmed a variation to the contract.
Causation element (but for the duress, the agreement would not have been entered into)
It must be shown that the agreement would not have been entered into if there had not been the duress.
Huyton SA v Peter Cremer: ‘The minimum basic test of subjective causation in economic duress ought, it appears to me, to be a “but for” test. The illegitimate pressure must have been such as actually caused the making of the agreement, in the sense that it would not otherwise have been made at all or, at least, in the terms in which it was made.’
Economic duress and consideration
See consideration flashcards
Can there be illegitimate pressure if there is only one of (a) unlawful and (b) In bad faith present?
CTN Cash and Carry v Gallaher: ‘the defendants were in law entitled to refuse to enter into any future contracts with the plaintiffs for any reason whatever or for no reason at all. Such a decision not to deal with the plaintiffs would have been financially damaging to the plaintiffs, but it would have been lawful….readily accept that the defendants have used lawful means does not by itself remove the case from the scope of the doctrine of economic duress…Outside the field of protected relationships, and in a purely commercial context, it might be a relatively rare case in which ‘lawful-act duress’ can be established…it might be particularly difficult if the defendant bona fide considered that his demand was valid…I deliberately refrain from saying ‘never.’ But as the law stands, I am satisfied that the defendants’ conduct did not amount to duress.’
Woodhouse A.C. v Nigerian Produce
‘the modern approach to the question of consideration would be that where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment this would not be fatal to the establishing of sufficient consideration to support the agreement. If both parties benefit from an agreement it is not necessary that each also suffers a detriment.’
What is undue influence?
- The doctrine of duress is a common law doctrine, whereas undue influence was developed by the courts of equity.
- Where there is doubt as to whether an act of coercion is duress or undue influence, the claimant should bring an action on both grounds.
- The objective is to ensure the influence of one person over another is not abused.
RBS v Etridge
Undue influence exists where a person’s consent to a transaction was produced in a way such that the consent ought not fairly to be treated as the expression of their free will.
The court stated it is ‘impossible to be more precise or definitive’ than this, meaning the court wants to keep its options open to find undue influence.
