Duress & Undue Influence

Question 1

What is duress? What happens to (variations to a) contract that was entered into under duress?

Answer 1

• Involves one party coercing another into a contract
• Consent is not freely given and the contract is voidable

Question 2

What are the three types of duress? What do they mean?

Answer 2

1. Duress to the person (actual/threatened violence)
2. Duress to goods/property (threat to seize/damage property)
3. Economic duress

Needs to be decisive factor = but for.

Question 3

For duress to the person or to goods, need the duress be the decisive factor in entering the contract?

Answer 3

• To person = need only be one factor influencing wrong party’s behaviour (e.g. physical threats contributed to decision to enter contract)
• To property = need to show that duress was the decisive factor (but for)

Question 4

Who is burden of proof on for cases of duress to the person? What must they show?

Answer 4

On the party exerting thre pressure (to show threats/unlawful pressure did not contribute to decision to contract)

Question 5

What are the 3 ingredients of economic duress?

Answer 5

1. Lack of practical choice
2. Caused by illegitimate pressure
3. But for duress, agreement would not have been entered into

Question 6

When will a victim have a lack of practical choice?

Answer 6

When they have no practical alternative but to acquiesce to the demand

• E.g. where a party has no alternative but to accept revised terms that are detrimental to its interest

Carillion - subcontractor’s (Felix) work was delayed and no certainty when it would be completed - Felix knew number of trades dependent upon it completing work to ensure building was watertight and that it would be impossible for contractor to find alternative supplier in time to meet contract completion date - Felix got Carillion to pay substantially more money in return for Felix delivering cladding by original deadline in contract - Carillion had no viable alternative but to agree to Felix’s demands

Question 7

What 4 things will be considered in deciding whether pressure exerted was illegitimate pressure?

Breach, faith, if the victim either…

Answer 7

• Actual/threatened breach of contract
• Whether pressure applied in good or bad faith
• If the victim protested
• If the victim affirmed

Question 8

Will the threat of a breach of contract amount to illegitimate pressure?

Answer 8

Yes usually

Question 9

When will pressure be applied in good and bad faith?

Answer 9

• Bad faith = when threat made to extort money from other party they are not entitled to; no legitimate basis (Carillion)
• Good faith = threatening to suspend work until provision of insurance was clarified; reasonable contractor behaviour

Question 10

Must a victim protest to demonstrate illegitimate pressure?

Answer 10

Yes - failing to protest may be taken as acquiescence in changed circumstances

A letter initially protesting demand can satisfy

North Ocean Shipping - shipbuilders refused to deliver ship unless North Ocean agreed to pay 10% more than contract price - claim failed because NO did not protest!

Question 11

When will a victim be taken to have affirmed the contract in the face of illegitimate pressure? What is the result of this?

Answer 11

• Unless victim of duress takes immediate action once pressure has ceased to operate, they may be taken to have affirmed contract
• Agreement may have initially been voidable for economic duress, but affirming (waiting too long) may mean losing right to set aside

Question 12

What is the causation test for economic duress?

Answer 12

A but for test; pressure must have been decisive/clinching

Cf duress to person - need only be a factor

Question 13

What is the legal effect of duress? What remedy is available?

Answer 13

The contract is voidable and remedy is recission

Recission = back to original situation

Question 14

Why is economic duress important in the context of consideration?

Answer 14

As the court is increasingly likely to find consideration by way of practical benefit to support variations, economic duress is increasingly important in ensuring party can seek relief from variations where circumstances justify this

I.e. parties that want to excuse behaviour as ‘practical benefit’ face the obstacle of economic duress

Question 15

What is undue influence?

Answer 15

Where a person’s consent to a transaction was produced in a way that consent ought not to be treated as an expression of their free will

Lots of overlap with duress

Question 16

What are the two types of undue influence?

Answer 16

1. Overt acts of improper pressure or coercion (causation test same as duress to person; just need to establish as factor - cases like this today are rare and would most likely be decided on duress basis)
2. Relationship of influence/ascendancy of which unfair advantage is taken

Influence comes from trust/confidence one party has in other/where one party is vulnerable or dependent and even if innocent party not positively placed trust in other party

Question 17

What relationships have an irrebuttable presumption that one party has influence over another? What relationships do not give rise to the same presumption and what is the result of this?

Irrebuttable presumption = court will not allow argument suggesting there was no influnce

Answer 17

• Irrebuttable presumption: Parent/child, guardian/ward, T/B, solicitor/client, doctor/patient
• No presumption: parent/adult child, spouses = influence needs to positively be shown

Question 18

What 2 things does a victim of undue influence (relationship/ascendancy) need to show for court to determine a transaction is product of undue influence? What happens to the burden of proof if they can show this?

Answer 18

1. A relationship of trust and confidence (if not presumed, must show)
2. A transaction which requires explanation (high value, suspicious etc.)

If they can show this = burden shifts to D to produce evidence showing no undue influence

I.e. undue influence established unless accused can establish contrary

Question 19

Will a husband/wife offering interest in matrimonial home as security for a loan to spouse’s business be a transaction requiring explanation?

Answer 19

No! So party alleging undue influence needs to prove unfair advantage taken

Question 20

If someone receives independent legal advice and fully understands transaction, can their consent still be a result of undue influence?

Answer 20

Yes - not a fix

Question 21

What is the effect on a contract where undue influence is proven? Will the effect always be this?

Answer 21

• Contract may be set aside
• Discretionary remedy - court may not allow relief where innocent party delays its claim or does not have clean hands

Question 22

Re undue influence and third parties, when does the issue of notice of the creditor not become relevant until?

In case of spouse exercising undue influence over other spouse in entering into a guarantee with a bank over matrimonial home

Answer 22

Until undue influence is established…

1. Spouses not an irrebuttable presumption - so must establish they put trust and confidence in spouse (easy)
2. Spouse offering interest over home is not a transaction requiring explanation - party offering security must show how influence has been used unduly

Question 23

What is the effect of notice of undue influence on the bank?

Answer 23

• If bank has actual notice; contract is affected, but as this is highly unlikely…
• Constructive notice means it will be treated as having notice of something it its not actually aware of

Barclays - company bank agreed £12k loan to be guaranteed by second charge over matrimonial home signed by husband and wife - both signed docs without reading - bank took proceedings to enforce security and wife contended that husband put undue pressure on her - HOL held bank was put on constructive notice that influence may be exercised; failed in duty to take reasonable steps to warn wife of risks she ran in entering contract

Question 24

When is a creditor (third party) put on constructive notice in the event of potential undue influence re the matrimonial home? What is the result of this?

2 things

Answer 24

A creditor is put on notice when:

1. Transaction on face not to financial advantage of party concerned; and
2. There is substantial risk that influencing party has committed a legal/equitable wrong entitling influenced party to set aside transaction

Unless creditor put on inquiry takes reasonable steps to satisfy himself that influenced’s agreement has been properly obtained - the creditor has constructive notice

Question 25

Are the rules on undue influence/TPs/matrimonial home confined to spouses?

Answer 25

No - extend to every case where relationship between surety and debtor is non-commercial

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

Question 26

When will a victim’s claim for undue influence from spouse be rejected?

Answer 26

Where there is nothing to put lender on notice that transaction was anything other than a normal advance for couple’s joint benefit

CIBC - husband used borrowed money and lost everything in stock market crash - wife sought to have mortgage set aside on grounds of undue influence - rejected; lender had no notice of husband’s UI as mortgage application said loan was for a holiday cottage

Question 27

How does a creditor take reasonable steps to not be put on notice? Must they see the individual themselves?

Must be taken when put on constructive notice

Answer 27

• Do not need to see individual themselves; it is reasonable to rely on confirmation from solicitor that they have advised
• Creditor only need to prove solicitor with sufficient information about the transaction

Question 28

What is the minimum advice that should be given to individual by solicitor?

3 things

Answer 28

• Explanation of documents and practical consequences (e.g. losing home)
• Seriousness of risk (duration/terms/assets)
• Fact that the individual has a choice

Question 29

Is there an action in negligence available against the bank if the solicitor fails duty?

Answer 29

No - but individual will have action in negligence against solicitor