Economic Duress & Undue Influence Flashcards
Void/Voidable
- If the contract is void, affected parties will be treated as if they had never made a contract
- If contract is voidable, affected party can rescind contract, subject to certain bars
- Bars to rescission apply to all vitiating factors taught under misrepresentation
Barton v Armstrong [1976] AC 104 (PC)
Duress of the person
Facts- Two men in a power struggle for a company. Barton was MD – he managed to have Armstrong removed but as a result of death threats he agreed to pay him a lump sum and pay him overprice for his shares. Barton then tried to have the agreement set aside.
Legal issues- The court recognised that there had been duress but argued that the principle reason for entering into the contract was commercial so the threats weren’t instrumental in making him enter the contract. However, in the PC it was held that the death threats were “a” factor that was taken into consideration when he made the contract and so was set aside. Doesn’t have to be a significant factor.
Astley v Reynolds (1731) 2 Str 915
Duress of goods – threats to damage your property
Facts- the defendant a pawn broker lent Astley a sum of £20 the security given was a plate. The broker then refused to return it unless he paid a higher rate of interest so he did this then took action to cover the extra payment.
Legal issues- this payment hadn’t been made freely it had been made under compulsion so the contract was rescinded.
Occidental Worldwide Investment Corporation v Skibs A/S Avanti (The Siboen and The Sibotre) [1976] 1 Lloyd’s Rep 293
(Economic Duress)
Facts- first case to allude to the existence of economic duress. The defendant agreed to rent two tankers for 3 months to a company owned by the plaintiffs and agreed a hire-rate of $4 per ton per month. The plaintiffs were having financial difficulties and said if the rate was not lowered, they would breach their obligations and go bankrupt.
Legal issues- the court held obiter that a contract could be voidable as a result of economic duress. On the facts of the case they held that ED was not present here. They had acted as a result of pressure but it was simply commercial pressure. They were coerced such that their consent had been vitiated.
Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833
Facts- Atlas was a delivery firm in a contract with Kafco who distributed basket-wear. Atlas were to supply these goods to Woolworths at a price of £1.10 per box based on 400-600 per van they then realised they could only fit 200 into the van so it would cost them a lot more money. So, they told Kafco that unless they agreed to an increase price of £4.40 per box then they wouldn’t deliver these goods. They would potentially loose their main customer if they didn’t fulfil their obligations under their contract. They paid the increased price then refused to pay the additional money. Did Kafco have any choice here? Were the bound by this new agreement?
Legal issues- Kafco argued that they weren’t because it was entered into under economic duress and secondly there was no new consideration provided for this new price. The court said that the pressure must amount to a coercion of will such that the victim’s consent had been vitiated so in this case economic duress was present. There was also no new consideration in exchange for their promise to pay more.
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] QB 705
Legal issues- with regards to economic duress the court found this could be established here. The effect of a finding would render the contract voidable. However, they hadn’t taken steps to avoid the contract as they had waited 8 months and were therefore barred from bringing the action as this amounted to an affirmation of the varied contract.
Elements of Economic Duress
“there must be pressure, (a) whose practical effect is that there is compulsion on, or 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.”
DSND Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530
Pao On v Lau Yiu Long [1980] AC 614
(Lack of practical choice)
Originally ‘coercion of will’
Facts- the plaintiff threatened not to perform their contractual promise unless the defendant agreed to a re-negotiation in another contract between them. The defendants argued they only agreed as a result of economic duress.
Legal issues- “there must be a coercion of will such that there was no true consent” – the court found there was a threat to breach contract but they could have brought them to court and sort a remedy for this. This was simply commercial pressure.
B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419
(Lack of practical choice)
Facts- the plaintiff agreed to erect exhibition stands in Greece for the defendant. The exhibition was due to begin and he had varying other contracts with exhibitors. The plaintiffs flew in workers from England who had just been issued with redundancy notices. They demanded £9000 in severance pay to continue the work so they agreed to pay half and told Victor Green they had to pay the other half the stands won’t be erected. It was too late to find other workers and would breach their contracts if it didn’t go ahead. So, they agreed to pay it but didn’t pay it when the invoice came.
Legal issues- court found in their favour as they had clearly only entered into this contract because of economic duress and that they had no other choice but to accept. “there was no reasonable alternative open” as breach of contract would have taken too long.
Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833
(Lack of practical choice)
Legal issues- in regards to economic duress they were under time pressure which meant they couldn’t have brought an action of breach of contract. They had no other practical choice.
Carillion Construction Ltd v Felix (UK) Ltd (2000) 74 Con LR 144
(Lack of practical choice)
Facts- Carillion was the main contractor on a building project and Felix was the sub-contractor for the cladding. It was due to complete by June 2000 and Felix started in July 1999 but the approached Carillion and said they wouldn’t finish they, job unless they pay the 3.3 million, they owed. They thought the figure was 2.7 million but they wouldn’t have time to find someone else at such short notice and if it wasn’t complete, they were subject to a penalty clause. So, they agreed to pay 3.2 million but they sort to rescind the contract on the ground of ED.
Legal issues- the court agreed that rescission as when the demand was made, they considered going to adjudication but they didn’t have time and had no alternative course of action it would be insufficient to meet their commercial needs.
Adam Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3481 (QB)
(Lack of practical choice)
Facts- Opel entered into a joint venture with Renault and Mitras suppled a part that was needed for the vans production. Production started but in 2005 Opel decided to use an alternative supplier so they told them that from Aug 2006 they would stop buying that car part from you. Mitras said they had quoted a low price on the presumption that the relationship would be ongoing and that they had incurred expenses so they wanted to recoup them so they wanted £560,000 and said that unless the agreed to pay this they would stop production of this. The new supplier wasn’t in place and they couldn’t find someone else to supply the part. So, they went to court to get an injunction but because Mitras didn’t turn up the judge wouldn’t grant it. So, they agreed to pay £450,000 as a result of this threat. The later brought an action.
Legal issues- they had no practical alternative choice of action and ED was present.
Vantage Navigation Corp v Suhail and Saud Bahwan Building Materials (The Alev) [1989] 1 Lloyds Rep 138
(Lack of practical choice)
Facts- the plaintiff delivered cargo the defendant and entered into a charter agreement but the charterer turned out to be financially unsound and didn’t pay the charter fees. So, this cost fell on the plaintiff so they demanded more money from the defendant’s they knew that it wasn’t uncommon practice for goods to be dumped if you were in dispute so they agreed to pay this extra sum of money but made it clear at all times that this was due to this pressure.
Legal issues- the court held that this was a case of ED and said that being deprived of their cargo would be seriously destructive to their business and any remedy would be inadequate to meet their commercial needs.
Universe Tankships Inc of Monrovia v International Transport Workers’ Federation and Laughton [1983] AC 366
(THREAT IS ILLEGITIMATE)
Facts- a dock in Wales where ships would load and unload goods flying flags of convenience meaning they were not operating under the rule of any specific country so the crews were paid and treated badly. The trade union “blackened’ these ships meant that the tugs were unprepared to handle these ships so they couldn’t park in the port. Union demanded this ship pay $80,000 in back pay and contribute $6500 to the union welfare fund you won’t be able to access the port. They paid this money then sort to recover the $6500 on the grounds on ED. Even if this money had been paid over by economic duress the union couldn’t be sued because a piece of legislation gave them immunity. If they were involved in strike action, they were immune as long as it related to a legitimate trade dispute and therefore protected.
Legal issues- the union failed in court because the trade dispute had to relate to the terms and condition to the employment of the crewman and this wasn’t. The action was not in pursuit of an illegitimate trade dispute. This was an illegitimate threat.
CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714
Lawful act duress
Facts- plaintiff company ran a cash and carry business where they sold cigarettes that they brought from the defendant. They had dealt with each over for a number of years each time with a separate contract and they sometimes gave them credit but this was never a term of the contract but it was sometimes done in good faith. On one occasion it was sent to the wrong warehouse and they agreed to transfer them but they were stolen. They then disputed who should bare the loss. Objectively it should have been the defendant but they genuinely believed it should be the seller. The seller said unless you pay us, we will no longer give you credit. They were entitled to withdraw this credit facility and this was therefore a lawful threat. The plaintiff paid it then brought an action .
Legal issues- in certain circumstances lawful act duress could found an action in economic duress but this was just hard-nosed bargaining. It was not illegitimate.
Times Travel (UK) Ltd v Pakistan International Airlines Corp [2019] EWCA Civ 828, [2019] 3 WLR 445 (Lawful act duress)
Facts- a travel agent operating in the UK selling tickets for flights to Pakistan under international rules they had to enter into agency relationships with airline (PIAC) and at this time they were the only one offering direct flights to Pakistan. Either side could terminate the agreement by giving notice for any of them. Several of the third parties brought actions against the defendant to try and claim unpaid commission. They hadn’t done this but the claimant thought they would so they terminated the contract. The airline then offered a new contract with a clause saying them would not bring a claim for unpaid commissions. The claimants agreed and then later sort to set it aside on the grounds of ED. They were allowed to end the contract and add the new clause.
Legal issues- due to their dependence on the airline the High court found that they had no practical choice but to submit to the pressure. The COA overturned this and found that no ED was present. Can it arise when lawful acts or threats are made in support of a demand that they believe they are allowed to make? Where lawful acts are used to apply pressure, they will not set it aside unless they can prove that the party acted in bad faith.
CAUSATION
– Threat or pressure induced victim to contract
- Economic duress the Illegitimate pressure must be a significant cause as compared to duress to the person which only has to be a cause
DSDN Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530
Is the duress operative?
Facts- in a contract between DSND and PGS for sea work, it was alleged that PGS had entered into it following a misrepresentation by DSND and that the agreement was entered into through economic duress they also contended that it had validly terminated the contract in breach of it’s terms.
Legal Issues-
1) The representation had not been relied on, was not false and had been subsequently affirmed.
2) There was no evidence of duress
3) There had not been a breach of contract to warrant service of notice of termination of main contract in accordance with the terms of the notice.
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] QB 705
(Need to protest)
Legal issues- affirmation the contract by waiting too long and couldn’t bring their claim because they were barred.
UNDUE INFLUENCE – subtle pressure (equity)
- equitable doctrine providing relief from contracts entered into under improper pressure
- contract will be rendered voidable
CLASSES OF UNDUE INFLUENCE
Two party or three-party (most common) cases
Class 1: actual undue influence- have to bring evidence to prove the influence and the fact it was undue.
Class 2: presumed undue influence- no need to produce evidence only show that you are in a relationship of trust and confidence so a legal presumption will arise that one party has influence over another
2A: protected relationships of trust and confidence- irrebuttable presumption of influence e.g. parent and child, guardian and ward, religious advisor and disciple, solicitor client, doctor and patient, trusty and beneficiary etc. Must prove that is was undue (by showing that the transaction is one that calls for an explanation). Not husband and wife. The evidential burden shifts.
2B: de facto relationships of trust and confidence – all other relationships the claimant must prove the relationship. The influence is then presumed but is rebuttable- whether It is undue will have to be proved (by showing that the transaction is one that calls for an explanation).
Once this is proved this will raise a presumption of undue influence and the burden will then shift to the wrongdoer to prove that the influence was not in fact exerted unduly.
Royal Bank of Scotland v Etridge (no.2) [2001]- classified the different types of undue influence (As above).
Bank of Credit and Commerce International (BCCI) SA v Aboody [1990] 1 QB 923
(Class 1: Actual Undue Influence)
Facts- Mrs Abody was an Iraqui Jew and had an arranged marriage at 17 with a man 20 years older. They came to live in England she was appointed as director but the court said they knew she didn’t know anything about the business. He needed to raise some finances for this but the bank wanted security in the form of a charge over their home which needed her signature. When the banks solicitor explained the risks, the husband came in and shouted at her to just sign the contract and did so in tears. Had she entered into this transaction freely?
Legal issues- The court said the husband had deliberately prevented her from giving full proper and detached consideration to her own decision and this amounted to actual undue influence. But they said that the transaction had to be to the manifest disadvantage to the defendant.
CIBC Mortgages plc v Pitt [1994] 1 AC 200
Class 1: Actual Undue Influence
Facts- H and W owned a matrimonial home valued at 270,000 with a small outstanding mortgage. H wished to buy stocks and shares and pressured W into agreeing. P made a loan 150,000 GBP secured on the home even though W had not read the documents. H bought shares but was unable to keep up repayments on the loan. P brought proceedings for possession of the home. W succeeded in establishing undue influence against H but P remained unaffected as H was not acting in any way as its agent and P had no notice of it by being put on inquiry.
Legal issues- P was entitled to enforce the charge as he had not been put on notice. If you enter into a transaction from actual undue influence you will be able to have the contract set aside without proving that is was to your manifest disadvantage.
UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555, [2002] 3 FCR 448
(Class 1: Actual Undue Influence)
Facts- a wife was able to have a charge against her family home put aside because it was entered into as a result of actual undue influence. Mr Williams had fraudulently misrepresented the facts to his wife.
Legal issues- the court held that it didn’t matter that the wife would have entered into the transaction anyway if she had known the facts. This is not a defence to state that.
Bullock v Lloyds Bank [1955] Ch 317
Class 2: Presumed Undue Influence
2A) Protected relationships of trust and confidence
Facts- Father and a daughter. The daughter had on her 21st birthday inherited a fortune in her will. Under only the advice of her father and his solicitor she settled this under a complicated trust meaning she lost all control and the bank had a say. The father was never accused of having bad intention but she still hadn’t given free and informed consent. She then sort to have it overturned.
Legal issues- She hadn’t received independent legal advice so while the father and solicitor had acted with integrity the transaction could be set aside.
