Vitating factors Flashcards
What are vitiating factors?
Vitiating factors in a contract are those which will invalidate the contract.
R v Attorney-General for England and Wales (2003)
Facts
The defendant was a former soldier who served in the Gulf war. During that time, he had been captured by Iraqi forces and tortured. The war ended and the defendant was released. His commanding officer and two other members of his unit published memoirs of the events. These were later made into films. Most soldiers in the regiment thought that this was contrary to the culture of secrecy expected of each other. They lobbied the Ministry of Defence for a system of unauthorised disclosure contracts. The Ministry of Defence agreed.
The defendant was told that if he wanted to remain in the regiment, he must sign one of these confidentiality agreements. If he did not, he would would be ‘returned to unit’ (‘RTU’). Soldiers perceived involuntary RTU as a punishment for a disciplinary offence, since it resulted in less pay and social exclusion. The defendant asked whether he could seek legal advice, but was told by a colleague that he could not. This was not actually true, but commanding officers never made it clear.
The defendant signed the contract. Two years later, the defendant wanted to publish memoirs of his own. When he took steps towards doing so, the Attorney General sued the defendant for breach of contract. The defendant alleged that he had only signed because he was ordered to, making the contract voidable for duress or undue influence. He also alleged that the agreement lacked consideration, or was void for public policy reasons.
Issue(s)
- Was the confidentiality agreement voidable for duress?
- Was the confidentiality agreement voidable for undue influence?
- Was there any other reason the contract was unenforceable?
Decision
The Privy Council held that the confidentiality agreement was enforceable. Duress did not apply, because the threat of RTU was lawful and legitimate. The Ministry of Defence had a valid reason to demand confidentiality. They also had a legitimate concern that anyone who refused was not appropriate for the regiment. There was insufficient evidence that the defendant was given any order which created an obligation to obey under military law.
Undue influence was also inapplicable. Assuming that the defendant’s commanding officers had influence over him, the nature of the contract did not give rise to an inference that the relationship was being unfairly exploited. Everyone who wished to join the regiment had to sign the agreement, and that the defendant understood the contract. Since there was no presumption of undue influence at play, the fact that the defendant had not received legal advice, while regrettable, did not make the transaction unfair.
Meanwhile, the contract could not be impugned for lack of consideration. The defendant provided consideration by signing the agreement and giving up his disclosure rights. The Ministry provided consideration by allowing him to return to the regiment. There was no reason to hold the contract contrary to public policy. The public interest in upholding confidentiality agreements was not outweighed by the public interest in the information the defendant sought to communicate to the public.
Corporation v Skibs A/S Avanti, The Siboen and the Sibotre [1976]
Facts
The Defendant owned two tankers that were charted to the Plaintiff for three years. The Plaintiff’s financial situation began to deteriorate, so they approached the Defendant requesting that the rates for the charter were reduced as the company had suffered massive losses and were dependent on their parent company to keep them afloat, which was untrue. Several other innocently untrue statements were made about the Plaintiffs finances. The Defendant agreed to reduce the hire rate. The market then improved which led the Defendant to discover that the Plaintiff was making profits from the rental, so they proposed the hire rate returned to the originally agreed rate or that all charter hires be cancelled. The Defendant withdrew the vessels and the Plaintiff claimed damages on the ground that the vessels had been wrongfully withdrawn. The Defendant claimed they were entitled to the rescission due to the innocent misrepresentation and duress and underpayment of the hire.
Issues
Whether the Plaintiff’s misrepresentation amounted to duress.
Held
Judgment was granted to the Defendant in part. Damages and remedies were provided for the losses incurred on both sides. The Plaintiff was found to have acted fraudulently in their misrepresentation which induced the Defendants in discounting the hire fee for the charter. The Plaintiff could not rely on frustration of the vessels being chartered as a reserve as there was no evidence of this. Although the Defendant was under pressure when the Plaintiff requested a reduced hire fee, this did not amount to duress. They were awarded damages with conditions attached. The Plaintiff was not entitled to the Defendant’s profits for their misrepresentation but could claim for the wrongful withdraw of the vessels.
Atlas Express Ltd v Kafco
Facts
The Kafco imported basket ware and entered a contract with Atlas to sell and deliver baskets to Atlas retail stores. Atlas tried to negotiate a further term in the contract for a minimum order of £440 per trailer load. Several days later, an Atlas representative turned up to Kafco’s premises with an empty trailer and told Kafco that if the trailer was not returned with £440 worth of goods as the new minimum, the trailer would be driven away unloaded. Kafco reasonably believed they would be unable to negotiate further terms of the contract and thereby sabotaging their opportunity to trade with Atlas, so they felt compelled to sign the agreement and meet the new terms of minimum stock trade. The agreement continued until Kafco sent them money on account and a letter stating they had signed the contract under duress. Atlas sued for the money on account.
Issue
Whether Kafco signed in duress, even though they had honored the contract.
Decision / Outcome
Judgment was awarded in favour of Kafco. Kafco were found to have signed the agreement under economic duress as they felt that in the circumstances they had no alternative but to sign the varied contract. Kafco had not approved the new terms of the agreement (as they had previously rejected the proposed variation) and further, there was no consideration for the new agreement as the variation placed Kafco in a less favourable position financially. Thus, their non-payment of the money of account resulted from the duress.
Universe Tankships Inc of Monrovia v International Transport Workers Federation
Facts
The claimant’s ship was registered in Liberia and sailed under a Liberian flag. It docked in Milford Haven, a UK port. It did not hold a ‘blue certificate’. This was a document issued by the defendant. It prevented ships from being ‘blacked’ (prevented from entering or leaving port) by the defendant’s campaign against ‘flags of convenience’. The aim of the campaign was to improve sailors’ wages and working conditions.
The defendant blacked the claimant’s ship. To end this, the claimant agreed pay money to the defendant’s ‘welfare fund’ and back-pay to its crew. The claimant did so out of fear of the economic consequences of being trapped at port. The purpose of the welfare fund was ‘to help provide welfare, social and recreational facilities in ports around the world for seafarers of all nations, especially those serving in flag of convenience ships.’
The claimant later sought to have the payment to the welfare fund set aside for economic duress. The defendant resisted this, arguing that their actions were lawful under s.13 of the Trade Union and Labour Relations Act 1974. The claimant also argued that the welfare fund was an invalid trust. This would mean that the defendant held the payment on resulting trust for the claimant.
Issue(s)
Did the defendant hold the payment on resulting trust?
If not, was the payment voidable for economic duress?
Decision
The House of Lords held that the welfare fund was not a trust. Rather, it was a contract set up between affiliated unions. Accordingly, the claimant did not make the payment on trust – it was an accretion to the contract. There was therefore no resulting trust, and the money could not be recovered on this basis.
Meanwhile, the defendant had procured the payment by economic duress. Their actions were not lawful under s.13 of the Trade Union and Labour Relations Act 1974. This was because they were not done in contemplation of a trade dispute. The welfare fund had nothing to do with the crew’s terms and conditions of employment. The fact that the defendant made the demand for a donation to the fund at the same time as demanding back-pay for the crew (something that was connected to terms of employment) was irrelevant. The two demands were treated separately.
Bank of Credit and Commerce International SAv
Aboody (1990)
What are the 5 elements of vitiating factors?
Mistake, misrepresentation, duress, undue influence and illegality.
