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Published: Fri, 02 Feb 2018

Consent is required to be given

For a legally binding and valid contract to come about, consent is required to be given. Consent is a mutual agreement between two parties to enter into a contract; the consent has to be free from any type of pressure for the contract to be valid [1] . In the commercial world, a lot of agreement are made as a result of pressure or influence by one party to another however, the contract can be voidable either under the common law doctrine of duress or under the equitable doctrine of undue influence. The presumption of both the doctrine of duress and undue influence is that there was no free consent to a contract by one party. As both doctrines can make a contract voidable, the right to reverse the contract can be lost in affirmation, or the inability to restore the parties to their pre-contract positions or acquisition of rights by the third parties. Furthermore, the doctrine of duress is an influence in a transaction by one party exercising an illegal domination on the other party to achieve undue benefit. Formally, the legal recognition of duress used to be just violence or threats of violence, but in modern decision, the common law was extended to cover economic duress which is threat to property or business. [2] 

The common law extended duress to economic duress as a separate entity because of a lot of complexity in many commercial transactions. Economic duress is the most recent category of duress and it is the most difficult type of duress to stabilize. It occurs in a commercial transaction when some unfair and unlawful economic pressure is put on a party to contract; it must be an illegitimate and coercive pressure and there must be a lack of practical alternative and also it must cause a great threat to the economic interest of the person suffering the duress. Economic duress was first recognized by Kerr J in the case of Occidental WorldWide Investment Corporation v Skibs A/S Avanti (The Siboen and The Sibotre) [3] . Since then there has been a lot of fluctuation in the law; it has been quite difficult to prove the elements that make up an economic duress. One of the elements is coercion of will; Coercion of will is focused on the victim suffering the pressure rather than the person applying the pressure. According to Lord Scarman in the case of Pao on v Lau Yiu Long [4] , the main principle of economic duress was that “there must be a coercion of will such that there is no true consent … it must be shown that the contract entered into was not a voluntary Act”. [5] There are some factors that have to be considered in determining a coercion of will. Firstly, it has to be considered if the victim had an alternative course available to him, Secondly, if the victim had protested, Thirdly, if the victim obtained an independent advice and finally, if the victim had taken steps to avoid the contract. According to the Pao On case, there was no duress it was only a commercial pressure. Although, there were a lot of criticisms in using the ‘coercion of will’ theory to determine economic duress. This led to the courts abandoning the theory however the test has not been totally abandoned

Due to the difficulties of using the coercion of will theory, the courts decided to shift attention from the victim suffering the pressure and focused on the defendant who applied the pressure; it was to be considered if the pressure was illegitimate. In doing so a causal link between the pressure by the defendant and the victim’s decision to go into the contract has to be determined. However, it is not that easy for the courts to determine an additional element to prove that there was an illegitimate pressure. This is because the court doesn’t only have to prove that the threat was illegitimate, the court also have to prove that the duress was the major cause of the plaintiff giving some kind of benefit to the defendant. The first test that was used to prove an illegitimate threat was to consider if the threat was due to bad faith; the bad faith test shows that the defendant exploited the plaintiff weakness. The bad faith test can be seen as vague because there if difficulties for the plaintiff to show what the defendant intended in making the threat. Therefore the bad faith test cannot be relied on to prove that there was an illegitimate test on the part of the defendant. [6] In replacement of the bad faith test the substantively unfairness test was used to prove illegitimate threat; this test was used in the case of Credit Lyonnais Bank Nederland NV v Burch [7] . To determine if the terms are unfair, the circumstances and the relationship between the parties have to be analysed. Although, this approach can be unpredictable and may not lead to any judicial support. A better approach of determining illegitimate pressure is to identify the two types of illegitimacy as stated by Lord Hoffmann that legitimacy of the pressure must be examined by ‘two aspects’ which are ‘nature of pressure and … the nature of demand which the pressure is applied to support’ in the case of R v Attorney-General for England and Whales [8] . The third element of economic duress is alternatives that the victim suffering the duress would have taken. if there is no practical alternative and the victim submitted to the threat only then that it becomes duress. According to the House of Lords in the case of Universal Tankships v international transport Workers [9] , duress was seen as the victim intentionally submitting to the threat because he realised there was no practical alternative. Mance J in Huyton v Cremer [10] stated that the ‘but for test’ would not cater for the obvious possibility; this means the innocent party would not acted as he did but not for the illegitimate threat by the defendant. He had a choice and he could have resisted the pressure by pursuing a legal redress.

The equitable doctrine of undue influence is the counterpart of duress which means it has been separated from the common law of duress and it is no statutorily defined. This doctrine provides a consolidation from contracts created under pressure which does not amount to duress. It allows the court to intervene on the basis of debate where there is a relationship between the victims who was exploited to gain an unfair advantage; this means the court has to intervene for the weaker party. The courts have not really clarified on who to focus on in an undue influence case, the look at it in two ways firstly, the courts focus is on the claimant and how the relief the court’s give is detrimental to the influence cases is to focus on the position of the defendant and see the wrongful conduct the defendant has done. However, the courts have not decided what particular view they want to use in determining undue influence cases. Although, most recent judgments focus on the wrongful conduct done by the defendant; this makes undue influence more defendant focused. Undue influence can be categorised into two major categories; actual undue influence and presumed undue influence. The decision of the House of Lords in the case of Etridge reduced the distinction between the two categories of undue influence. [11] In actual undue influence, the burden of proving undue influence is put on the claimant and once it has been proven, the contract will be voidable. It is not required that the defendant has to show that the agreement was a disadvantage to him; the claimant has to prove that the contract was as a result of undue influence from the defendant. The cases of actual undue influence can be overlaps the doctrine of duress. It was observed by Lord Nicholas in the case of Etridge, that actual undue influence comprises ‘overt acts of improper pressure or coercion such as unlawful threats and today there is much overlap with the principle of duress as this principle has subsequently developed.’ For example in the old case old Williams v Bayley [12] , the actual undue influence can be applied as an illegitimate pressure and there was no need for the plaintiff to prove that the agreement was not accounted due to friendship. However, nowadays the case of Williams can be decided based on duress. ………

Presumed undue influence is more complicated than the actual undue influence. In presumed undue influence, one party will have to prove that trust and confidence was put on the dominant party in the relationship between them and the agreement calls for explanation; the transaction will be deemed voidable unless the dominant party can prove that there was no undue influence. This means that in some cases the courts presume undue influence which can be rebutted; the dominat party will have to rebut the presumbtion the weaker party relied mainly on an independemnt legal or financial advice in making the agreement. The decision of the House of Lords in the case of Royal Bank of Scotland plc v Etridge [13] , led to the cases of presumed undue influence beign subdivided into two. The first division consist of a “special relationship” between the parties, the law presumes that one party dominates over the other party. This type of relationship is a relationship between a parent and a child, doctor and patient, trustee and beneficiary, guardian and a ward. The second division is not based on the special relationship between the parties, it is however based on the proof that the transaction ‘calls for explanation’. This leads to the ‘manifest disadvantage’ requirement which was seen in the case of National Westminister bank plc v Mogan [14] , here Lord Scarman said the agreement must be ‘manifestly disadvantageous’ to the person wanting to set it aside. However, the expression manifest disadvantage can not be in effect practically, it will cause a lot of misunderstanding ; because of this issues, the original test by Lindley LJ in the case of Allcard v Skinner [15] to be adopted. The test in the case of Allard is that if the gift is ‘so large as not be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act’. Therefore due to the case of Etridge the House of Lords decided that the Lindley LJ test should be applied in cases of presumed influence.

The third stage in deciding a case of presumed undue influence is about the defendant rebutting the presumption that there was undue influence on the claimant. There is no particular specific way in which the presumption can be rebutted. It can be rebutted by the defendant showing that the the claimant actions were independent of any influence and that the claimant appreciated what he was doing. Another way which is the most common way of rebutting a presumption is by showing that the dominated party had a legal and independent advice before taking the decision. There are however some cases whereby the undue influence was not rebutted. For example, in the case of Hammond v Osborn [16] , the Court of Appeal held that the presumption had not been rebutted.

The doctrine of economic duress has been in theory for many years however, it has been very difficult to practice in the commercial reality. The judges and arbitrators have been having problems in differentiating between legitimate commercial negotiation and unlawful coercion. Two cases which were raised for the argument of practical economic duress are DSND Subsea v Petroleum Geo-Services [17] and Carillion Construction Ltd v Felix (UK) Ltd [18] . And both cases where judged by Dyson J. In the decision in the case of DSND, Dyson J stated that “illegitimate pressure must be distinguished from the rough and tumble of the pressure of normal bargaining”. Elements such as lack of practical alternative, illegitimate threat and the pressure being the course of the victim entering into the contract has to be met first for economic duress to be recognised. To establish illegitimate pressure, the nature of the demand made and if the demands are justified; Dyson J in the case of DSND differentiated a demand for further indemnities and insurance protection from a demand from enhanced payment. In the judgment, the event that took place after the alleged duress was also taken into consideration. It was taken into notice that in the internal memorandum by PGS, duress was not mentioned when the deal was finalised

It is practically not easy to prove this three elements to determine economic duress it is only easy theoretically because the judges

Some of the cases which the courts used to determine the principle of economic duress and undue influence were unclear and conflicting. In the case of Adam Opel v Mitras Automotive (UK) Ltd [19] ; Adam Opel manufactures vans and informed M on February 2006 that it would stop getting parts from M in August. Due to this, M demanded that they should be compensated and that they would increase the price of the parts they supply. AO sought an injunction against M without M notice and they continued negotiation until AO noticed it had just 24 hours worth of supplies left. E M threatened to cut off all supplies of parts to AO, this made AO agree to the terms of M because if they stopped production it will cause a lot of financial loss and lead to some knockout effects. When the court intervened in the case, it was held that due to the degree of pressure put on AO, there was economic duress in this case. Contrary to this case is the case of Pao On v Lau Yiu Long the privy council rejected the submission that guarantee was not supported by consideration, the guarantee was not enforceable on the ground that it had been caused by duress. The Privy Council however rejected the defendants submission it was held that there was no economic duress because the defendants did not show their will has been coerced to the extent of vitiating their consent. Also, in the case of Adam Opel V Mitras Automotive (UK) Ltd the principle of practical alternative was accepted because the court recognised AO’s case of injunction and held that A conflicted

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