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5.3.2 Duress and Undue Influence Lecture

Duress

In the context of contract law, this refers to where a party uses duress against the other party in order for them to enter into a contract which they either do not want to, or where the terms of the contract are unfavourable to them.

Duress by threat of violence

If a party is able to prove they were coerced into a contract due to a threat of violence, the contract will be voidable. There are two main requirements of duress by threat of violence:

  1. The nature of the threat must be sufficient to amount to duress
  2. The effect of the threat must have been that it forced the claimant into the contract

The nature of the threat

The threat made must be sufficient in its nature to amount to duress. Usually, the indicator the courts have used is whether the threat is illegal - Barton v Armstrong [1976] AC 104.

Effect of the threat

The distinction to make when ascertaining the effect of the threat is whether there is a threat which results in a claimant voluntary entering the contract, or whether the claimant involuntary entered the contract - Northern Ireland v Lynch [1975] AC 653.

Economic duress

The doctrine of economic duress was established in the case of Pao On v Lau Yiu Long [1980] AC 614. Lord Scarman set out these two requirements:

  1. Coercion of the will that vitiates consent
  2. The pressure or threat must be illegitimate

In DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530, Dyson J altered the first requirement to be:

  1. Pressure
  2. The practical effect of the pressure is that there is compulsion, or lack of practical choice for the victim
  3. The pressure is illegitimate
  4. The pressure is a significant cause in inducing the claimant to enter the contract

Lack of practical choice

A practical example of this principle in operation can be found in B & S Contracts & Design Ltd v Victor Green Publications Ltd [1984] ICR 419.

Illegitimate pressure or threat

It is difficult to distinguish between an illegitimate and a legitimate one, as there is expected to be a certain amount of pressure in commercial bargaining. (DSND Subsea Ltd v Petroleum Geo Services ASA).

A threat to break a contract would be regarded as illegitimate - Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm).

The test to apply was confirmed in R v Attorney-General for England and Wales. Two things should be examined:

  1. The nature of the pressure
  2. The nature of the demand

Can duress be lawful?

It has been established in CTN Cash and Carry Ltd v Gallagher Ltd [1994] 4 All ER 714 that duress may be lawful under certain circumstances, despite the unreasonableness of the demands.

These requirements are difficult to meet, when parties are dealing as commerce, it is rare they will be dealing at ‘arm’s length’.

The consideration of whether the parties have dealt in good or bad faith.

Good faith on the part of the party pressuring the other party seems to be relevant for proving a lawful threat falls under the ambit of lawful duress - CTN Cash and Carry Ltd v Gallagher Ltd.

Was the pressure a significant cause in inducing the claimant to enter the contract?

The case of Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep 620 is the leading case for the degree to which the pressure must have induced the contract to the party in relation to economic duress. It must be a ‘decisive or clinching’ inducement. The correct test to apply in this context would be the ‘but for’ test; but for the duress, would the claimant have entered the contract on those terms?

The requirement of protest

In order for there to be an actionable claim for duress, the victim of the duress must take action to remedy or protest the duress at the time of the duress or shortly after - North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, The Atlantic Baron [1979] QB 705.

This requirement of protest is not required at the time of the contract formation. The courts have correctly recognised that in some cases it would be impossible to protest until performance is complete. Therefore, it is a requirement that if protest would not have been viable at the time of the contract being made, it must be made immediately after (Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113.

In the event there is continuing duress, the protest may come at any point during the duress or after it has stopped, it is irrelevant whether duress continues long after the contract formation, as long as the protest is made when possible after the duress ceases (Antonio v Antonio [2010] EWHC 1199 (QB)).

Undue influence

The types of undue influence

Two distinct classes of undue influence in Barclays Bank Plc v O’Brien [1994] 1 AC 180:

  1. Actual undue influence
  2. Presumed undue influence which can be categorised as
  1. Protected relationships – pre-determined presumptions as to relationships which will give rise to a presumed influence
  2. Other cases – relationships in which influence can be presumed, but is not automatically done so

The evidential burdens of the different types

In relation to category ‘2a’, protected relationships, the claimant must simply prove that that party exploited the nature of this relationship.

In category ‘2b’, only if the relationship is one where influence cannot be proved will the claimant have to provide evidence that the relationship was one where influence arose. Following, the courts will assess whether the conduct amounts to undue influence.

In category 1, the claimant does not have to prove there is an existence of any special relationship. The evidential burden they are subject to is proving that their free will to enter a particular contract was overcome - Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep 620.

Actual undue influence

There is no need for an existing relationship between the parties to prove actual undue influence. Furthermore, the contract attempting to be voided for undue influence does not have to be of manifest disadvantage to the claimant - CIBC Mortgages plc v Pitt [1994] 1 AC 200.

Presumed undue influence

Turkey v Awadh [2005] EWCA Civ 382:

  1. Do the facts give rise to either the existence of a protected relationship, or a relationship in which evidence could prove that one party exerted influence on the other?
  2. If so, could the transaction be shown to be one that could not be explained by ordinary motives, therefore suggesting some kind of undue influence resulted in the transaction.
  3. Can the defendant rebut this presumption by establishing there was no abuse of trust?

Category 2A – Protected relationships

The law has deemed certain relationships special, meaning influence between them can automatically be presumed in the absence of any other facts - Royal Bank of Scotland plc v Etridge (No 2).

Once the existence of one of these relationships has been established, the claimant must prove that the influence exerted was undue.

Category 2B – Other cases

If it can be shown that the relationship was based on trust and confidence, it may be presumed to be a relationship of influence. The difference in comparison with Category 2A is that this presumption is rebuttable by the other party if they prove there was no trust or confidence.

Husband and Wife

In Barclays Bank plc v O’Brien [1994] 1 AC 180 it was confirmed that the relationship of Husband and Wife may amount to a relationship which satisfies the requirements of category 2B. Whether or not this relationship gives rise to one where there is presumed influence is dependent on the closeness of the relationship and whether total trust and confidence has been put in each other

Due the nature of the husband and wife relationship, it is not enough to merely show that there has been influence relating to a transaction which is not to the claimant’s advantage. The ‘manifest disadvantage’ test may apply here, putting a higher evidential burden on the claimants.

Other cohabitees

The application of the husband and wife presumption was also said to extend to other cohabitees who were in an emotional relationship with each other, this is applicable regardless of marriage status or sexuality. See Massey v Midland bank plc [1995] 1 All ER 929.

Bank and customer

The relationship between a bank and a customer is one which is possible to fall under category 2B. The presumption was successfully proven in Lloyds Bank Ltd v Bundy [1975] QB 326.

Therefore, it would seem the test for whether a bank and customer relationship could fall under category 2B is based first on the previous dealings between the two, considering whether there was evident trust and confidence. Secondly, the courts will assess whether the transaction was in the interests of the customer or not.

Commanding officer and solider in the army

See R v HM Attorney-General for England and Wales [2003] UKPC 22 – a relationship between a soldier and officer can fall under 2B.

Evidential burdens in relationships of presumed influence

The requirement that a transaction must be a ‘manifest disadvantage’ to the claimant

The new focus and the current test is whether the transaction is ordinary and explainable in the context of the relationship between the parties, or whether there was some concern for the legitimacy of the contract due to its suspicious nature. It should be noted that whether the contract was of a ‘manifest disadvantage’ may be considered as evidence to show that the contract is not ordinary and explainable, but it is no longer a requirement (Thompson v Foy [2009] EWHC 1076 (Ch).

Rebutting the presumption of undue influence

Once it has been proven by the claimant that there was influence of an undue nature, the defendant may rebut the presumption of undue influence by proving that the claimant entered into the contract freely without influence.

The most common way in which this presumption may be rebutted is where the claimant has undertaken independent advice with regards to the transaction in which undue influence has been claimed - Howard v Howard-Lawson [2012] EWHC 3258 (Ch).

However, receiving independent advice may not always be conclusive. The facts of each case will need to be assessing to consider whether the undue influence was still the inducing factor or whether the independent advice was significant in this regard (Royal Bank of Scotland v Etridge (No 2).

Can undue influence be actionable against a third party?

It has been confirmed that undue influence by a third party on a claimant may give rise to a claim for undue influence, which can result in the contract between the claimant and the party they are contracting with being voidable.

The case of Barclays Bank v O’Brien [1994] 1 AC 180 confirmed this rule, making reference to the ‘doctrine of notice’. The first category of notice is actual notice and the other category is constructive notice. Constructive notice court considerations:

  1. Whether the contracting party has been “put on inquiry”
  2. If “put on inquiry”, has the contracting party avoided notice of the undue influence?

Have the contracting party been “put on inquiry”?

Being “put on inquiry” refers to where the contracting party should be aware that the contract seems unusual, and therefore should make inquiries as to the nature of the transaction.

If on inquiry, has the contracting party avoided notice?

In order to avoid notice, and make the relevant inquiries, it is suggested that the contracting party should privately meet with the claimant, or that the contracting party should advise the claimant to seek independent advice of some kind. This would absolve the contracting party of liability (Banco Exterior Internacional v Mann(1955) 27 HLR 329).

If the contracting party can absolve themselves via one of these two considerations, the contract will not be voidable for any undue influence.


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