#12 - Undue Influence, Duress And Exploitation - Contract Law

CONTRACT READING SESSION 8 UNDUE INFLUENCE, DURESS AND EXPLOITATION General Reading McKendrick casebook Chs 18, 19, 20: * Duress can set aside a contract. It can be duress of person, duress of goods and economic duress * Duress = (1) illegitimate pressure from one party, which (2) constitutes a a significant cause inducing the other party to contract * "Illegitimate pressure" includes threats to commit a crime or a tort, sometimes threats to breach a contract , but threats not to enter a contract are not illegitimate. * Undue influence comes from equity. "Actual" undue influence = application of illegitimate pressure (similar to duress, but further-reaching e,g, extending to cheating). "Presumed" undue influence = where one party has taken advantage of trust placed in him by the other party in a relationship of trust and confidence. Requirements for presuming undue influence are (1) the relationship must be of sufficient trust and confidence, and (2) the transaction must not be explicable on the basis of the ordinary motives on which people act. The presumption CAN be rebutted by showing free entry into it. Undue influence is generally undefined by the courts, who prefer to assess it on the facts of individual cases. McKendrick suggests that the unifying theme is "improprietary". * Unconscionability and inequality of bargaining power are matters of substantive unfairness and it is debatable to what extent the courts will set aside a contract on these concerns. 1. Duress Barton v Armstrong [1976] AC 104: B bought A's shares because of A's threats to kill him and his family if he did not. The Privy Council held by majority that this allowed the contract to be set aside. Lord Cross: For duress to negate a contract, the duress has to be a reason why the threatened party entered the contract, even if there were "other more weighty causes". However, if the threat did not affect the threatened party's decision at all, it cannot cause the contract to be set aside. The burden lies on the threatening party to show that the threat had no bearing on the threatened party's decision. This is because if one man threatens another, he should bear the risk of the consequences. McKendrick: NB the majority view that duress renders a contract void contradicts the Pao On view that it merely renders the contract voidable. Also NB the low threshold for the threatened party to overcome. PaO On v Lau Yiu [1980] AC 614: For facts see week 2. Lord Scarman: "Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. Commercial pressure is insufficient. In determining whether there was coercion of the will, several factors should be investigated, such as protest/lack thereof; alternatives open to the pressurised party e.g. legal remedy; whether the pressurised party was independently advised and; whether he took steps to avoid the outcome (i.e. acted promptly to avoid renegotiation). (NB if one is being truly coerced, one will not be able to object, take advice etc). It is doubtful whether economic duress suffices to render a contract voidable (or "any duress other than duress to the person": Since duress to property is now recognised, such a view is out of date). HOWEVER, economic duress CAN be recognised, provided there is a coercion of the will which vitiates consent and that the act of payment or contracting was "not a voluntary act". McKendrick: This "coercion of the will" theory is criticised on the grounds that duress doesn't negate consent (I can still choose to enter the will)- there is a choice being made to avoid the greater evil. NB this is a very odd understanding of consent: it would suggest that people who give evidence under torture are consenting to give it since they are merely electing to avoid the greater evil of torture. Universe Tankships of Monravia v International Transport Workers' Federation, The Universe Sentinel [1983] 1 AC 366- see sheet Atlas Express Ltd v Kafco [1989] QB 833- see sheet Williams v Roffey Bros [1991] 1 QB 1- For facts see week 2. See sheet Dimskal Shipping Co SA v International Transport Workers' Federation, The Evia Luck [1991] 3 WLR 875, 883: D threatened to refuse to let P's ship dock unless it entered into an ITF contract with its workers. P sought a declaration that the contracts were voided. HL held that the contracts were voided due to economic duress. Lord Goff: Economic pressure can amount to economic duress, provided the pressure is illegitimate. It is not a good test to ask whether P has been "coerced" (see Atiyah). Under English law "blacking" (refusing to allow docking) is illegitimate. If an action is legitimised by statute, then it cannot be illegitimate. The illegitimate pressure must be a "significant cause" of D's act e.g. agreeing to new contract.