Contracts Lecture Notes B PDF

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Duress  This is doctrine concerns pressure being placed on a party at or prior to contract formation.  Duress is a doctrine that protects people from the consequences of a certain type of pressure – illegitimate & coercive threats – being placed upon them at or prior to contrac...

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Duress  This is doctrine concerns pressure being placed on a party at or prior to contract formation.  Duress is a doctrine that protects people from the consequences of a certain type of pressure – illegitimate & coercive threats – being placed upon them at or prior to contract formation (or the bestowal of a gift).

There are 2 parts to duress: 1. In order to prove duress, a party has to argue that, at or prior to contract formation, illegitimate/improper/unconscionable pressure was applied to them by the other party to the contract. 2. If they are successful, then the onus shifts to the other party to prove that that pressure did not in fact cause the coerced party to enter into the contract.  Remedy = rescission. Ie. the coerced party may be able to elect to have the contract rendered void ab initio on terms.  Authority: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 400.  NB. The doctrine of duress also applies to the giving of gifts.

Element 1: At or prior to contract formation, one party to the contract applied illegitimate pressure to the other party to the contract Satisfying this element is a 4-step process. You have to: 1. Identify the contract that was being negotiated when the pressure was applied; 2. Argue whether pressure has been applied; 3. Argue whether the pressure was illegitimate; & 4. Argue whether the pressure was in fact applied by the other party to the contract. 2. Arguing whether pressure has been applied  Remember that the pressure might have been applied expressly or impliedly.  You will also need to categorise the type of pressure that is at issue. Divided into 3 types:  Duress to the person ◦ The original common law cause of action. ◦ Eg. threats to any person’s body, freedom of movement, moral standing in the community, etc.  Duress to goods ◦ The first expansion of the doctrine ◦ Eg. threats to damage, destroy, or withhold any person’s goods or property.  Economic duress ◦ The final expansion of the doctrine. ◦ Eg. threats to contractual, proprietary or other rights. (Classic eg. = ‘I’ll breach the contract unless you give me more $.’)

3. Arguing whether the pressure is illegitimate Applying pressure can be legitimate. This is all part of freedom of contract; parties are free to negotiate terms beneficial to themselves and can ‘drive a hard bargain’ in the process.

The test for illegitimate pressure  Pressure is illegitimate when: 1. The pressure consists of: a. unlawful threats; OR b. threats that amount to unconscionable conduct; & 2. The pressure is irresistible.  Authority: McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 20 at 45 & 46. Unlawful threats in the context of duress to the person  These include, for example, threats to commit: ◦ Murder ◦ Assault occasioning bodily harm (a crime) ◦ Tortious assault (ie. threatening to touch someone without their consent) ◦ Tortious battery (ie. touching someone without their consent) ◦ False imprisonment (ie. unlawfully detaining someone) ◦ Defamation (ie. saying untrue things about someone) ◦ Nuisance (ie. unlawfully creating a disturbance) Unlawful threats in the context of duress to goods  These include, for example, threats to commit: ◦ Criminal damage to property (crime); ◦ Stealing (crime); ◦ The tort of trespass to goods (ie. physically interfering with another’s goods); ◦ The tort of conversion (ie. selling, gifting, leasing another’s goods); ◦ The tort of detinue (ie. wrongfully detaining another’s goods). Unlawful threats in the context of economic duress  These include, for example, threats to break a contract that is on foot and enforceable is ‘unlawful’. ◦ WARNING: make sure that the contract (or the contractual obligation in question) really is enforceable! Threatening to breach a contract (or contractual obligation) that is unenforceable is not unlawful. Threats that amount to unconscionable conduct  You will need to look at all the surrounding facts.  You can measure the conduct against the standards of reasonable people.  You can also take into account details about the coerced party, e.g. although most people might not be concerned by a threat of this type, did the coercer take advantage of the coerced’s particular sensitivity to a threat of this type? ◦ Ie. the taking advantage may be the unconscionable part.  The most difficult arguments to run will be in the context of economic duress. The courts are very careful not to confuse hard, even overwhelming, legitimate commercial pressure with unconscionable conduct.  Eg. Kaufman v Gerson [1904] 1 KB 591 ◦ Kaufman entrusted Mr Gerson with a sum of money to be used in a business transaction. However, Mr Gerson embezzled some of that money. ◦ Mrs Gerson had money. Kaufman approached her, saying that if she agreed to repay the money misappropriated by her husband, then he wouldn’t ask the police to charge Mr Gerson with the crime, and her and her children’s name would not be dishonoured. ◦ Mrs Gerson agreed.

The pressure must ALSO be irresistible  By ‘irresistible’ is meant that somebody in the coerced party’s position would have had no reasonable alternative but to agree to submit to the pressure.  Ie. their will would have been deflected away from taking other courses of action.  Authority: McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 20 at 45.  When considering whether it is reasonable to view the threat as deflecting their will away from taking other courses of action, you’ll need to consider the factual situation as a whole. ◦ Eg. How seriously was the threat made? ◦ Eg. How serious would be the consequences be if the threat were carried out? ◦ Eg. Was the coercer in a position to carry out the threat & did the coerced party know this? ◦ Eg. What things might the coerced party have done if the pressure hadn’t been applied? 4. Arguing whether the pressure was in fact applied by the other party to the contract  The coerced party can only sue the other party to the contract.  Often duress will be applied by that party themselves. But it may be applied by their agent, or by a third party (ie. someone who is NOT a party to the contract) with their knowledge and approval.  The key is that the pressure that has been applied must be in some way connected to the other party to the contract.  Isaacs J in Smith v William Charlick (1924) 34 CLR 38: “Duress created by persons or circumstances unconnected with a party to a contract is no cause for impeaching the bargain with him.”

Element 2: The pressure did in fact cause the coerced party to agree to enter into the contract.  Once the coerced party has proved that the pressure was illegitimate, the onus is on the coercer to prove that that pressure did not cause the coerced party’s consent. ◦ Ie. the court will presume that the illegitimate pressure did cause the coerced party to enter the contract, unless the coercer can rebut that presumption. ◦ McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 20 at 46: “Once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement: Barton v Armstrong (at 633; 120) per Lord Cross.”  The illegitimate pressure doesn’t have to be the reason why the contract was formed, but it has to have been a reason. ◦ McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 20 at 46: “It is unnecessary … for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement.”

Rescission  If the coercer cannot rebut the presumption, the coerced party can elect to have the contract set aside and the parties restored to their previous positions (rescission). ◦ Ie. the contract is voidable (ie. rendered void ab initio) at the election of the innocent party, on terms.  Two important reasons might prevent the court from allowing the contract to be rescinded:

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If the coerced party delayed making their election. In which case the court will take it that the party elected NOT to render the contract void, and cannot now change their mind. ◦ If the rights/interests of 3rd parties would be harmed.  Authority: North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 3.1 Understanding ‘delay’  The clock only starts to tick once the threat has been ended. So first you need to identify when it is that you think that the threat ended, if indeed it did end. ◦ Ie. When did the threat cease to be present in the coerced party’s mind, such that it no longer prevented them from taking steps to undo the contract? ◦ Eg. was the threat retracted or made impossible?  Then you consider how long it would take the reasonable person to initiate legal action to undo the contract. If the plaintiff has only initiated a law suit after the point at which the reasonable person would have sued, then they are viewed as having affirmed the contract. Recap of duress  There are 2 parts to duress: 1. In order to prove duress, a party has to argue that, at or prior to contract formation, illegitimate/improper/unconscionable pressure was applied to them by the other party to the contract. 2. If they are successful, then the onus shifts to the other party to prove that that pressure did not in fact cause the coerced party to enter into the contract.  Remedy = rescission. Ie. the coerced party may be able to elect to have the contract rendered void ab initio on terms.

Undue Influence  It’s an equitable cause of action.  Generally speaking, a party will attempt to prove undue influence in order to avoid a contract. … Rescission (ie. rendering the contract void ab inito on terms) is the principal remedy, available at the election of the innocent party.  This is doctrine is similar to duress in that it concerns pressure being placed on a party at or prior to contract formation.  Undue influence is concerned with a different type of pressure being applied at or prior to contract formation: the pressure of substituted decision-making. 1. The exertion of influence can be a good thing  Isaacs J in Watkins v Coombes (1922) 30 CLR 180 at 193-4: “influence may be used wisely, judiciously and helpfully.”  Kekewich J’s judgment of Allcard v Skinner at first instance, reproduced in Allcard v Skinner (1887) 36 Ch D 145 at 157-158: “The law … recognises influence as natural and right. Few, if any, men are gifted with characters enabling them to act, or even think, with complete independence of others, which could not largely exist without destroying the foundations of society.” 2. The exertion of influence can be undue  Undue influence is “the improper use of the ascendancy acquired by one person over another for the benefit of himself or someone else, so that the acts of the person influenced are not in the fullest sense of the word his free, voluntary acts.” – Union Bank of Australia Ltd v Whitelaw [1906] VLR 711, 720 (Hodges J).  Ie. ask yourself “whether [the servient party] executed it as the result of the free exercise of his independent will”: Adenan v Buise[1984] WAR 61, 68  The party who exerts influence is called ‘the dominant party’.  The party who is influenced is called ‘the servient party’ 3. There are 2 different classes of undue influence, & hence 2 different tests  The way in which undue influence must be proved depends on how the dominant party achieved their position of influence.

Presumed Undue Influence The elements: 1. The servient/influenced party has to prove that the parties to the contract (or gift) were in ‘a special relationship’ (ie. a pre-existing relationship of influence); & 2. The dominant party has to rebut the presumption that their influence was undue in relation to the transaction in question. Ie. that the influenced party acted freely when they entered into the contract (or made the gift).  Ie. The law presumes that the servient party was subject to undue influence in relation to entry into the contract with the dominant party (or giving of the gift to them).

Element 1: Establishing the presumption of undue influence: the parties were in a special relationship  The servient party can prove they were in ‘a special relationship’ (ie. a pre-existing relationship of influence) in one of two ways: 1. By establishing that the parties fall within a traditional category of special relationship; or 2. By proving that the parties were in fact in ‘a special relationship’.

1.1 Traditional categories of special relationship Recognised special relationships include:  Doctor and patient: Bar-Mordecai v Hillston[2004] NSWCA 65;  Parent and a child who is over the age of majority, but still young and not emancipated from the parent’s dominion: Powell v Powell [1900] 1 Ch 243 at 246.  Guardian and ward: Hylton v Hylton (1754) 2 Ves Sen 547; 28 ER 349;  Solicitor and client: Re P’s Bill of Costs (1983) 8 Fam LR 489 at 495-6.  Authorities in charge of a mental hospital and a patient residing there: Re CMG [1970] Ch 574; [1970] 2 All ER 740.  Religious advisor and disciple: Allcard v Skinner (1887) 36 Ch D 145.&  Trustee and beneficiary: Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 133. 1.2 Proving that a relationship is ‘a special relationship’, albeit one that is outside the established categories.  The relationship is special “where it is proved that the party benefiting from the transaction occupies or assumes towards another a position naturally involving an ascendency or influence over that other, or a dependency or trust on the latter’s part”: Janson v Janson at [72].

Element 2: Rebutting the presumption of undue influence  Dixon J in Johnson v Buttress at 134: When “the parties …antecedently stand in a relation that gives to one an authority or influence …, the party in the position of influence …[must satisfy] the court that he took no advantage of the donor, but that the gift was the independent and wellunderstood act of a man in a position to exercise a free judgment based on information as full as that of the donee.”  You need to look at the factual scenario as a whole. In the cases, factors that are often relevant include (but are not limited to): ◦ Facts that indicate the mental strength of the servient party in general; ◦ Facts surrounding any independent advice the servient party may have received. 2.1 General mental strength of the servient party  It is likely to be harder to rebut the presumption if the servient party was – in general – particularly weak and vulnerable. ◦ Eg. Latham CJ in Johnson v Buttress (1936) 56 CLR 113 at 506: “[The] finding [of the trial judge that the deceased was highly excitable, very stupid and mentally unstable] is sufficient to increase to some extent the weight of the burden of proof which rests upon the defendant if a relevant relation of dependence between the deceased and the defendant is proved to have existed at the relevant time.”  Conversely, it is likely to be easier to rebut the presumption if the servient party was generally speaking of robust intellect. ◦ Eg. Re Brocklehurst Estate (1978) Ch 14, which involved an 87 year old man who had fought in both World Wars, travelled on an Antarctic exploration with the famous Shackleton, was a knight of the realm, a landowner, and encouraged others to seek legal advice when needed. 2.2 Reception of independent advice about the desirability of entry into the contract (or gift)  It is likely to be easier to rebut the presumption if, prior to entry the transaction: ◦ the servient party has the full nature and the effect of the contract (or gift) explained to them by an independent and qualified third party; AND ◦ There are no facts to suggest that the advice was not heard, and instead disregarded.  Authority: Inche Noriah v Shaik Allie Bin Omar [1929] AC 127,135.

Element 3: Remedies  If the dominant party cannot rebut the presumption, the contract can be set aside in equity and the parties restored to their previous positions (rescission). ◦ In other words, the contract is voidable at the election of the innocent party, on terms.  Authority: Tate v Williamson (1866) LR 2 Ch 55. Eg. O’Sullivan v Management Agency & Music Ltd [1985] QB 428.  Gilbert O’Sullivan, a musician, entered into a series of recording and management contracts with the company.  After 6 years of operating under these contracts, he was successful in arguing undue influence.  HELD: O’Sullivan was entitled to rescission on terms. The copyright in the songs were reassigned to him, the company had to account for all the profits, and O’Sullivan had to pay the company a reasonable remuneration for its work in promoting him & a reasonable amount for profit. Bars to rescission:  Delay in seeking a remedy after the influence has lifted amounts to an implied affirmation of the contract (or gift).  Rescission will not be available if 3rd parties have acquired an interest in the subject matter of the contract for value and without notice of the undue influence.  Authority: Allcard v Skinner (1887) 36 Ch D 145. ◦ Eg. in Allcard v Skinner, Allcard delayed seeking rescission until 6 years after she removed herself from the influence of the sisterhood. This was too long. She had impliedly affirmed the gifts by her inaction.

Actual Undue Influence  The purported ‘servient/influenced’ party must prove that: 1. Although the parties were NOT in a special relationship, the circumstances were such that the other party acquired a position of influence over the servient party; 2. The dominant party’s use of that ascendency was undue (ie. their influence was undue), such that entry into the contract (or giving of the gift) cannot be considered to be the servient party’s free act.  Authority: Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 124.

Element 1: Although the parties were not in a special relationship of influence, the other party acquired ascendency (ie. a position of influence)  In actual undue influence, the parties are NOT in a relationship whereby one party is dominant (ie. influences the other) & the other party is servient (ie. influenced by the other). And yet, one party is now in a position to influence the other, either because of: a) the particular situation the parties find themselves in; or b) the now dominant party contrived to gain that dominance.  Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 124: ‘The source of power to practise such a dominion may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party.’ a) Cases of actual undue influence are rare! b) In the case law, the judges often attribute the gaining of a position to influence to some sort of unethical behaviour:  Lindley LJ states that this gaining of influence will be due to ‘some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, and generally, though not always, some some personal advantage obtained by’ the dominant party: Allcard v Skinner (1887) 36 Ch D 145 at 181.  Ie. they focus on the 2nd of Dixon J’s 2 types of situations. See, for example:

 Lyon v Home (1868) LR 6 Eq 655 (Graw at [13.580])  Williams v Bayley (1866) LR 1 HL 200 (Graw at [13.560])

Element 2: The influence was undue & caused the transaction  The influenced party must prove that the influence was undue & caused the transaction (the contract or gift):  Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 124: ‘facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienor that it cannot be considered his free act.’

Remedies  The remedy of rescission, & the bars to rescission are the SAME as for presumed undue influence. So go to the case law discussed in those previous slides.

Unconscionable Conduct  Unconscionable conduct is concerned with the knowing ‘exploitation by one party of an...