Duress and Undue Influence PDF

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Duress and Undue Influence Lecture Notes -

Duress –  Occurs when one party exerts improper pressure on another party and that party feels they have no choice but to enter into the agreement or transaction as a result  Duress makes the agreement VOIDABLE  Williams v Roffey, D&C Builders v Rees

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Duress: Types –  Duress to a person (threats of physical force or violence)  Economic Duress

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Duress to a Person –  Two Stage Test:  1) Was the nature of the threat sufficient to amount to duress?  2) What effect did such a threat have on the claimant?

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1) Was the nature of the threat sufficient to amount to duress? –  Some illegitimate behaviour, such as illegal criminal acts or even behaviour short of criminal conduct  “Unless you make this contract I’m going to kill you”  Threat to the party to the contract  Barton v Armstrong [1976]  Held: Majority – duress- contract set aside  “Unless you agree to this contract, I’m going to have you locked up”  Cumming v Ince [1847]  Old woman – agrees to make a settlement of her property under the threat she would be locked in an asylum if she did not do so  “Unless you make this contract I’m going to break your children’s legs”  Threat to a party’s close relative/friend  Antonio v Antonio [2010]

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2) What effect did such threat have on the claimant? –  Pao On v Lau Yiu Long [1979]  Unlawful threat amounting to coercion of will which vitiates consent  Persons consent to contract is destroyed when not made freely

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Economic Duress –  Someone’s economic interest is being threatened  Example:  Party to existing contract threatens to breach that contract unless other party will agree to new contract on better terms  The Atlantic Baron [1979]  Held: threat not to complete tanker = economic duress  Was a threat to breach a contract  New contract = voidable  But claimant did not win as had affirmed the contract

Duress and Undue Influence Lecture Notes 

How to identify economic duress in a commercial setting and differentiate it from the bargaining power?  Kolmar Group AG v Traxpo Enterprises PVT Ltd [2010]:  Illegitimate economic pressure or threat;  A party would not enter into a contract if not for duress;  A party did not have any other choice or realistic alternative.

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Duress Influence –  Duress = threats  Undue Influence = based on some relationship between the parties existing before the particular transaction  The basis is not a wrongful act by the party with the influence, but rather the prevention of the influence being abused  Makes the contract voidable

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Undue Influence: Example –  Bert is neighbour to an elderly gentleman, Carl.  Over the years, Bert has cared for Carl. Carl trusts him.  Bert persuades Carl to sell him his vintage car for £200, knowing the car is worth £25,000.  Bert tells Carl unless he has the car he can no longer care for Carl.

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Categories of Undue Influence –  CIBC Mortgages PLC v Pitt [1993] and Barclays Bank Ltd v O’Brien [1994]  Actual undue influence  Presumed undue influence where the presumption is not rebuttable  Presumed undue influence where the presumption is rebuttable

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Actual Undue Influence –  Credit and Commerce International SA v Aboody [1990]  Actual Undue Influence = overt acts of improper pressure or coercion such as unlawful threats  To prove undue influence, the party alleging the influence must establish that:  The party who induced the transaction had the capacity to influence the party alleging undue influence;  The party who induced the transaction did in fact influence the party alleging the influence and that the influence was undue;  The undue influence did in fact bring about the transaction

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Irrebuttable Presumption of Undue Influence –  For the irrebuttable presumption to arise, it is sufficient for the complainant to prove the existence of the type of relationship, together with a transaction that requires some explanation (a suspicious transaction)

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Presumed Undue Influence: Special relationships –

Duress and Undue Influence Lecture Notes 

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Examples of special relationships:  Parent and child  Solicitor and client  Medical adviser and patient  Trustee and beneficiary  Guardian and ward Does not include:  Husband and wife (Midland Bank Plc v Shephard [1998])

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Rebuttable Presumption of Undue Influence –  Royal Bank of Scotland Plc v Etridge (No2) [2002]  Need to prove:  The complainant placed trust and confidence in the other party;  The transaction entered into allegedly by reason of undue influence, calls for some explanation (a suspicious transaction)  Once established, the court may be able to infer that, in the absence of satisfactory explanation, the transaction can only have been procured by undue influence

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Third Part Situations –

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Third Party Situations: Actual and Constructive notice –  Actual notice = the bank is aware of undue influence being exercised  Constructive = the bank ought to have known about undue influence being exercised  Banks “put on inquiry” in every case where the relationship between the guarantor and the debtor is non-commercial

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Third Party Situations: what must the bank do? –  Protection for the bank  Insist on a private meeting;  Tell the guarantor the extent of their liability and risks involved;  Require the guarantor to seek independent legal advice...