Duress, Undue Influence and Unconscionable Bargains Duress to the person – common law
Duress is available as a defence where a plaintiff can show that the contract had been entered into because of “threats of violence” or “ac- tual violence to the plaintiff”. The threats do not have to be the sole reason for entering the contract. Threats to property will not be suffi- cient to rescind the contract (Skeate v Beale).
A successful defence of duress will make the contract voidable. To avoid the potential rescission of the contract, the person who uttered the threats must prove that the threats played no part in inducing the contract (Barton v Armstrong).
Economic Duress – common law
Economic duress is available as a defence where the plaintiff can prove that he had no other choice but to agree to the contract (e.g. a non- violent threat to break the contract unless demands are met, which will result in a significant loss to the plaintiff if he does not concede – Siboen and Sibotre).
For economic duress to succeed, it must be illustrated that:
there was pressure
- which coerced the will of the victim, and gave them no other practical choice but to accept;
- that pressure was illegitimate, i.e. it was a threat to commit a crime or a tort, or it was a threat to break an existing contract – mere pressure will not suffice (Barton v Armstrong); and
- it must also be a significant cause of inducing the claimant to enter the contract.
The court may also take into consideration whether the claimant protested at the time; whether the claimant acted quickly afterwards to avoid affirming the contract; and whether or not good faith was present in the defendant (Pao on v Lau Yiu Long).
Undue Influence – equitable relief
Undue Influence exists where a contract has been entered as a result of pressure which falls short of amounting to duress. It is defined as “some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, and generally, though not always, some advantage gained by the dominant party” (Allcard v Skinner). Where a contract is found to be entered into as a result of undue influence, this will render the contract voidable
Undue influence is divided into
- actual undue influence; and
- presumed undue influence.
It is possible for the claimant to allege both in one instance (Re Craig).
- Actual undue influence
Actual Undue Influence is where the contract was entered into as a result of actual influence exerted, e.g. threats to end a relationship, pes- tering someone until they concede. The burden of proof is on the claimant to prove the acts which they assert amounted to undue influ- ence.
- Presumed undue influence
For presumed undue influence to succeed, it must be illustrated that:
- the claimant placed trust or confidence in the other party in relation to the management of the claimant’s financial affairs.
However, certain relationships are capable of giving rise to an automatic presumption of undue influence, e.g. parent and child, doctor and patient (Allcard v Skinner). Where a relationship exists, there is no need to show that the claimant placed trust and confidence in the other: the existence of the relationship is sufficient to give rise to the presumption that one party has acquired influence over the other.
This does not apply to the relationship of husband and wife: a claimant must prove she actually placed trust and confidence in her hus- band.
- the transaction must be one that “is not readily explicable by the relationship of the parties”, i.e. it calls for an explanation and cannot reasonably be accounted for on the ground of friendship, charity, or other ordinary motive.
Rebutting the Presumption
The party accused of exercising undue influence can rebut the presumption by demonstrating that the vulnerable party exercised free will in entering the transaction, e.g. they received independent, competent advice made in full knowledge of the circumstances of the case – though this will not necessarily save the transaction (Re Brocklehurtst).
Loss of Right to Rescind
A successful defence of undue influence renders the contract voidable, i.e. to have the contract set aside and restore the parties to their pre- contractual positions as if it had never existed. However, the remedy is equitable and discretionary and not only may the court exercise its discretion against you, but rescission might also be unavailable where:
- It is impossible to restore the parties to their pre-contractual position (Erlanger); or
- If the representee discovered the misrepresentation and took no action to set the contract aside (Long v Lloyd); or
- If the representee delayed too long (Leaf v International Galleries); or
- If third party rights have intervened (Car and Universal Finance v Caldwell), i.e. A, the representee, sells X on credit to B, the representor, on the basis of B having misrepresented his identity. B then sells X to C, a third party.
In some cases where it is impossible to achieve an exact restoration, the court is prepared to “iron out” small differences by payment of an indemnity. An indemnity payment is not damages.
Undue Influence and Third Parties
Relief for undue influence may be barred where a third party in good faith acquires an interest for value in the subject matter of the transac- tion (Bainbrigge v Browne). However, relief is not barred where a third party has not given value or has actual notice of the undue influ- ence or constructive notice, i.e. given the facts the third party ought to know of the undue influence.
Generally the undue influence is exercised between a husband and wife. Where a wife establishes undue influence it will entitle her to have the transaction set aside as against her husband, however, the transaction is generally with a bank who was not a party to the influ- ence. In order to have the contract set aside as against a bank.
Constructive notice
Constructive notice arises where the bank is
- put on enquiry and
- fails to take reasonable steps to ensure that the transaction was entered freely without the exercise of undue influence. Enquiry
Banks are put on inquiry whenever a wife offered to stand surety for the debts of her husband (RBS v Etridge No2). A bank will not be put on enquiry where the loan is to both husband and wife (CIBC Mortgages v Pitt). Once on inquiry, the bank must ensure that the spouse has independent advice and a certification that they have formed a truly independent judgment in order to avoid being fixed with constructive notice of undue influence.
Unconscionable Bargains
Equity will intervene to set aside a contract on the grounds that one party has exploited a weakness in the other party, e.g. people who are poor, ignorant, weak minded, old age, etc. The relief is based on the unconscionable conduct of the stronger party – the contract cannot be set aside merely because it is unfair (Watkin v Watson).
