Duress, Undue Influence, And Unconscionable Bargains

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Summary of all the Points

Back 1

Summary:
1. Duress must physical, social, or economic pressure that is not within the legitimate or expected power of a person.

2. Coercion is where a serious disadvantage is used by a stronger party to manipulate a weaker one.

3. Undue Influence is where a person with impaired consent is manipulated, and a stronger fails to protect a weaker one.

4. Proving there was free consent can rebut the presumption.

5. Banks must make an inquiry into surety and give warnings where there is substantial risk and is not immediate benefit to that person.

6. Unconscionable bargains are like coercion, except without a special relationship, which gives rise to a horridly unfair bargain.

7. It is not intended to relieve people of hard bargains, but where they have been taken advantage of, exploited, and improperly pressured.

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What is a contract induced by improper pressure?

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It is a contracts that results quite simply from:

- a wrongful and unconscionable abuse of power by a stronger party over a weaker.

- one party taking advantage in a way reflecting on the conscience of that party.

→ Such a contract becomes voidable, not void. There is a contract till ordered otherwise.

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What are the seven points of Duress?

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Pharmacy Care Systems v AG → As duress has developed, economic pressure, as well as physical (Skeates v Beale) amounts to duress, (thought these should not be found lightly Moyes v Groves and you cannot escape if you affirm the contract The Atlantic Baron) as it has become vitally important these days. It is all to do with unfairness. Hammond J identified the seven points of duress:

1. There must be a threat or a pressure.

2. That pressure must be improper, as opposed to normal economic pressures.

3. The victim must have been pressured into action against their will, not compliantly (need not be the only reason).

4. The pressure must have induced ‘consent’ which is actually fake.

5. There must have been no reasonable alternative.

6. This must reduce the contract void.

7. The victim may be allowed to escape the contract.

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What is the definition of pressure or threat?

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Universe Tankships → This was looking at definition of pressure or threat. It eventually held to two questions:

1. The nature of the pressure. The threat of illegal action is duress, but it could also be legal actions depending on the demand. Normal economic pressures outside of contractual relations, resulting in hard bargains, are not duress. This was upheld in Magsons Hardware Ltd. However, a threat not to perform is duress, as in North Ocean Shipping Co, upheld in Kolmar Group AG. Pressuring a builder who performed unsatisfactorily is not duress (Walmsley v CCC). A contractor refusing to do further work until past work is paid is not duress (APN NZ v Scott).

2. The nature of the demand. The parties may make demands if perfectly within their legitimate power (CTN Cash and Carry, McIntyre) to give legitimate warnings - if at their discretion. The courts do not want to introduce uncertainty to contractual rights and obligations. However, it all must be founded in genuine belief that they are entitled to.

Moyes v Groves → In instances of good faith and compromise there is no duress, because both parties have sacrificed and parlayed, despite altering original obligations or rights.

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What is the definition of coercion?

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Pao On v Lau Yui Long → Lord Scarman said you must ask whether the coerced person protested, whether they had an alternative option such as an adequate legal remedy, whether they were independently advised, and whether he took steps to avoid the issue.

This was criticised in Dimskal however, which said you just must look at whether the pressure may be illegitimate and caused the plaintiff to ‘consent’. Haines v Carter put the onus on the claimant.

AG for England and Wales v R → Illegitimate pressure only arises from unexpected instances the party should have been in. For example: A was to be demoted if he couldn’t swear to keep military secrets. This is a given in A’s line of work, and so cannot be illegitimate. He was not ordered to sign.

Borelli v Ting was the converse: Tipping J held:“...absence of practical choice may suggest pressure is illegitimate…” Illegitimate pressure requires serious disadvantage coming from a weakness known by the stronger party. The exploitation amounts to actual or equitable fraud. It will often arise from established or assumed procedural impropriety, attributable to the stronger party and substantial inadequacy or consideration.

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What if a party is found to have consented under coercion?

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Halpern v Halpern → This case held that a party claiming duress must restitutio in integrum - and put the other party into the position had the contract not been made. That includes taking anything back that had been wrongfully procured.

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What is Undue Influence?

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Contractors Bonding Ltd v Snee → It tends to mean an improper abuse or exploitation of those whose consent has been impaired, and the exercise of a stronger party over a weaker party’s consent: “...an unconscientious use of power…” which was reinforced by Royal Bank of Scotland Plc v Etridge, which held it was where “...a vulnerable person has been exploited.” It is a vague and undefined term, however. In National Commercial Bank Ltd it was held by Lord Millet that imbalance of power did not matter, only abuse of it.

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What are the two classes of undue influence?

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Barclays Bank Plc v O’Brien → This was challenged in Royal Bank of Scotland v Etridge.

1. Where it was presumed to have happened. The claimant must prove there was a special relationship of trust/confidence (possibly fiduciary) and that this relationship abuse gave rise to an incredibly unfair contract. This relationship is found between solicitor and client, doctor and patient, guardian and ward, parent and child - but not employer and employee (Eketone) or husband and wife. This must be shown in other ways - as there is not any necessary requirement of reliance on one party by the other. This typically characterised by a failure of a stronger party to protect a weaker one.

2. Where it was actually proven to have happened. In these cases the onus is on the claimant to prove affirmatively that another person exerted undue influence. Typically characterised by abusive twisting of the other party’s mind. For example: Taking advantage of a drunk mother.

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What other requirements could there be for undue influence? And what are the final four points leading to undue influence?

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National Westminster Bank v Morgan → It must also be proved that transaction was wrongful and unfairly disadvantageous. In this the claimed undue influence failed as it was nothing more than a normal business transaction. In CIBC Mortgages Plc v Pitt, however, the court held this only applied in presumed undue influence cases.

The final points leading to undue influence are as follows:

1. Where there is a fiduciary duty or especial reliance of one party one the other, they do not need to prove the existence of this relationship.

2. There is no difference between presumed and actual as such. Just that one either can show undue influence explicitly or draw the conclusion from the circumstances proved by the claimant.

3. The evidential burden arises on the claimant where a questionable transaction needs explanation. This can relate to the size of transaction, and the disadvantage to the weaker party.

4. This can be rebutted by proving was weaker party freely consented. It is highly likely Etridge will be used in cases of banking.

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What is the new test of undue influence that went against Barclays?

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Royal Bank of Scotland plc v Etridge → Undue influence should unhampered by formal requirements.

1. Improper pressure or coercion were both unacceptable.

2. Abuse in a relationship where one party is clearly more influential, or one party is more reliant on the other.

The claimant needs to prove there was trust and confidence in relation to financial affairs, and that there was a questionable transaction. From there, the other party bears evidential burden to prove otherwise.

This was differentiated from where a questionable transaction arose from a relationship where one party was vulnerable and dependent. Such gifts would not normally be expected. These are similar to presumed undue influence is. The claimant need not prove they were at their mercy. Various other factors were included:

- whether the claimant had sought independent advice.

- A questionable bargain that wouldn’t usually happen.

- Saying ‘disadvantage to the claimant’ becomes a lot more ambiguous when it comes to husbands and wives.

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How do you prove undue influence?

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Burns - it it where you take advantage of the young, impaired, poor, or elderly.

Brocklehurst’s Estate → Friendship is unlikely to give rise to undue influence because there is no power over one another. The same goes for family relationships (ASB Bank v Harlick) and Public Trust said trusts could make the same ‘normal relationship’ argument. UDC Finance v Down was a case of a ‘normal relationship’ between employee and employer. Any of these can protect against claims of undue influence.

Contractors Bonding v Snee → A son taking advantage of his mentally incapable mother to give a guarantee to a bank was actual undue influence.

Hewett v First Plus Financial Group Ltd → This held that repressing information, misstating constitutes undue influence.

Re Craig → A young, independent, inexperienced, musician acting without legal advice giving “bargain basements terms” to his business managers have inferred undue influence.

LEAD Training Trust v Evans → A teacher/counsellor taking advantage of a student counts as undue influence.

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How do you rebut the presumption once a reliance and relationship is established, and that this has been abused?

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Allcard v Skinner → Lindlay LJ drew a distinction between large sums and small sums. Simply put, one can rebut if they can prove that “[consent] was the free exercise of the donor’s will.” Noriah v Shaik held that the contract would be valid even if there was no independent advice sought. Etridge coupled it mostly with improper conduct. If one affirms explicitly, implicitly, or by conduct, they may not claim undue influence. This includes claiming rights under it, acting on the transaction willfully, not going to courts, what they say and do to others.

Hammond v Osborn → This asked whether impaired consent was required or not. It held that impaired consent is a strong factor. The doctrine protects those with impaired consent. It does not help the woman in this case withheld information.

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What of undue influence and agency?

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Nathan v Dollars & Sense → A principal is responsible for their agent’s conduct so far as their authority goes, remain liable as such. This is even if it is entirely for the agent’s benefit. An agent may put another under undue influence, even if the principal was unaware. (unlikely to come up)

Front 14

What notice and warnings to banks have to give to those in regards to surety, and what inquiries should they make?

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Barclay’s Bank v O’Brien → A creditor may be put on inquiry when a wife offers to stand surety for her husband’s debts for two reasons:

- The transaction is not immediately for the benefit of the wife.

- There is a substantial risk, and when the husband commits a legal or equitable wrong it allows the wife to set it aside.

CIBC Mortgages → If they could not be aware of undue influence in offering surety, they cannot be at risk. This was a joint borrowing for a normal and appropriate joint purpose supposedly.

Etridge → This case said a bank could be put on inquiry where the relationship between the surety and debtor is non-commercial (Hogan v Commercial Factors), even if there are familial factors. The creditor must then take reasonable steps to alert the individual guarantor to the risks they are running as surety.

Rutherford v BNZ → In this case a wife without economic experience relied on her husband and solicitor in a loan. There was undue influence found, and the court today would require notice from the bank.

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What is an unconscionable bargain?

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Chen-Wishart → Equity will intervene where unconscionable bargains take place and poor or ignorant people are in need of special protection. They are clearly similar to undue influence/duress. Unconscionable bargains are simply where a contracting party is exploited without any special relationship.

Hart v O’Connor → This case defined it simply as, “...victimisation, which can consist of either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances.” Somer J insisted that was not a paternal jurisdiction to look into adequacy of consideration. It would have to contain “strong terms”. In Blomley v Ryan it was held that unconscionability arises from “poverty or need of any kind, sickness, age, sex, infirmity of mind or body, drunkenness, illiteracy, lack of education, lack of assistance, or explanation.” However, this is not exhaustive and are demonstrated in O’Connor v Hart. Typically factors involved are:

- inadequacy of consideration (the more startling the less substantial a disability need be).procedural impropriety.

- absence of independent advice. This is all reinforced in Jenkins v NZI Finance Ltd.

Moffat v Moffat → This was a marginal decision which held that stress and divorce can constitute a disability if the other party clearly takes advantage. Similarly close was Nichols v Jessup.

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What are the eight points of unconscionable bargains?

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Gustav and Co Ltd v Macfield Ltd → The CA set out the following principles (non-exhaustive) to summarise:

1. Equity will intervene in unconscionable bargains.

2. This is not intended to relieve parties of hard bargains or help foolish people. It is stop people under significant disadvantage or disability from being exploited.

3. ‘Disability’ means an inability to assess their true interests and act on them.

4. These include age, mental illness, lack of education.If this disability can be proved, then the onus shifts to the stronger party to question whether it was right for them to act in the way they did.

5. The stronger party must know of the disability of the weaker party.

6. This knowledge may be actual or constructive.

7. This ‘taking advantage of’ encompasses both an active extortion and passive acceptance of benefit.

8. The onus shows that the stronger party must prove twas reasonable and should be allowed, if all before has been proved.