The Current Law of Duress and Undue Influence

If a contract is entered into under duress or undue influence this could be used to make the contract defective. However duress and undue influence are only normally allowed in exceptional cases. For example if a person knows the terms of the contract they are entering into, they enter into the contract with their eyes open and receive independent advise than they won’t be able to get out of the contract.

However the law on duress and undue influence is not this simple, as there seems to be little or no certainty in this area of law, the legal principles which have been established seem vague and many similar cases have conflicting decisions as the courts seem to apply the law flexibly.

Through explaining this area of law illustrating the principles in the cases it will show how chaotic this area of law really is.

Firstly there are two types of duress, physical duress that is where someone is forced into the contract against their will.

The other form of duress is economic duress this is when one party exerts pressure on the other party to change the terms of the contract or renegotiate. However a party does have the right to alter the terms as long as there is consideration.

However many cases where there is duress its in large commercial contracts and here its often difficult to make a distinction between hard bargaining and duress. Although this has to be established as hard bargaining is lawful however duress is not.

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The problem mainly with duress is that there seems to be little principles as, each case depends on its own facts, it must be shown that the victim had been coerced?

When looking at the cases to help establish if the victim was forced into the contract it may need to be asked was it legitimate or illegitimate, lawful or unlawful, and did the victim obtain legal advise. However the cases don’t seem to be consistent on this subject, especially when you compare similar cases.

Examples of this include, Pau On v Lau Yiu Long [1980] AC 614 this case involved the sale of a building in Hong Kong, between the sale and completion of the contract there was a chance the shares would fall, buyer therefore said that the deal would be off’ unless other party made up difference if shares did fall. They did fall, the buyer than tried to use duress. The Privy Council decided the contract wasn’t induced by duress, for duress it needs to be shown that it wasn’t a voluntary act. So therefore in this case it was just hard bargaining.

However in North Ocean Shipping Co v Hyundi Construction Co “The Atlantic Baron” [1979] QB 705, it was decided duress could be used, in this case the defendant owned a shipyard and had agreed to build the claimant a tanker for a certain price. However it was devalued by 10% so the defendant asked for 10% more money to make up the difference. And if he didn’t pay this extra money they wouldn’t build the ship or the next ship on order (which were both already rented out as soon as they were built. Duress was allowed to be used to void the contract. This case also said you should look at a persons conduct from the view of a reasonable man.

These two cases demonstrate an inconsistency, why was Pau On v Lau Yiu Long found not to be duress, and “The Atlantic Baron” allowed using duress, they both have very similar circumstances. Maybe in the Atlantic Baron duress was allowed because the ships were already rented out as soon as they were made, so maybe there is more pressure here so its an involuntary act. Or maybe this just shows how inconsistent this area of law is, because although duress seems to be decided on the individual facts of the case, why have these two cases been decided differently with such similar facts.

The case of The Universe Sentinel, Universe Tankship Inc v ITWF [1982] 2 QB 705, duress was allowed to be used as it was shown there was pressure amounted to compulsion of will and there was a illegitimacy of pressure exerted.

Little of the cases on duress follow other cases as many of the cases it does not seem to be easy to tell whether its duress or not, as many cases could go either way. Even the judges are often uncertain; this is why there are no firm legal principles on this subject.

Some examples of this are, CTN Cash & Carry v Gallagher Ltd [1994] 4 All ER 714, in this case the defendant sold cigarettes at cut prices, if didn’t pay more money to the other party they said they would end the contract and they knew the other party business were dependent on them. They tried to recover money under duress, there was no duress and it was said that, only because the business is in a monopoly position this will not mater, as a monopoly decision doesn’t turn something, which isn’t duress into duress. This is just hard bargaining. However you could debate this maybe duress, as it is very similar to the case of The Atlantic Baron, which was decided to be duress.

Another similar case to the cases above is, Atlas Express Ltd v Kafco Ltd [1989] All ER 641, this contract concerned delivering baskets, however the baskets were larger than atlas expected so they said they needed to be paid more, they had no choice as would not be able to get anyone else to deliver them at that particular time of year. In this case duress was allowed as the agreement was induced by pressure that was illegitimate.

Again this seems strange that some cases can use duress and other cannot, such as CTN Cash & Carry. It seems to really depend on individual circumstances at this moment of time. This may be because duress in the law of contract is very new compared to the majority of the law, maybe once more cases have been decided some general principles on duress may start to fall into place however at this moment in time the law seems very chaotic with only a small number of cases being decided similarly.

Undue Influence is a similar to duress although unlike duress where a person is pressured into the contract undue influence is where a person influences the victim with an unfair advantage over them who pressures them into the contract.

Again like duress this area of the law is imprecise and flexible, mainly due to they’re being no precise law on undue influence it normally just depends on the individual facts of the case.

Their use to be two types of undue influence, Actual Undue influence and Presumed undue influence. Actual undue influence is when the agreement was of a disadvantage to one party. The case of CIBC Mortgages Plc v Pitt [1993] 4 All ER 433, said that actual undue influence was a species of fraud which a person is not freely and knowingly entering into a contract. Only then will the contract be able to be set aside.

Presumed undue influence is where a victim believes his in a relationship of trust and has confidence in the other party, and one party abuses the relationship.

However the case of Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER decided that, these to categories of undue influence were wrong and was bad law, instead it must be shown that the claimant was mis-lead by appearance and there must be an suspicion that something is wrong. By looking at the nature of the relationship and the nature of the transaction, and the weaker party was under emotional pressure then the contract is likely to be voidable.

Examples of undue influence include, Goldsworthy v Brickell [1987] 1 All ER 853, in this case a farmer sold some land to his neighbor for a price much lower than its market value as the neighbors help was invaluable to him. Even though there was no pressure on the farmer to do so this was undue influence as there was a dominant relationship.

Another example is Lloyds Bank v Bundy [1975] QB 326, In this case Mr. Bundy was elderly and wanted to help his son in business difficulties, as he knew the bank manager used his house to guarantee his loan. Couldn’t repay loan and had to sell his house. This was undue influence as there was a close relationship between the bank manager and Mr. Bundy, and he had trust in him. If he wasn’t a friend would have got different advise, as when there is a close relationship the party should get another’s advise. This case shows some uncertainty, as normally a contact with a bank manager will not be voidable because of undue influence.

It is also likely to be undue influence when its obvious that one party is not getting anything out of the contract for themselves, for example, Cheese v Thomas [1994] 1 All ER 34 where the party were getting nothing out of the contract except the risk of losing the house.

In many cases of undue influence the wife is the weaker party in business decisions however in a normal relationship even when there is pressure on the wife its unlikely to be undue influence as the contract is of interest to the wife. (Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449). It may only be undue influence if the person in the dominant position has used their position to obtain an unfair advantage for himself.

However the law seems to be more confused and not as clear-cut when the weaker party usually the wife actually works in their business or has shares.

In many of these cases it wouldn’t be right for a weaker party to be able to bring an action of undue influence against a bank, as it is not of public interest. As banks need to be able to get there money back as other people need loans? Therefore the bank should insist that the weaker party should obtain independent legal advice. Barclays Bank v O’Brien [1993] 4 All ER 417./ Royal Bank of Scotland V Etridge, also said that the wife should attend a private meeting without her husband where she can be told the extent of her liabilities, and warned of any risks, and put in contact with a solicitor then the actions will be against the solicitor any not the bank. However this is again not a completely clear area of law as again there is conflicting cases for example, Banco exterior v Thomas [1997] 1 All ER 46 where it was said that the bank will have no interest in dealing with personal relationships.

Maybe this area of law is again unclear because its relatively new and most relationships between parties are different so maybe its best they are looked at individually, this makes the law more just.

So why is there so much chaos in the law of duress and undue influence? The answer to this maybe because this area of law is still being made, and until the judges can understand it and make consistent decisions on it, no principles can be established, until then it is likely to stay uncertain. However it could be argued that this area of law is flexible so therefore can be applied fairly to individual cases, although many would prefer this area of law to become more certain. Especially for businesses that deal with these problems each day such as banks.

As more cases go to the courts it is likely that the judges will decide what duress and undue influence is and legal principles, which carry some certainty will be made.

It is even possible in the future we may not need duress as undue influence may grow to include areas of duress, the law is likely to become more chaotic before certainty arises, but in the future the law will become more certain and principles will be established on this subject.