- TT ArvindTT ArvindProfessor of Law and Head of Department, York Law School, University of York
Abstract
This chapter examines how English law sets limits to hard bargaining through the application of the doctrines of duress and undue influence. It first considers the problem of coercion in contractual transactions and how the doctrine of duress deals with coercion through the use of threats. It then discusses three key elements of duress: the impact of the pressure on the person who was subject to it, the need to prove illegitimacy, and the pressure must induce the decision to contract. It also describes remedies for duress and proceeds with an analysis of the scope and nature of undue influence, the elements of actual undue influence, presumed undue influence, remedies for undue influence, and specific issues that arise in relation to undue influence where third parties are involved. The chapter concludes with an overview of the regulation of aggressive practices.
‘Sign … or else’
Consider the facts set out in the following scenario:
Joanne Heyton
Wilkinson and Partners
Brighton
Dear Joanne,
As you are aware, my husband, Charles Palmer, is the primary shareholder and Chief Executive Officer of Jarrow Steel Castings (JSC). JSC is wholly owned by our family and manufactures precision steel parts for use in high-performance machinery. Like many small companies, JSC suffers from a time-lag between its outgoing and incoming payments. We have to pay our suppliers for raw materials well before we receive payment for our products from our customers. Like many companies in this position, we bridge time gaps between incomings and outgoings through a working capital facility with a bank, in our case the City of Glasgow Bank. Having access to working capital finance is critical to our survival, as with many small and medium-sized companies. Our working capital facility agreement with the City of Glasgow Bank was scheduled to expire on 30 June this year. In April, we began negotiations with the bank to renew the facility for a further five years. The negotiations proceeded smoothly, and we were scheduled to sign a new agreement on 29 June.
On the morning of 29 June, Charles received a phone call from Ellen Armstrong, our relationship manager at the bank. Ellen told Charles that the bank had decided to increase the interest rate for the loan from 9 per cent to 14.5 per cent. She also said that I, Charles, and our son would have to issue personal guarantees for JSC’s debts. When Charles protested, Ellen said that it was non-negotiable. Unless we agreed, the working capital facility would not be extended.
Working capital facilities take several weeks to negotiate, so it was practically impossible for us to find an alternative bank before the facility expired on 30 June. Without the facility, we would be unable to pay invoices as they fell due. The bank was aware of this. Under protest, Charles agreed to the increased interest rate. My son and I were extremely concerned about the implications of taking on liability. Charles told us that the company would fold overnight unless it obtained the facility, and there was no time to lose. Although we hold shares in the company, we leave its running to Charles. Relying entirely on his judgment and on the urgency of the matter, we agreed with some reluctance to give the personal guarantees. Due to the very short notice, there was no time to obtain independent advice on the implications of doing so.
I have now been reading horror stories in the press about people having guarantees invoked by banks, and I am desperately worried about the position I and my son are in (as well as Charles). I am contacting you to see if there is p. 339↵anything we can do to get out of the guarantee, given the circumstances in which we signed it.
Yours sincerely,
Eilidh Palmer-Andrews
This letter sets out a scenario that is not uncommon in bargaining. A party to a transaction puts the other under pressure. Some of the persons on the other side end up signing it without having the time to understand its implications. Should the court take account of these circumstances? If so, in what way?
12.1 Introduction: the problem of coercion
The basis of contract lies in consent, and consent must be freely given. Consider the following illustration:
On the face of it, the transaction between the parties has all the elements of a contract. There is an offer (‘Give me your phone’), acceptance (the act of handing the phone over), consideration (the transfer of the phone in exchange for not being stabbed), and the requisite intention. Yet few, if any, would suggest that such a transaction should constitute a legally binding contract.
In legal terms, such a transaction is defective because one party did not freely consent.1 Consent, to the extent it was given, was vitiated by the pressure placed on one party. In Illustration 12.1, it is clear that one party has gone too far in applying pressure. But things are not always that clear-cut. Consider the situation in Problem 12. The bank’s actions in that case certainly put the parties under pressure. But did its tactics go too far? Or was it simply part of the ‘rough and tumble’ of ‘normal robust commercial bargaining’, as the courts like to call it?2
Illustration 12.1
As you are walking home late one night, you are suddenly confronted by a knife-wielding man, who says he will stab you unless you hand over your mobile phone. You immediately hand it over, and the man leaves.
In the commercial world, hard bargaining is not seen as a problem in and of itself. It becomes an issue when it crosses a line between legally acceptable tactics and legally unacceptable pressure. The primary task for legal doctrine is to find a basis on which to draw that line. Countries outside the common law world, such as the civil law p. 340↵jurisdictions of continental Europe, tend to draw on broad principles such as a duty to act in good faith or prohibitions against the abuse of contractual rights. English law, in contrast, takes a more specific and category-based approach. Rather than a single doctrine of vitiated consent or unfair bargaining, it contains three different doctrines to deal with various ways in which a party’s consent could be vitiated by excessive pressure: the doctrine of duress which has its origins in the common law, the doctrine of undue influence whose origins lie in equity, and rules on prohibited practices whose origins lie in the work of regulatory bodies.
The focus of duress is on threats which illegitimately seek to coerce the will of the other party to the contract. Undue influence focuses on more subtle types of pressure which are not threats but nevertheless affect the quality of the other party’s consent—for example, an abuse of the trust and confidence one party places in another. Rules on prohibited practices are sector-specific, and seek to identify and prohibit the most common types of unacceptable conduct one sees in bargaining in the relevant sector. The legal response in each case is similar: the party subject to pressure has the option to rescind the contract.
In this chapter, we will examine each of these doctrines in turn, beginning with the law of duress (section 12.2), followed by the law of undue influence (section 12.3), and a brief survey of prohibited practices in the formation of consumer contracts (section 12.4). We will conclude (section 12.5) by drawing the threads together in order to assess how successful English law is in dealing with the problem of excessively hard bargaining in contracting.
12.2 Overt threats in bargaining: the doctrine of duress
12.2.1 The nature of duress
The doctrine of duress is concerned with coercion through the use of threats. If you coerce a person to enter into a contract by making a threat that the law regards as illegitimate, the law will treat the contract as voidable. This means that the party who was threatened will have the option to either affirm the contract or to rescind it.
Duress today has three elements: the exercise of pressure which is illegitimate and which induces another party to enter into a contract.3
The first and third are relatively straightforward. The first focuses on the impact of the pressure on the person subjected to it. For pressure to constitute duress, the impact must have had a significant impact. Traditionally, this was summed up by saying that duress must entail ‘compulsion of the will’ or ‘coercion of the will’. More recent cases, however, have tended to phrase the requirement differently (and less dramatically), preferring to say that the party must be left with no practical choice but to submit to the demand.
p. 341↵The third element focuses on the link between the threat and the defendant’s decision to enter into the contract. There must be a causal link between the two. The precise nature of the causation requirement varies with the type of threat: where the threat is a serious one (eg a threat of causing bodily injury) the bar is set relatively low so that the causal link is made out if the threat is one factor among many inducing the decision to contract. Where the threat is less serious (eg a threatened breach of contract) the bar is set higher, and the party claiming duress must prove causation to a higher standard, known as the ‘but for’ standard (discussed in detail in section 12.2.4).
The second element is more complex. It focuses on the nature of the coercive act and requires it to be illegitimate. The mere fact that a person’s will was coerced is in and of itself not sufficient. If the threat was a legitimate one, it does not matter that it was coercive. The person subject to the threat may have felt backed into a corner, or left with no choice at all. None of this matters if the threat was legitimate. The contract will be valid notwithstanding the coercion.
Until relatively recently, the only threats that could be duress were physical threats, where one person sought to exert pressure on another by threatening them with violence (‘duress to the person’). Illustration 12.1 is a classic example. In the latter half of the 20th century, however, the courts expanded the concept to also cover two other types of pressure. The first of these is duress to goods. Consider the following illustration:
What is threatened here is not harm to the person. It involves, instead, a threat to deny you access to your goods. Since the 1970s, the courts have consistently held that a contract can also be rendered voidable as a result of duress to goods, including threats to deny persons access to, or to damage or cause harm to, their goods.4
The other type of pressure that is now recognized as constituting duress is economic duress. Economic duress deals with the use of more subtle types of economic pressure which are neither threats to goods nor threats to property. Examples include threats to cancel a contract or to organize a boycott of a person’s business. Of the various types of duress, economic duress is the most problematic because it deals with an area where it can be quite hard to draw a line between negotiating tactics that are legitimate, albeit aggressive, and behaviour which is duress. As this chapter discusses, the correct approach to this question continues to divide legal scholars and even judges.
p. 342↵There is likely to be overlap between these elements, particularly the first and third, and the ultimate finding will depend very heavily on the facts of each case.5 The key point they demonstrate is that duress is neither purely claimant-focused nor purely defendant-focused. Its elements require us to consider the defendant’s conduct, the claimant’s decision-making process, and the impact of the one on the other. In the remainder of this section, we will consider each of these elements, and how they fit together, in more detail.
12.2.2 The impact of the threat
For the doctrine of duress to operate, the threat must have been coercive. It must have affected the way in which a party saw its position, in effect leaving it to feel that it had little choice but to agree to the contract.
The courts have articulated this in two different ways. The first uses the language of ‘coercion of the will’ or ‘compulsion of the will’. If one party has been coerced to a degree that their will was overborne by the threat, then they have, in effect, been deprived of the free exercise of their will. This deprivation vitiates the party’s consent, rendering the contract voidable at their instance.
The trouble with this formulation is that it does not accurately describe how threats affect decision-making. Threats do not deprive individuals of decision-making power. They simply place them in a situation where they are forced to choose an option they do not want, because they have little practical choice. As far back as the 17th century, English philosophers such as Thomas Hobbes pointed out that a person acting out of fear was still acting voluntarily: they are choosing to adopt a course of action that avoids the eventuation of the threat.6
Starting in the 1980s, academics influenced by legal realism, such as Professor Patrick Atiyah, began to criticize English law’s reliance on the ‘overborne will’ as misplaced.7 In Lynch v DPP of Northern Ireland,8 a criminal appeal, the House of Lords suggested, obiter, that the language of ‘overborne will’ was an inaccurate description of the basis of duress in contract law. Duress ‘deflects’ the will without destroying it.9 The reason contracts are voidable for duress is that the law rejects the agreement’s validity due to the pressure.10 Subsequent cases on duress in contract law confirmed this approach. In The Evia Luck,11 Lord Goff agreed that it was unhelpful to speak in terms of coercion of the will in contract.
Although the language of ‘compulsion of the will’ or ‘coercion of the will’ is still occasionally used,12 the test is now more commonly articulated in terms of the lack of a practical choice.13 Duress reflects the fact that a party has submitted to the p. 343↵inevitable.14 If a party has a practical choice—‘an alternative remedy which any and possibly some other reasonable persons in his circumstances would have pursued’—then she is not submitting to the inevitable.15
How, then, is this test actually applied in practical terms? In Pao On v Lau Yiu Long,16 the Privy Council set out four factors that were relevant to assessing whether a person’s consent was vitiated by duress:
In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it.
Case in depth: Pao On v Lau Yiu Long [1980] AC 614 (PC)
Pao On arose out of a contract for the sale of shares. The claimants (Pao On and his family members) had agreed to buy 4.2 million shares in a company called Fu Chip from the defendants (Lau Yiu Long and his brother), at a price of $2.50 per share. The company had just been listed, and the defendants were anxious to ensure that the claimants did not cause the share price to decline precipitously through selling large proportions of their shares. The parties therefore agreed on a ‘lock in’ clause, under which the claimants agreed not to sell 2.5 million of their shares until 30 April 1974.
The claimants demanded a guarantee from Lau Yiu Long in exchange, so that they would not make a loss if the share price declined during the time that they were locked into their shareholding. The parties accordingly executed a subsidiary agreement. Instead of providing a guarantee, however, this agreement actually gave Lau Yiu Long the option to buy 2.5 million shares from the claimants at the issue price of $2.50 per share on 30 April 1974. Critically, this was not tied to a decline in the share price. This meant that even if the share price rose significantly, Pao On and his family would be contractually required to sell their shares to Lau Yiu Long at the issue price.
When the claimants realized what they had actually signed, they informed Lau Yiu Long that they would not complete their transaction unless the subsidiary agreement were to be replaced by a true indemnity. Because the subsidiary agreement had already been signed, in law this amounted to a threat by them to breach their contract unless its terms were altered. Lau Yiu Long technically had the option of suing the Paos for breach of contract. However, on the facts this option was unattractive. The deal had been announced, and if it fell through public confidence in the shares of Fu Chip would be adversely affected. The value of his own shares would come down. He therefore reluctantly agreed to cancel the subsidiary agreement and to replace it with a true guarantee, under which he and his brother indemnified the Paos against a fall in the share price for the shares they were locked into holding.
p. 344↵The share price fell far more than the parties had imagined possible, ending at 36 cents a share. The claimants invoked the indemnity. The defendants argued that the guarantee was unenforceable, because it was not supported by consideration and because it had been procured by a threat amounting to duress.
The Privy Council held that the contract had not been procured by duress. After setting out the four factors outlined above, Lord Scarman went on to hold that there was no coercion:
[Lau] considered the matter thoroughly, chose to avoid litigation, and formed the opinion that the risk in giving the guarantee was more apparent than real … In short, there was commercial pressure, but no coercion.
Also of relevance was the fact that Lau had at all times been advised by his lawyers, who had participated in the drafting of the guarantee, that the option of suing for damages was real, and that he had given no indication that he was signing the guarantee under protest. He had taken a calculated decision to take on a commercial risk in order to pacify his counterparties. The decision proved in hindsight to be an error of judgment, but that would not by itself render the contract voidable for duress.
Although Pao On used the language of ‘coercion of the will’, the factors remain relevant to the modern approach of focusing on the lack of practical choice. Consider Problem 12. As the facts make clear, the parties did protest at the time of the alleged coercion, and they lacked an alternative practical course of action. Unlike in Pao On, where litigation was a viable option, the time constraints in this case mean that the alternative to not agreeing would have been the loss of their business. Equally, there was no time to take independent legal advice. Three of the four factors set out in Pao On are therefore made out, strongly suggesting that a sufficient degree of compulsion was present.
That is not, however, the end of the story. The element of compulsion is a necessary ingredient of duress, but it is not sufficient. The party claiming to have been subjected to duress must not only prove that pressure was applied, but also that the pressure was illegitimate. We will now examine this requirement in more detail.
12.2.3 Illegitimacy and lawful act duress
The need to prove illegitimacy reflects the expansion of duress beyond threats to the person. A threat of bodily harm will almost always be illegitimate. This is not true of duress to goods or of economic duress. A threat to seize goods may sometimes be legitimate, as may a threat to breach a contract. A gas engineer who says that he will condemn a boiler unless he is paid to repair it is clearly exercising pressure over the other party. But if the boiler is in fact in violation of the relevant standards, the pressure is legitimate. It is not duress.
p. 345The basic approach
In R v Attorney-General for England and Wales,17 Lord Hoffmann discussed two ways in which legitimacy can be assessed. First, it can be assessed with reference to the nature of the pressure itself. Alternatively, it can be assessed with reference to the nature of the demand. Consider the following illustration:
Here, the act that is threatened is not illegitimate as such. Outside the circumstances covered by actions for breach of confidence or breach of privacy, English law does not prohibit or restrict the ability of a person to communicate compromising information about another. What is illegitimate, rather, is the demand that the threat is used to make. For pressure to be illegitimate, either the threat or the demand must be illegitimate.
The facts of R v Attorney-General for England and Wales are a good illustration of the manner in which the courts go about determining whether threats or demands are illegitimate.
Case in depth: R v Attorney-General for England and Wales [2003] UKPC 22
This case involved a dispute between the armed forces and a soldier (‘R’) who had served in the SAS in the Gulf War. R and his team had been sent behind enemy lines to try to cut communications. Unfortunately, they were detected by Iraqi troops. Three of the eight soldiers in the team died in the resulting fighting, one escaped, and the other four were captured and tortured. R was one of the latter group.
After the war ended, the soldier who escaped, as well as one of the commanding officers, published books about the operation, which were subsequently made into films. The films and books were widely seen in the SAS as being inaccurate and contrary to its traditions. To prevent this happening again, the SAS Regimental Association, with the support of the vast majority of members, asked the Ministry of Defence to procure binding contracts from all serving members to prevent ‘unauthorized disclosure’ in the future. The ministry accepted the recommendation. In 1996, R was given a confidentiality agreement to sign. He was told that if he refused, he would be treated as unsuitable for the SAS and returned to his original regiment. This was ordinarily only done for disciplinary reasons, and would have involved loss of pay and status. R was not allowed to seek legal advice. He signed the contract. Two weeks later, he left the regiment and moved to New Zealand. He then sought to publish a book about p. 346↵his service in the Gulf War. The Ministry of Defence applied for an injunction. R argued that the contract was vitiated by duress.
The High Court of New Zealand held that the contract was vitiated by duress, because R had in effect been ordered to sign the agreement. On appeal, the Court of Appeal reversed this decision, holding that the contract had not been procured by duress. Although the relationship between R and his superiors had elements of compulsion, he had not in fact been ordered to sign. That meant that he had an alternative; namely, accepting his removal from the SAS and his return to his regiment. He had therefore failed to establish duress.18
R appealed to the Privy Council. The Privy Council held that the contract was not vitiated by duress, but for different reasons. Unlike the New Zealand Court of Appeal, it accepted that R had been placed under pressure, which left him with no practical alternative.19 Nevertheless, the pressure was legitimate. Confidentiality agreements were introduced because unauthorized disclosures were threatening the effectiveness of the UK’s Special Forces, and they had the support of most serving members. Given that context, the ministry was ‘reasonably entitled to regard anyone unwilling to accept the obligation of confidentiality as unsuitable for the SAS’.20 The threat was therefore legitimate under both approaches to assessing legitimacy. The pressure was lawful, because the ministry had the power to return him to his regiment. Equally, the demand it was used to support was legitimate, because it was justifiable.21
This decision highlights that any illegitimate threat can constitute duress. The threat here, like the threat in Illustration 12.3, was neither duress to the person, nor economic duress, nor duress to goods. The Privy Council’s decision tells us that this does not matter. As long as the claimant can prove that the threat is illegitimate, and that the other two ingredients of duress are also satisfied, the contract will be voidable.
Illustration 12.3
You wouldn’t want your spouse to see these compromising photos of you, would you? Just sign this contract, and you’ll never have to worry about those photos again.
Cases are not always as straightforward as R v Attorney-General. Several of the early cases on illegitimacy involved industrial action, an area which has long divided judges. In The Universe Sentinel,22 a trade union was attempting to improve the pay and working conditions of crewmembers working on ships that flew flags of convenience.23 If a ship met certain minimum standards the union had set, it issued the ship a ‘blue certificate’. The Universe Sentinel had American owners but was registered in Liberia, and was therefore regarded as flying a flag of convenience. It did not hold a blue certificate. The union therefore ‘blacked’ the ship when it docked in England. This meant that no tug boat would service the ship, with the result that it could not sail. The owners entered into negotiations with the union, which demanded that they pay it $80,000 to be given a blue certificate. The money included back pay for the crew of the ship, as well as a contribution of $6,480 to the union’s welfare fund. The owners agreed to the p. 347↵demand, because that was the only way their ship would be able to leave port. After the ship had sailed, they sought to recover the money paid to the union on the basis that it had been paid under duress.
The back pay was protected by a statutory provision which legalized certain types of action taken during industrial disputes,24 but the owners sought to recover the $6,480 paid to the welfare fund. The bench was divided on whether the union’s demand for this sum was legitimate. The majority held that it was not. A trade union’s actions were only legitimate if they related to the terms and conditions of employment. The welfare fund was a union initiative to support workers. It therefore had no connection with the terms and conditions of employment, and a demand for payment to the fund was illegitimate.25 The minority, in contrast, held that the payment was legitimate. The welfare fund was for the benefit of seamen, and payments by employers to that fund were therefore clearly related to the terms and conditions of employment.26
The difference of views between the judges in The Universe Sentinel demonstrates how finely balanced questions of legitimacy can be. Although both The Universe Sentinel and R v Attorney-General of England and Wales related to non-commercial matters, the issue tends to be particularly acute in commercial cases. It is not uncommon in commercial cases for parties in a weaker bargaining position to be faced with ‘take it or leave it’ offers. Often, they may not be in a position to do anything but accept the offer. Problem 12 presents a good example. Are situations of this type duress? Should the courts be intervening to protect the party in the weaker position?
In general, the courts go to some lengths to ensure that the doctrine of duress does not affect legitimate commercial bargaining, even tough bargaining. Mere commercial pressure is not duress.27 In DSND Subsea Ltd v Petroleum Geo Services ASA,28 Dyson J set out a number of factors that are relevant to assessing whether pressure is illegitimate:
In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he confirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.29
This paragraph should be read subject to two qualifications. First, the factors listed are indicative rather than exhaustive, and should not be taken as a precise test. They should, rather, be taken as indicative of the type of things to which the courts will look. Secondly, the factors should not be taken as a mathematical formula. The decision as to whether a line has been crossed will necessarily involve a value judgment.30 However, as Dyson J’s judgment demonstrates, the value judgment builds on the individualistic standards of commercial practice, rather than external standards of fairness or morality.
p. 348↵One consequence is that the law distinguishes sharply between a threat that is unlawful, such as a threat to breach a contract, and a threat that is lawful, such as a threat to refuse to contract or to use a contractual power in a way that is permissible under the contract but is nevertheless disadvantageous to the other party. Whereas the first will generally be illegitimate, recent case law suggests that the second will only be illegitimate in a narrow set of circumstances.
Threats to breach contracts
Let us begin with unlawful threats. Consider the following illustration:
Such a situation differs from the scenario set out in Problem 12. In Problem 12, pressure was applied by threatening not to enter into a contract. In Illustration 12.4, in contrast, the pressure applied is a threat to breach an existing valid contract. A threat to breach a contract is much likelier to be illegitimate than a threat to back out of an as-yet-unformed contract. Unlike a refusal to contract, it involves the actual breach of a legal obligation.
Illustration 12.4
Jarrow Steel Castings obtain much of their iron ore from a supplier called Continental Ore and Minerals. The supply agreement fixes a base price, and a band within which the price increases or decreases depending upon market conditions. Following extreme market volatility, Continental Ore demand an increase in the contract price that goes beyond the contractually agreed band. When Jarrow Steel refuse, Continental Ore tell them that it will no longer supply ore to them. Jarrow Steel are in the process of fulfilling a large order, and will suffer significant losses if Continental stop their supplies. It is practically impossible for them to find an alternative supplier in time. They reluctantly agree to the increased rate.
In Atlas Express Ltd v Kafco (Importers and Distributors) Ltd,31 Atlas, a transport company, had contracted with Kafco, sellers of basketware, to transport basketware from Kafco’s premises to Woolworth, a very large retailer. The parties’ contract provided for a per-carton rate. Just before the goods were to be carried to Woolworth, Atlas tried to get Kafco to vary the rate to also include a minimum charge of £440 per trailer. When Kafco refused, Atlas said that they would refuse to load the basketware unless Kafco agreed to the variation. At this late stage, it was impossible for Kafco to find an alternative transporter and still get the goods to Woolworth on time. They reluctantly agreed to the new agreement, feeling that they were ‘over a barrel’ and had no choice. Once the goods were delivered, they refused to pay the additional amount. When Atlas sued, they defended themselves on the basis that the revised agreement was signed under duress. The High Court upheld the defence of duress. By threatening to breach their contract, Atlas was threatening to cause unlawful damage to the other party’s economic interests. This went beyond mere commercial pressure, and was an illegitimate threat.32
p. 349↵The Canadian case of Burin Peninsula Community Business Development Corp v Grandy33 is even more striking. Here, a financing corporation demanded a personal guarantee shortly before a transaction was scheduled to close. The parties had already entered into a binding agreement as to the terms of the loan. It was just that the final documents had not been executed. The court held that the bank had exerted economic duress, because it had attempted to take advantage of the borrower’s precarious financial position to vary the terms of a concluded and binding agreement by threatening to breach its obligations under it.
The fact that the demand is based on actual commercial exigencies, such as dealing with an unexpected cost, does not make it legitimate. In B & S Contracts and Design Ltd v Victor Green Publications Ltd,34 a contract to build stands for a major international exhibition was affected by a strike. The trade union demanded a payment of £9,000. The contractors could not afford this, and told the exhibition organizers that they would be unable to carry out the work unless the organizers agreed to increase the contract price by £4,500. The organizers initially offered an advance instead of an increased payment, but the contractors insisted on the increase. The organizers reluctantly agreed, as they would have been unable to find a substitute contractor at that late stage. They later sought to argue that the contract was vitiated by duress. The Court of Appeal agreed. In insisting on increasing the price rather than accepting an advance, the contractors were trying to advance their own immediate economic interests at the claimants’ expense. This made the threat illegitimate. Similarly, in The Atlantic Baron,35 a shipbuilder demanded a 10 per cent increase in the contractually agreed price for a ship, threatening not to complete the ship unless the price was paid. The demand was a response to a 10 per cent devaluation of the US dollar, but the court nevertheless held that the pressure constituted duress.36
The point underlying these decisions appears to be that the parties are free to bilaterally renegotiate a contract to deal with changed circumstances, and the courts will enforce this as long as the renegotiation is based on genuine agreement (as in Williams v Roffey, discussed in Chapter 3). They will not, however, permit a party to use the threat of breach to unilaterally force the other party to accept terms against their will.
This also applies where the threat of breach is used not to force a renegotiation but to induce the other party to accept a disputed interpretation of a contract or a settlement of a disputed claim.37 In Carillion Construction Ltd v Felix (UK) Ltd,38 disputes had arisen between a contractor (Carillion) and a subcontractor (Felix) about Felix’s performance on the subcontract. The disputes affected the amounts that were due under the contract. Felix demanded that Carillion agree to a particular settlement of their account, and said that it would withhold further performance unless Carillion conceded to Felix’s account of how much was due to it. Carillion could not at that stage have found an alternative contractor, and gave in to Felix’s demands under protest p. 350↵expressly stating that it was consenting under duress.39 It subsequently sought to have the settlement set aside on the ground of duress. Dyson J in the High Court held that the contract was voidable for duress. The proper course of action for Felix would have been to refer the dispute to arbitration. It had no contractual entitlement to insist on settlement of the account at the stage at which it did, and no reasonable basis to believe that it did. Equally, it knew that Carillion could not have found an alternative contractor at that late stage. Consequently, its actions were illegitimate.
Threats of lawful acts
An important factor in the cases discussed above is that the pressure involved a threat to breach a binding contract. The situation is different where the threatened acts are lawful. A common form of lawful pressure is a threat to refuse to contract unless a particular demand is met. Threats of this type can place a party under considerable pressure, as Problem 12 illustrates. Here, the bank’s action in springing a demand on the borrower at the last minute puts the borrower under pressure. Had the demand been made at an early stage, the borrower would have been free to walk away and find a loan elsewhere. At this late stage, however, the borrower has no practical choice but to assent to the demand. Nevertheless, the courts are reluctant to hold there to have been duress in such cases.
In Bank of India v Riat,40 a company owned by Riat had taken a loan from the Bank of India. Riat had personally guaranteed the loan. He argued that the guarantee had been procured by duress. The Bank had demanded it at a time when it was too late for him to start negotiating with another bank, as he was under pressure to complete two transactions for which he needed the loan. The High Court held that there had been no pressure on the facts, but that even if there had been, the demand would have been legitimate. Until the loan agreement was signed, the Bank was fully entitled to make new demands and introduce new terms. A personal guarantee is commonly requested by banks lending to small companies, and the demand was therefore legitimate.41
Similarly, in Bank of Scotland v Cohen,42 a company had exchanged contracts to purchase property, and had negotiated financing arrangements with the Bank of Scotland. Shortly before the completion date, the Bank demanded a personal guarantee from the directors and shareholders of the company, and said that it would reconsider the availability of the facility unless the guarantees were signed. The defendants reluctantly signed the guarantees. The bank also insisted that they sign confirmations that they had executed the guarantees of their own free will after obtaining legal advice. The court held, applying Pao On, that there was no duress because the bank’s demand was not illegitimate. In addition, the bank was entitled to rely on the confirmation that the guarantee had been granted by the guarantors of their own free will.
The position taken by English courts is based on the view that every party is free to back out of a proposed contract at any time up to the ‘moment of responsibility’ when the contract is formed. If that is all a party is threatening to do, and if all it is demanding are more favourable terms, then it would require a very unusual combination of circumstances for the pressure to be considered illegitimate. The result is that it is rare p. 351↵for commercial pressure applied in the course of negotiating an ordinary commercial transaction to amount to duress. If the threat and the demand are legitimate in and of themselves, the courts will not treat it as having become illegitimate simply because they were made at a strategically late stage in the negotiating process.
Similarly, a warning by a party that they intend to exercise a contractual power will not constitute duress. In Berntsen v National Westminster Bank,43 a bank informed borrowers in default that it would foreclose on certain properties unless they agreed to a refinancing agreement. Although it was acknowledged that this had put the borrowers under tremendous pressure, there was no duress as the bank had done no more than invite them to choose between refinancing existing liabilities or facing the consequences of default. Simply stating that you intend to enforce your contractual rights is certainly pressure, but it is not illegitimate.
This can apply even if the party did not actually have the rights it purported to enforce. In CTN Cash and Carry Ltd v Gallaher Ltd,44 the defendants had contracted to sell cigarettes to the claimants and deliver them to the claimants’ warehouse. They delivered the cases of cigarettes to the wrong warehouse, although also one belonging to the claimants. By the time the mistake was discovered, the cigarettes had been stolen. The defendants believed (incorrectly) that the goods were at the claimants’ risk at the relevant time, and insisted on receiving payment. When the claimants refused to pay, the defendants threatened to revoke the claimants’ credit facility. The claimants’ business would have been jeopardized by the removal of credit. They had no alternative to dealing with the defendants, who were the sole distributors for all popular cigarette brands. They reluctantly paid. They then sought to recover the payment, arguing that it had been paid under duress.
The High Court and the Court of Appeal rejected the plea of duress. Three reasons were cited for doing so. First, the doctrine of duress was not intended to deal with inequality in bargaining power. The mere fact that the defendants used their superior bargaining position did not make their tactics duress. Secondly, the defendants were legally entitled to revoke the credit facility they owed to the claimants. Doing so was not a breach of contract. It was a lawful act. While lawful acts might be capable of constituting duress, they should only do so in rare cases. Thirdly, the defendants acted on the basis of a genuine, bona fide belief in their position. Commercial parties would often have disputes as to their rights and obligations under a contract, and it was important that any settlements they reached be legally protected. To do otherwise:
would introduce a substantial and undesirable element of uncertainty in the commercial bargaining process. Moreover, it will often enable bona fide settled accounts to be reopened when parties to commercial dealings fall out.45
The Court of Appeal in CTN Cash and Carry was careful not to rule out the possibility that a threat of a lawful act might be duress in exceptional circumstances, but it provided little guidance as to what sort of circumstances might be sufficiently exceptional to make a lawful act constitute duress. In the years after CTN, this question was the subject of significant academic debate, particularly around whether bad faith could make a p. 352↵lawful demand illegitimate. In 2021, the Supreme Court in Pakistan International Airline Corp v Times Travel (UK) Ltd46 finally resolved the debate in favour of a narrower reading of lawful act duress.
Case in depth: Pakistan International Airline Corp v Times Travel (UK) Ltd [2021] UKSC 40
Times Travel was a small travel agency whose business relied on selling tickets from the UK to Pakistan on flights operated by Pakistan International Airline Corporation (PIAC). A number of PIAC’s UK-based travel agents commenced legal action against it in a dispute over commission in 2012. PIAC told Times Travel that it would cut their ticket allocation from 300 to 60 and terminate their agreement if they joined the other travel agents. PIAC was entitled to do both under its contract with Times Travel. Times Travel reluctantly agreed to enter into a new agreement with PIAC containing an onerous clause waiving all past claims for unpaid commission. It subsequently sued PIAC seeking to rescind the new contract for economic duress. The High Court held that the pressure amounted to duress. The Court of Appeal overturned that decision and held that the pressure was not economic duress because PIAC did not act in bad faith. It genuinely believed its agents’ claims to be without merit.
On appeal, the Supreme Court upheld the decision of the Court of Appeal and held that there was no economic duress. Lord Hodge, who gave the leading judgment, held that lawful acts would only constitute economic duress in two categories of cases. The first involves a defendant using his knowledge of ‘criminal activity by the claimant or a member of the claimant’s close family’ to exert pressure by making ‘the express or implicit threat to report the crime or initiate a prosecution’. The second is where the defendant, ‘having exposed himself to a civil claim … deliberately manoeuvres the claimant into a position of vulnerability by means which the law regards as illegitimate and thereby forces the claimant to waive his claim’.47 In both cases, the illegitimacy of the act flows from the fact that the defendant has engaged in morally reprehensible behaviour which makes enforcement of the contract unconscionable.
If a case does not fall into either category, it is not duress. In particular, a demand is not illegitimate merely because it was made in bad faith. The Supreme Court held that economic duress should not be extended to cover lawful demands made in bad faith, as it is far from uncommon for a party in a superior bargaining position to make an ‘exorbitant demand in the course of negotiations’. It would be difficult to distinguish such a situation from a bad faith demand.48
On the facts, there was nothing to suggest that PIAC had manoeuvred Times Travel into a position of increased vulnerability in order to exploit it. As a result, there was no duress.49
Lord Hodge used previous cases to illustrate the two categories. The first category was illustrated by Mutual Finance Ltd v John Wetton and Sons Ltd.50 Here, Joseph Wetton had obtained a vehicle on hire purchase by forging signatures on a guarantee. p. 353↵The financial institution exerted pressure on his brother to execute a replacement guarantee by threatening to prosecute Joseph. The contract was held to be voidable due to the pressure. Progress Bulk Carriers v Tube City IMS (The Cenk K)51 illustrates the second category. In this case, shipowners had agreed to charter a ship out to charterers, but breached the agreement by chartering it to another party. They conceded breach and said that they could provide a different ship at a discount but only if the charterers waived their right to damages for breach. The charterers faced substantial losses and could not easily find another ship at that late stage. They accepted the owners’ terms under protest. Subsequently, they sued for damages and argued that their acceptance of the owners’ terms was vitiated by duress. Crucially, the owners had not threatened breach. They had already breached the contract by chartering the ship to someone else, and the pressure they applied took the form of a refusal to settle, which was not unlawful. Nevertheless, Cooke J held that their actions amounted to duress. Although their actions were not in themselves unlawful, they had to be seen in the light of their prior repudiatory breach.52 When seen against that background, the owners had manoeuvred the charterers into a position where they had no practical option but to waive their claim. As the Supreme Court stressed in PIAC v Times Travel, facts like these are exceptional. In the absence of such circumstances, the availability of duress in relation to lawful acts is likely to remain rare, no matter how extensive the pressure placed on one party by another.53
Before we leave the topic of legitimacy, it is important to remember that the requirement that the threat or demand be illegitimate does not in any way replace the requirement that the party must have ‘no practical choice’ but to agree. The absence of a practical choice was an important factor in every single case considered in this section in which the claim of duress succeeded, including Kafco,54 B&S Contracts,55 and Carillion Construction.56 The two requirements are in addition to each other, and both will need to be proven on the facts of any case.
12.2.4 Inducing the decision to contract
The final requirement which must be proven for an action of duress to succeed is that the pressure must induce the decision to contract. The extent to which duress must be a contributory factor depends on the type of duress. As far as duress to the person is concerned, the test is similar to that in misrepresentation. It is sufficient if the duress was a factor. It does not have to be the sole factor or even the primary factor. The leading case is the decision of the Privy Council in Barton v Armstrong.57 Two shareholders in a company were in a dispute. This rapidly escalated to the point where one of them, Armstrong, began making serious threats of physical violence against Barton, including statements like ‘You can employ as many bodyguards as you want. I will still fix you.’ and ‘Unless you sign this document I will get you killed.’ Barton p. 354↵bought Armstrong out. In evidence, it was shown that he was partly motivated by the threats (which he took seriously) and partly by commercial reasons, in that he genuinely believed that he could make a success of the company if he bought Armstrong out. The Privy Council nevertheless held that he could rescind the contract for duress. Drawing an express parallel with misrepresentation, Lord Cross in the Privy Council held that it was sufficient if the threat was a factor in the decision to contract, even if it was not the only one.
This does not, however, apply to economic duress, where the position appears to be that causation must be established to the ‘but for’ standard. The ‘but for’ standard, also known as the ‘sine qua non’ standard, requires the person claiming duress to demonstrate that he would not have entered into the contract but for the duress. It is not enough if the duress merely contributed to the decision as one factor among many. In The Evia Luck,58 Lord Goff used the language of ‘significant cause’ to describe the link that must be made between the pressure and the inducement in cases of economic duress. In Huyton SA v Peter Cremer GmbH,59 Mance J held that this meant at the very minimum a ‘but for’ test. The case arose out of a contract for the sale of wheat, where there was a dispute in relation to whether the documents tendered by the seller conformed to the requirements of the contract. Both parties claimed that the other had repudiated the contract. Cremer, the seller, initiated arbitration. Huyton said that it would only pay for the wheat if Cremer withdrew the arbitration and gave up the right to arbitrate. Cremer agreed to do so, but once payment was received it argued that its agreement was vitiated by duress. Mance J held that the agreement was not vitiated by duress. He held that it would not be appropriate to apply the test in Barton to economic duress, as threats to the person are inherently ‘mala fide acts’.60 A higher test was required.
The minimum basic test of subjective causation in economic duress ought, it appears to me, to be a ‘but-for’ test. The illegitimate pressure must have been such as actually caused the making of the agreement, in the sense that it would not otherwise have been made either at all or, at least, in the terms in which it was made. In that sense, the pressure must have been decisive or clinching.61
Mance J further stressed that satisfying the ‘but for’ test would not be enough in and of itself: it would not substitute for the test of illegitimacy or the test of the absence of a practical choice. A party who only signed the contract due to the pressure, but who had a real choice not to sign, will not be able to claim for duress. All factors must be established.
12.2.5 Remedies for duress
Duress makes a contract voidable (not void). The remedy for duress is rescission: that is, the ability to have the contract annulled on the basis that it was vitiated by duress. Rescission is not automatic. It permits the victim of duress to set the contract aside by p. 355↵giving the other party notice. Once that is done, the contract is treated as if it never came into being. However, unlike a void contract, the contract remains valid until rescinded.
The right to rescind a contract is also not unconditional, and may be lost if one of three bars to rescission is triggered. First, it may be lost if the victim of the duress has affirmed the contract, either expressly or implicitly (eg by continuing to perform it even after the duress has ceased). Secondly, it may be lost for lapse of time. In The Atlantic Baron,62 discussed in section 12.2.3, eight months had elapsed between the delivery and the date on which the claimant sought to rescind the transaction on the basis of duress. The court held that the right to rescind had been lost due to lapse of time. Finally, the ability to rescind a contract may be lost if counter-restitution is impossible. This bar is discussed in greater detail in Chapter 11 in the context of misrepresentation. The principles applicable are identical, and the discussion will therefore not be repeated here.63
Damages are not available in duress, unlike in misrepresentation. This means that if rescission is barred, the victim of duress will be left without a remedy.
12.3 Abusing confidence: the doctrine of undue influence
The focus of duress is on threats made by one of the parties. But pressure can also take more subtle forms. Consider the following statement:
Illustration 12.5
After everything I’ve done for you, I don’t think it’s unreasonable for me to ask you to sign this document. You owe it to me.
Although there are no threats as such, the person making this statement is clearly applying pressure on the other party. Depending on the context, and on the nature of the relationship between the parties, the pressure may well be even more effective than a threat.
The focus of the doctrine of undue influence is on pressure which is illegitimate but does not amount to a threat. Undue influence has its origins in equity, and was originally part of a broader jurisdiction exercised by courts of equity over fraud and trust. Its traditional justification is that it responds to conduct which is unconscionable, because it involves a dominant party taking unfair advantage of the influence they have over the other, or the trust and confidence that other person reposes in them. Equity saw this as being a species of fraud. The result is that unlike duress, the focus of undue influence is on the exploitation by a person of the ability to influence another. p. 356↵The key to establishing a claim in undue influence is demonstrating both that that ability exists and that it was exercised in a manner that is undue. Undue influence is not confined to contracts. It is also a ground for setting aside other transactions. A gift, for example, may be rescinded if it was procured by undue influence.64 The cases discussed in this section cover both contracts and gifts, as the principles applied in both types of cases are identical.65
In the 19th century, when the scope of duress was relatively narrow, undue influence was applied to very diverse types of illegitimate pressure falling short of a threat. In Williams v Bayley,66 the claimant’s son had forged his signature on bank bills. The bank told the claimant that they would prosecute his son unless the claimant agreed to take the son’s debts upon himself. At that time, conviction would have led to the son’s transportation to a penal colony. To prevent this, the claimant agreed to the bank’s demand, including granting the bank a mortgage over a colliery he owned. The House of Lords held that the claimant was entitled to have the agreement set aside for undue influence.
Undue influence is no longer applied so broadly. The expansion of the scope of duress in the latter half of the 20th century has meant that undue influence has come to focus on a narrower set of cases. Undue influence today is more closely focused on the relationship between the parties, and on whether the stronger party abused or exploited his position within the relationship to gain an advantage. The starting point in any examination of undue influence is, therefore, not so much on the pressure itself as it is on the nature of the relationship within which that pressure was exercised.
The focus on the nature of the relationship is unique to the common law. Civil law jurisdictions focus more on the circumstances to which the weaker party was subject than to the relationship between the two. Dutch law, for example, recognizes a ground called ‘abuse of circumstances’ (misbruik van omstandigheden) which covers cases where one party induces another person to perform juridical acts even though he knew that the other person:
is under the influence of particular circumstances, like a state of emergency, dependency, thoughtlessness, an addiction, an abnormal mental condition or inexperience.67
One result of English law’s focus on relationships is that cases involving intimate relations—and, in particular, spouses induced to offer security for their spouse’s commercial debts—have formed a relatively large proportion of recent leading cases in the law of undue influence. While undue influence is still occasionally pleaded in commercial cases, it is rarely successful. This means that in the context of Problem 12, undue influence will be most relevant to determining whether Charles put excessive pressure on his wife and son, rather than to whether the bank put excessive pressure on them all.
p. 357↵There are two routes to claiming undue influence. In the first, called actual undue influence, the party seeking to have the transaction set aside is required to prove that undue influence was exercised, and that that exercise caused the decision to contract. In the second, called presumed undue influence, the party seeking to have the transaction set aside must simply show that the transaction is not readily explicable, and that it took place in the context of a special relationship, or a relationship of trust and confidence. The courts will then presume that the transaction was procured by undue influence, unless the contrary is shown. Actual and presumed undue influence are also sometimes referred to as Class 1 and Class 2 undue influence.
In this section, we will begin by looking at actual undue influence (section 12.3.1), before moving on to study how the courts use an evidentiary presumption to address the difficulty of establishing actual undue influence (section 12.3.2). We will then look at the remedies for undue influence (section 12.3.3), before concluding by examining how the doctrine of undue influence operates in situations involving third parties (section 12.3.3).
12.3.1 The elements of actual undue influence
To successfully plead actual undue influence, the party who was subject to pressure must prove that its decision to contract was induced by undue influence. Four things must be proved. First, it must be shown that the dominant party had the ability to influence the other party. Secondly, it must be shown that that ability was exercised. Thirdly, it must be shown that that exercise of influence was undue (often termed the requirement of ‘unconscionability’). Fourthly, it must be shown that this exercise of influence induced the other party to enter into the impugned contract. The bar for establishing causation is not high. Undue influence is a response to the fact that the victim of the influence was deprived of the opportunity to make a choice by the dominant party’s exercise of influence. Causation does not, therefore, have to be established to the ‘but for’ standard used in economic duress. As long as influence actually was exercised on the facts of a case and operated on the mind of the other party, the element of causation is satisfied.68
One advantage of actual undue influence is that it is unnecessary to establish that the relationship between the parties was one of trust and confidence. All that needs to be established is that one party had the ability to influence the other, and exercised it. In Morley v Loughnan,69 Loughnan was a travelling companion to Morley. Loughnan was also a member of a religious sect called the Plymouth Brotherhood and he converted Morley to that sect. Morley left his home and went to live with Loughnan. He had a fortune of £170,000 out of which he paid large sums of money to Loughnan, totalling over £140,000. After Morley’s death, his executors sought to recover the money on the basis that it had been obtained by the actual exercise of undue influence. The action succeeded. Wright J held, on the evidence, that Morley was ‘in a condition of subjection to an influence against which he was unable to contend, but to the true nature of which his mind became at times so far alive as to shew that the subjection p. 358↵was not wholly voluntary’.70 The money was paid not out of Morley’s free will but due to Loughnan’s ‘influence and domination’.71 This was an ‘abuse of personal influence and ascendency’, and the money was therefore recoverable.
This case was exceptional both in the starkness of the facts and in the amount and quality of the evidence available. Evidence of this type is critical, and claims of actual undue influence only succeed where the claimant is able to demonstrate that the other party ‘embarked on a course of conduct putting pressure’ on them to agree,72 or where there is evidence showing the exercise of pressure in other respects even if not specifically in relation to the impugned transaction.73 It may also be discharged by proving that the party exercising undue influence acted fraudulently.74 In Annulment Funding Co Ltd v Cowney,75 the court found actual undue influence where the party did not understand the transaction, and was anxious and concerned by the fact that she did not, but nevertheless entered into it because of the pressure placed on her by the other party. In the absence of such circumstances, however, the ingredients of undue influence can be difficult to prove, and simply rebadging and relaunching a claim of duress as a claim of undue influence is unlikely to succeed.76
12.3.2 Presuming undue influence
To deal with the difficulty of proving the actual exercise of influence, the courts in the course of the 19th and 20th centuries developed a very different approach to undue influence, called presumed undue influence. Presumed undue influence does not require a party to prove the four ingredients of active undue influence. Instead, it operates by looking to two aspects of the transaction: the nature of the relationship between the parties, and the nature of the transaction itself. The best way of understanding the relevance of these two aspects is to view them as representing two stages in the process by which the court decides whether or not to presume undue influence. In the first stage, the court examines the relationship between the parties. If the relationship between the parties was one of trust and confidence, the court will presume that it was of a type within which influence could be exercised. At this stage, however, the court makes no presumptions in relation to whether influence was exercised. In the second stage, the court looks at the nature of the transaction. If the transaction is not readily explicable with reference to ordinary motives, then the court will presume that the influence was exercised in an undue way—in other words, that the transaction was procured by undue influence.
The presumption so arrived at at the conclusion of the second stage is only evidential.77 This means that it is rebuttable, but it is for the dominant party to rebut it. This is typically done by establishing that there was no abuse of trust. From the perspective of the person subjected to pressure, the effect of the presumption is to create a far simpler p. 359↵set of things to prove. This gives parties an easier way of establishing undue influence. The leading decision on presumed undue influence is the decision of the House of Lords in Royal Bank of Scotland Plc v Etridge (No 2).78 The nature of presumed undue influence, and the approach which the courts take to it, were however established in the earlier decision of the Court of Appeal in Allcard v Skinner,79 which provides a good starting point for understanding the ingredients of presumed undue influence and the logic underlying them.
Case in depth: Allcard v Skinner (1887) 36 Ch D 145
Allcard, the claimant, joined a religious order called the Sisters of the Poor as a novice. The defendant, Skinner, was the lady superior of the order and one of its founders. The order’s rules required her to give up all her individual property, either to friends and relatives, or the poor, or to the order. If it were given to the order, it could not be reclaimed by the member on leaving. Allcard had been left considerable property by her father and she gave large amounts of this to the sisterhood.
In 1879, she left the sisterhood to convert to Catholicism (the Sisters of the Poor was an Anglican order). Most of the property she gave the sisterhood had been spent by that time, but some shares remained. Six years after leaving, she sued to recover the shares and some of the money she had paid (but not all). The basis of her action was that she had been induced to make over her property by Skinner’s undue influence. Skinner’s defence was that Allcard had joined the order of her own free will, and handed over the property pursuant to the rules which she agreed to accept on joining.
Kekewich J in the High Court found for Skinner. The evidence before him demonstrated that Allcard knew what she was doing, and there was no evidence of any influence exercised by Skinner over her decision.80 Allcard appealed.
The Court of Appeal held that the transaction was affected by undue influence. There were two classes of cases that could be set aside in undue influence. The first was where the court was satisfied that the transaction was the result of influence expressly used by the other party for the purpose. The second was where the relations between the parties shortly before the execution of the transaction were such as to raise a presumption that one party had influence over the other.81 The first depended on the principle ‘that no one shall be allowed to retain any benefit arising from his own fraud or wrongful act’. The second, in contrast, rested on ‘the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused’.82
This transaction fell within the second class. Allcard was bound to ‘render absolute submission’ to Skinner because of the nature of the relationship between initiate and lady superior. In addition, the gift was ‘so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act’.83 This meant that the burden was on Skinner to justify the gift. Although no influence had been brought to p. 360↵bear on Allcard beyond what ‘inevitably resulted’ from her spiritual discipline, this constituted a pressure which she could not resist.84 In addition, she could not obtain independent advice as she had sworn not to consult persons outside the convent,85 and as such could not ‘freely exercise her own will’ as to the transaction. The result was that she was not an entirely free agent.86
However, although she could have set the transactions aside in 1879 when she left the order, the six-year delay meant that her suit was now barred. Her action therefore failed, notwithstanding the undue influence.
The contours of the modern law of presumed undue influence remain as set out in Allcard v Skinner. First, the parties’ relationship must be such as to create the possibility of abuse. In the modern context, this is typically either because of the power relations within the relationship or because it is a relationship of trust and confidence. Secondly, there must be something about the transaction that makes it not readily explicable on ordinary motives. The effect of the conjunction of these factors is to create a presumption, which the other party can rebut. The question of whether or not independent advice was obtained is often relevant to the process of rebutting the presumption, but it is not by itself conclusive.
The parties’ relationship
Let us begin with the first of the elements of presumed undue influence: the nature of the relationship between the parties. The precise nature of this requirement has been the subject of some debate. Early cases drew a distinction between two sub-categories of type 2 undue influence: Class 2A and Class 2B. Under Class 2A, certain relationships were always treated as ‘protected relationships’. Here, the court would always automatically assume that the dominant party had the ability to influence the other party. This class includes the relations of solicitor and client, doctor and patient, spiritual advisor and follower, fiancé and fiancée, and parent and child. But it does not include many other common relations, such as that between husband and wife,87 an adult child and her elderly parents,88 or a bank and its customers.89 Relations which do not fall under Class 2A must be brought under Class 2B to trigger the presumption of undue influence. Here, the party claiming to have been subject to undue influence will have to prove the de facto existence of a relationship of trust and confidence.90
This classification should not be taken too far. Its only significance is the light it sheds on the types of relationships that give rise to a presumption of the ability to exercise influence. It does not speak to the questions of whether that influence was exercised, or whether that exercise was undue. In Royal Bank of Scotland Plc v Etridge (No 2),91 the House of Lords expressed some scepticism about the broader utility of this classification. Etridge, like many recent cases on undue influence, arose out of a business loan p. 361↵secured by a mortgage on the businessman’s house. The house was jointly owned by the businessman and his wife, and the wife had consented to the mortgage. When the business failed and the bank sought to enforce its security, the wife contended that the contract had been procured by undue influence. In discussing the law, Lord Nicholls did not use the terminology of classification, although he accepted that undue influence encompassed cases in which there would need to be ‘[p]roof that the complainant placed trust and confidence in the other party’92 as well as cases in which ‘[t]he complainant need not prove he actually reposed trust and confidence in the other party. It is sufficient for him to prove the existence of the type of relationship.’93 Other judges were more openly critical of the ‘wisdom of the practice which has grown up … of attempting to make classifications of cases of undue influence’, which ‘add mystery rather than illumination’.94
Given the narrowness of the class of protected relationships, in most cases where a presumption of undue influence is sought to be established it will be necessary to demonstrate on the facts that a relationship of trust and confidence subsisted between the parties. This does not depend on the characteristics of only one party. Instead, it requires examining the relationship as a whole. The mere fact that one of the parties is vulnerable, physically frail, or suffers from cognitive impairment is not by itself enough to create a relationship of trust and confidence,95 especially where they can be said to be confident and know their own mind.96
Strong hierarchies, coupled with institutional identification, are frequently sufficient to make a relationship one of trust and confidence. This was the case in Allcard v Skinner,97 and it was also the case in R v Attorney-General for England and Wales,98 discussed in section 12.2.3. In the latter case, the Privy Council was swayed by the combination of the military hierarchy, the culture of regimental pride, and R’s admiration for his commanding officer. As in Allcard, these were seen as creating ‘a relationship in which the army as an institution, or the commanding officer as an individual, were able to exercise influence over him’.99
The question is less straightforward where institutional identification and hierarchy are absent. Here, the courts tend to look at the extent to which one party relies on another in the conduct of their affairs. In Lloyds Bank Ltd v Bundy,100 the court was faced with a transaction between a bank and a customer. The key question was whether the relationship was an ordinary commercial banking relationship or whether it had acquired the character of trust and confidence. On the facts, it was held that it had acquired that additional character. The Court of Appeal was swayed by the fact that Bundy had not just banked at the same branch for several years, but that he also placed a great deal of reliance in the manager of that bank for financial advice, and that the manager was aware of this reliance.
The primary reason for the decision was the nature and extent of the reliance reposed by Bundy in the manager, rather than in the fact that the relationship was one p. 362↵of banking. In Watson v Huber,101 the claimant had relied heavily on her stepsister for her financial affairs, to the extent that she operated an account in their joint names. The court held that this was sufficient to create a relationship of trust and confidence. On the flipside, in the absence of such factors, a relationship between banker and customer will not be held to be one of trust and confidence.102
The marital relationship has proven a particularly difficult one to deal with. The nature of the marital relationship gives it a particular propensity to generate what the Irish High Court has called ‘emotionally transmitted debt’103 and, hence, to raise questions about the boundary between actions done out of love and those produced by undue influence. It is obvious that there is a strong bond between individuals who are married or in a similar relationship. Yet it cannot from this be assumed that the relationship is one of influence. It is perfectly normal for spouses or partners to independently assess the merits of a particular course of action. Equally, it is also perfectly normal for spouses to do something out of a genuine desire to support their spouse, rather than due to being under the spouse’s influence. As a result, the courts have tended to only hold marital relationships to be relationships of trust and confidence if there are specific factors pointing to one spouse having a high degree of influence over the other, or to one reposing a high degree of trust and reliance in the other.104 On the flipside, the fact that they appreciate that they are taking a risk, and place no more trust than is normal in a family relationship, will weigh against the conclusion that the relationship was one of trust and confidence.105 Either way, the marital relationship is by default not treated as one of trust and confidence, in the absence of specific factors to the contrary.
In addition to relationships of trust and confidence, in Etridge Lord Nicholls stated that undue influence could also apply to relationships of ‘reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other’.106 The emphasis here is not so much on the trust one party reposes in the other as it is on the power which one party exercises over the other. Macklin v Dowsett107 is a good example of this principle in action. Dowsett’s house had been condemned by the local authorities. He was required to demolish it. He had been given permission to build another, but only if he started building it within five years. He lacked the financial resources to do this. He sold the land to the Macklins in exchange for money and a life tenancy. He used the money to pay off a mortgage debt, and consequently continued to lack the resources to build a new house. In 1999, a month before planning permission expired, the Macklins laid foundations for the house at a cost of £1,700. They also entered into an agreement with Dowsett, under which he granted them an option to require him to surrender his life tenancy if he had not completed the new house within three years. He was unable to do so, and the Macklins sought to evict him. The Court of Appeal found for Dowsett on the basis of undue influence. At the p. 363↵time the option agreement was entered into, Dowsett was close to losing his planning permission, and lacked the finances to start construction. The Macklins knew this, and sought to exploit his financial position. Given the financial disparities between the parties, and Dowsett’s vulnerable position, the relationship was one of ascendancy and dependency at the material time.
The idea of ascendency and dependency should not, however, be taken too far. A relationship will not be one of ascendency and dependency simply because the parties were in an unequal position, or because one party was in a commercially weak position.108 To return to Problem 12, in the absence of an element of control, neither the inequality of bargaining power between the bank and Jarrow Steel, nor the bank’s exploitation of it, will give rise to a presumption of influence. In contrast, the fact that Charles’s wife and son rely on him to run the business, and almost always accept his commercial judgment without questioning it, would tend to suggest that the relationship between them is one of trust and confidence, thus giving rise to a presumption of influence as far as his dealings with them are concerned.
‘Not readily explicable’
The mere existence of a relationship of trust and confidence (or ascendancy and dependency) is insufficient. There must also be something about the transaction that raises a presumption of undue influence. Until the 1990s, cases often used the terminology of ‘manifest disadvantage’ to describe this requirement, both in relation to actual undue influence109 and in relation to presumed undue influence.110 This language has since been rejected by the House of Lords. In relation to actual undue influence, the House of Lords in CIBC Mortgages plc v Pitt111 rejected it because there was no such requirement. Any transaction procured by actual undue influence was invalid, regardless of whether or not it was to the victim’s disadvantage. In relation to presumed undue influence, in contrast, the language was rejected in Royal Bank of Scotland Plc v Etridge (No 2)112 because it was held to be an inaccurate description of the relevant legal requirement. There may be very good reasons for a person to enter into a disadvantageous transaction. A wife who puts up surety for her husband’s business is clearly entering into a disadvantageous transaction, but will often be doing so because she has an interest in her spouse’s business succeeding.
Given this, the House of Lords in Etridge returned to a formulation remarkably close to that in Allcard v Skinner. In Allcard, the Court of Appeal had focused on whether the transaction could be ‘reasonably accounted for’ on ordinary motives. In Etridge, the House of Lords reformulated the test to state that the presumption will only apply if the transaction ‘is not readily explicable’ by ordinary motives or the relationship of the parties.113 It must call for an explanation which is not forthcoming. In such a case, the burden shifts to the dominant party to show that he or she did not abuse the position of dominance.114
p. 364↵Since the decision in Etridge, the courts have shown an increased willingness to hold that a transaction was explicable with references to considerations other than undue influence. In Turkey v Awadh,115 a father had entered into an agreement with his son and daughter-in-law under which he took a long lease of property they owned. In return, he paid them money to enable them to clear a mortgage on the property and certain other debts. The Court of Appeal held that the presumption of undue influence did not apply, as the transaction did in fact have an easy explanation: the son and daughter-in-law would not have been able to pay off the mortgage in any other way. It is only where the transactions have involved significant proportions of the assets of the complainant with the complainant receiving nothing in return,116 or where the transaction does not admit of any other independent reason, that the courts have tended to be willing to hold that the transaction is not readily explicable, triggering the presumption of undue influence.117
Bringing this back to Problem 12, the upshot would appear to be that Charles will be unable to raise a presumption against the bank, because that transaction is readily explicable with reference to considerations other than undue influence. As far as the guarantees issued by Eilidh and their son go, however, the facts appear to be quite clear. As shareholders, they certainly had reasons for wanting the company to succeed. But the specific manner in which they issued the guarantees—without taking legal advice, and notwithstanding their concerns and uncertainty about what it meant for them—is not readily explicable save with reference to the confidence they placed in Charles. This will almost certainly be sufficient to raise a presumption of undue influence.
Rebutting the presumption
In order to rebut the presumption of undue influence, the dominant party will have to show that the complainant entered into the transaction freely, and in awareness of the risks. A classic way of doing this is by showing that the complainant received independent legal advice. In Wadlow v Samuel,118 a settlement agreement was alleged to have been vitiated by undue influence. The Court of Appeal rejected the argument, in significant part on the basis that the complainant had sought and received independent legal advice.
The recognition of the importance of independent legal advice goes back to Allcard v Skinner, but it is not conclusive. A presumption of undue influence may be rebutted even if no independent advice was taken, and equally a court may hold that the presumption has not been rebutted even if independent legal advice was taken. But it is, nevertheless, an important factor.119 Legal advice will not rebut a presumption of undue influence if the advisor was unaware of relevant circumstances, or if it did not meet the standard of advice from a competent or honest advisor acting in the complainant’s interest.120
p. 365↵On the facts of Problem 12, it is hard to see how the presumption of undue influence, once raised, could be rebutted save with reference to independent legal advice. As a result, it is likely that the guarantees issued by Eilidh and her son will be held to have been procured by undue influence.
12.3.3 Remedies and third parties
A contract procured by undue influence is voidable. This means that the complainant has the option of affirming or rescinding it. The usual remedy for undue influence, accordingly, is rescission. The contract must be affirmed or rescinded in its entirety. Partial rescission is not possible in English law.121 The right to rescind may be lost through affirmation or the lapse of time, as happened in Allcard v Skinner. Where some benefits have been provided, the court may order counter-restitution. If exact counter-restitution is not possible, the court will typically make an order that restores the parties as nearly as possible to their original position. The details of these remedies are discussed in Chapter 11, and will not be repeated here.
Specific issues arise in relation to undue influence where third parties are involved. Consider, once again, Problem 12. Even if it can be shown that the consent of Charles Palmer’s wife and son was procured through undue influence, the relief they will want to seek is not against Charles. It is against the bank. They will, in other words, seek relief not against the person exercising undue influence, but against a third party because it is a contract with that third party (in this case, the personal guarantee) that they seek to have set aside.
Situations of this sort are very common in practice, and a number of the cases we have referred to in this section, including Royal Bank of Scotland Plc v Etridge,122 CIBC Mortgages plc v Pitt,123 and Annulment Funding Co Ltd v Cowney,124 involved relief sought against a third party, almost always a lender. The transactions in these cases, much like the transaction in Problem 12, involved a person agreeing, as a result of undue influence, to stand surety for the debts of another.
Under what circumstances, then, does undue influence affect the position of a third party lender? The traditional answer to this question was that a third party would only be affected by undue influence if it had actual or constructive notice of the exercise of undue influence.125 In Etridge, however, the House of Lords criticized the language of constructive notice. The correct question to ask, they held, was whether there was something about the transaction that ought to have put the bank ‘on inquiry’ as to the presence of undue influence. In general, a bank will be put on inquiry if the transaction involves a person guaranteeing a loan to their spouse, or more broadly any guarantee arising out of a non-commercial relationship.
Once a bank is put on inquiry, it must take several steps. First, it must tell the surety to seek independent advice from a solicitor. It must then provide the solicitor with all relevant financial information relating to the facility and the borrower’s indebtedness. If it has any reasons to specifically suspect undue influence (apart from being put on inquiry generally), it must inform the solicitor of that reason. The solicitor must give advice at p. 366↵a face-to-face meeting with the surety, without the borrower present. Finally, the bank must obtain written confirmation from the solicitor that the nature of the documents, the obligations they create, and their practical implications have been explained to the surety. A bank which follows these steps will be taken to have satisfied itself that the surety entered into the transaction of their own free will, rather than as a result of undue influence. The result is that the bank is protected even if the contract was, in fact, induced by undue influence. In contrast, a bank that fails to do so ‘cannot rely on the defence of acting innocently and being unaware of any undue influence or pressure’.126 The bank cannot simply rely on a letter rejecting the offer of independent advice.127
In Problem 12, it is apparent that the bank failed to require any of these steps to be taken, although it should have been put on inquiry under the rule in Etridge. This means that Eilidh and her son (but not Charles) are likely to be able to successfully contest the validity of the guarantees they issued, should they seek to do so.
Debates in context: a doctrine of unconscionability?
Neither duress nor undue influence deal squarely with the problems posed by inequality of bargaining power, or aggressive bargaining. Some sense of what is missing can be deduced by examining the position in the US, where the common law has developed a much broader doctrine of unconscionability. The decision of the US Court of Appeals for the DC Circuit in Williams v Walker-Thomas Furniture Co128 illustrates the scope of this doctrine.
The Walker-Thomas Furniture Co was located in a poor, and predominantly African-American, part of Washington DC. It sold furniture on credit to residents of that area. Its credit was, however, subject to an unusual term. Until a purchaser had paid the purchase price on all furniture that he had purchased from it, none of the furniture was treated as having been paid off. In effect, missing an instalment on one item meant that the company could repossess everything it had sold to the purchaser. This is precisely what happened to Mrs Williams. Between 1957 and 1962, she had bought a number of items of furniture from the company. In 1962, she bought a stereo set from them. She had $164 outstanding at the time, which the purchase of the stereo set raised to $678. At the time, she had a monthly income of $218. When she missed an instalment, the company sought to repossess everything she had purchased between 1957 and 1962. It was entitled to do so under the contract. Nevertheless, the court held the contract to be unenforceable, because there was an element of unconscionability present at the time it was made. The unconscionability arose from a combination of the absence of meaningful choice on the part of Mrs Williams and the fact that the contract terms were unreasonably favourable to the company. Mrs Williams lacked a meaningful choice because the gross inequality of bargaining power, coupled with the fact that she did not have a reasonable chance to understand the contract’s terms, meant that her consent was never given to all the terms. The terms were unreasonable because they were ‘so extreme as to appear unconscionable according to the mores and business practices of the time and place’.
p. 367↵This decision weaves together elements of the formation process and the substance of the term complained of into a single doctrine. English law on duress and undue influence, as we have seen in this chapter, does not do this. In 1974, Lord Denning made a determined attempt to alter English law. In his decision in Lloyds Bank v Bundy,129 he attempted to weld duress, undue influence, and equitable rules on the protection of weaker parties into a single doctrine of ‘inequality of bargaining power’. Through this doctrine, he envisaged English law giving relief to a person:
who, without independent advice, enters into a contract or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.
The other judges in the Court of Appeal, however, decided the case on narrower grounds. In 1985, the House of Lords definitively rejected Lord Denning’s proposed approach in National Westminster Bank plc v Morgan.130
Underlying this rejection is the courts’ reluctance to intervene too deeply in the bargaining process. This reluctance is clearly visible in the cases discussed in this chapter, and it reflects the same underlying perception as that discussed in Chapter 9 in the context of agreements to negotiate: namely, that bargaining is inherently an individualistic and competitive process, which it would be wrong to fetter. English law has, instead, preferred to rely on statutory rules restricting the ability of parties to rely on specific types of onerous clauses. A case such as Williams, were it to arise in England, would be decided not with reference to a broad doctrine of unconscionability, but with reference to the provisions of s 140A of the Consumer Credit Act 1974 which restricts certain types of onerous provisions in credit agreements. The rejection also reflects English law’s suspicion of broader principles generally. Shortly after the decision in Bundy, Professor LS Sealy, a leading commentator on commercial contracts, argued that the doctrines which Lord Denning had sought to weld together were so different that it was impossible to identify a coherent set of common elements in them.131
Support for the narrower position has also come from commentators who adopt an economic approach. In an article deeply critical of Lord Denning’s decision in Bundy, Professor Michael Trebilcock, a leading commentator in law and economics, argued that courts were not in fact in a position to be able to put transactions in the context of the relevant market. Lord Denning’s decision would make them prone to see terms as unfair which, in their proper context, were both fair and necessary.132 Richard Epstein, an American professor also broadly associated with the Law and Economics movement, argued that it made little sense to allow a party to avoid a contract which he had voluntarily accepted without fraud, mistake, or duress.133
Nevertheless, the position taken by Lord Denning is not without support. Professor Atiyah has pointed out that English law is based on drawing a sharp distinction between procedural unfairness and substantive unfairness, even though most cases will in reality involve a mixture p. 368↵of both.134 A clause that may in the abstract seem substantively unfair may seem less so if one examines the bargaining process more closely, and vice versa.
Equally, there is a danger in an overreliance on statute. English statutes have had to periodically be updated to deal with issues that the original versions did not. But such updating cannot be guaranteed and, indeed, is becoming rarer. The strength of the US approach lies in the extent to which it recognizes the close interrelationship between the substantive and procedural aspects of contracts that are the outcome of inequality of bargaining power, and in the flexibility it gives the courts to rework the doctrine in response to changing conditions.
12.4 Regulating aggressive practices: the Consumer Protection from Unfair Trading Regulations 2008
The rules we have been discussing thus far apply to all types of transactions. Since 2014, consumers have had a separate set of remedies in relation to aggressive practices by traders, under the Consumer Protection from Unfair Trading Regulations 2008.135 The details of these Regulations, the types of transactions to which they apply, and the remedies they grant are discussed in Chapter 11, in section 11.4, and will not be repeated here. The focus of this section is on what constitutes an aggressive practice.
Under the Regulations, a commercial practice is aggressive if it meets two conditions. First, it must significantly impair (or be likely to significantly impair) ‘the average consumer’s freedom of choice or conduct’, and do so ‘through the use of harassment, coercion or undue influence’. Secondly, it must cause (or be likely to cause) the consumer to take a transactional decision that would otherwise not have been taken.136
‘Undue influence’ has a very different meaning in the Regulations when compared with the general law. The Regulations define it to mean:
exploiting a position of power in relation to the consumer so as to apply pressure, even without using or threatening to use physical force, in a way which significantly limits the consumer’s ability to make an informed decision.137
‘Coercion’ is not defined, beyond a statement that it includes the use of physical force. There is no definition of what is meant by ‘harassment’.
Whether a practice is aggressive is to be determined by taking account of all its features and circumstances, and with reference to its factual context.138 A range of factors are relevant to deciding whether a commercial practice used harassment, coercion, or undue influence. These include, amongst other things, its timing, nature, and persistence;139 whether threatening or abusive language or behaviour was used;140 whether the trader threatened to take actions which cannot legally be taken;141 and whether p. 369↵the trader exploited specific misfortunes or circumstances of which he was aware, and which could have impaired the consumer’s judgment.142
If an aggressive practice was a significant factor in a consumer’s decision to enter into a contract, then the consumer has a statutory right to unwind the transaction, demand a discount, or obtain damages. The details of these remedies are discussed in Chapter 11, section 11.4.
The utility of this regime can easily be seen if we return to Illustration 12.2, involving the aggressive laptop repairman. The repairman’s actions are likely to have amounted to duress to goods. However, they are even more likely to amount to ‘coercion’ within the meaning of the 2008 Regulations. From a consumer’s point of view, proving this is far easier than proving the ingredients of duress, and the remedy it gives—in this case, the remedy to unwind the transaction—is likely to be far easier, and far more efficacious, than the equivalent common law remedy.
Illustration 12.2
Your laptop’s screen has started flickering. You take it into a shop. The engineer in the shop examines it, and says that the problem cannot be fixed. He then says that you will have to pay a £100 service charge for the tests he has carried out.
You refuse, pointing out that he should have said there would be a charge before he started work. He grabs the laptop (on which you have important notes) and says that you will not get it back until you agree to pay him the charge.
12.5 In conclusion: dealing with aggressive bargaining
Let us draw the threads together by returning to the problem with which this chapter began. What sort of outcome is it likely to produce, and what does that tell us about the law more generally?
We can begin by pointing to the features of the bank’s conduct in Problem 12 which the court will not take into account in determining whether JSC and the guarantors have a right to avoid the contract. The fact that the bank raised the issue at the last minute in a manner that left JSC with little choice—which, from a commercial perspective, lies at the heart of JSC’s complaint—is largely irrelevant. The courts have in past cases stressed that a threat which would have been legitimate at an earlier stage does not become illegitimate simply because it was made at a late stage. Equally, a threat not to contract will only be illegitimate in exceptional cases. JSC’s past relationship with the bank, too, will not be of relevance in deciding whether the transaction is voidable. What matters is whether they placed trust and confidence in the bank or its employees, and this is unlikely to be the case in a purely commercial transaction such as that in Problem 12. The law is somewhat more responsive to the pressure placed by Charles Palmer on his wife and son. Yet here, too, the remedy is only practically available because of the failure of the bank to follow the process set out by the court in Etridge. Had that process been followed, no remedy would have lain notwithstanding the other pressures the borrowers were under.
English law’s reluctance to intervene more heavily in regulating the process of negotiation reflects two underlying concerns. First, in a remedial sense, English law is relatively inflexible. The remedy for duress and undue influence is to rescind the contract entirely. There is no middle way. Civil law jurisdictions, in contrast, do give their courts the power to make orders short of rescission. In Dutch law, for example, a court has the option to modify the effects of the abuse of circumstances ‘in order to undo its disadvantageous results’ as an alternative to nullifying it.143 Giving courts such a p. 370↵broad power is, however, quite contrary to the way in which English law approaches commercial transactions. While the remedy remains as inflexible as it currently is, the courts are unlikely to exercise it more broadly than they currently do. Secondly, the courts’ reluctance to intervene more overtly in regulating bargaining reflects their view that commercial bargaining is best treated as an individualistic, self-interested process, where it is for the parties to protect themselves.
On both these points, consumer contracts differ from commercial contracts. The courts do have the power to order remedies short of unwinding the transaction in a consumer contract—for example, a discount. Equally, the law intervenes more readily to regulate traders’ commercial practices in respect of their customers in consumer contracts than in commercial contracts. This reflects a theme increasingly coming to the fore in English law; namely, a sharp divergence between its generally robustly individualistic approach to commercial transactions and its increasingly paternalistic approach to consumer transactions. This theme is discussed in greater detail in Chapter 13.
Key points
Excessive pressure can be a problem in contract negotiation. English law deals with this problem through three doctrines: duress, undue influence, and specific rules around aggressive practices.
Duress and undue influence make a contract voidable (not void). The party affected by duress or undue influence (but not the other party) has the option of rescinding the contract.
A contract is voidable for duress if one party induces the other to enter into the contract by making a threat which the law regards as illegitimate. Threats which the law regards as illegitimate include threats to the person or to property, as well as subtler forms of economic pressure.
To determine whether a threat is illegitimate, the court will look both at the nature of the threat itself as well as the nature of the demand it was used to support. Courts are reluctant to treat ordinary commercial pressure as ‘duress’, although they may do so if the threat involved (for example) a breach of contract.
There must be a causal link between the threat and the other party’s decision to contract. If the threat involved physical violence, then it is enough if the threat was one factor amongst many that led the other party to agree to the contract. If the threat involved economic duress, the party claiming duress must show that he would not have agreed to the contract ‘but for’ the duress.
The remedy for duress is rescission of the contract. Damages are not available for duress.
Undue influence responds to the exploitation by one person of the ability to influence another. A party claiming undue influence must show that the other party had the ability to influence him, and exercised that ability in a way that was undue or unconscionable, inducing him to enter into the contract.
This presumption can be rebutted by showing that the transaction was entered into freely. This is usually done by demonstrating that the other party had independent advice.
Undue influence can also affect contracts with third parties, if there was something about the transaction that put the third party on inquiry about the possibility of undue influence. In such a case, the third party must take steps to satisfy itself that the transaction was freely entered into.
A special statutory regime for consumers protects them against aggressive commercial practices by sellers. This includes the use of harassment, coercion, or the exploitation of power.
Assess your learning
You should be able to respond to each of the following points with a confident ‘yes’. If you can’t, then you should revisit the sections listed against that point.
Can you:
Explain what makes a threat illegitimate, and identify the key factors that courts examine in determining whether a particular threat was illegitimate? (Section 12.2.3)
Understand the different ways in which courts assess causation in relation to different types of duress? (Section 12.2.4)
Identify the type of situations to which undue influence applies, and outline the key requirements of actual undue influence? (Section 12.3.1)
Explain the effect of the presumption of undue influence, outline the factors that lead to the presumption being triggered, and describe the ways in which it can be rebutted? (Section 12.3.2)
Explain how third parties are affected by undue influence, and outline the steps they must take to satisfy themselves that the transaction was freely entered into? (Section 12.3.3)
Identify the types of practices that are prohibited by the regulations on aggressive commercial practices? (Section 12.4)
In relation to each of the above, you should be able to:
identify and clearly explain the key rules and principles;
identify the key cases and statutes, and why they matter;
apply the principles and cases to specific real or hypothetical fact situations;
evaluate the limitations, if any, of the law as it currently stands.
p. 372Further reading
Notes
1. The transaction can also be called into question because of its illegality, as Chapter 14 discusses in greater detail.
2. Adam Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3481 (QB), [26] (David Donaldson QC).
3. See the summary in Carillon Construction v Felix (UK) Ltd [2001] BLR 1. See also DSND Subsea Ltd (formerly DSND Oceantech Ltd) v Petroleum Geo Services ASA [2000] BLR 530, [113] (Dyson J).
4. Occidental Worldwide Investment v Skibs (The Siboen & The Sibotre) [1976] 1 Lloyd’s Rep 293.
5. Adam Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3481 (QB), [26].
6. T Hobbes, Leviathan (Richard Tuck ed, Cambridge University Press 1996) 146.
7. PS Atiyah, ‘Economic Duress and the Overborne Will’ (1982) 98 LQR 197.
8. [1975] AC 653 (HL).
9. Ibid, 695 (Lord Simon).
10. Ibid, 680 (Lord Wilberforce).
11. Dimskal Shipping Co SA v International Transport Workers’ Federation (The Evia Luck) [1992] 2 AC 152 (HL).
12. See eg R v Attorney-General for England and Wales [2003] UKPC 22, [15] (Lord Hoffmann).
13. DSDN Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530, [131] (Dyson J).
14. Universe Tankships Inc of Monrovia v International Transport Workers’ Federation (The Universe Sentinel) [1983] 1 AC 366, 400 (Lord Diplock).
15. Huyton SA v Peter Cremer GmbH [1999] CLC 230, 252 (Mance J) (QB).
16. [1980] AC 614 (PC).
17. [2003] UKPC 22.
18. Attorney-General for England and Wales v R [2002] 2 NZLR 91, 113 (Tipping J).
19. [2003] UKPC 22, [15].
20. Ibid, [17].
21. Ibid, [18].
22. Universe Tankships Inc of Monrovia v International Transport Workers’ Federation (The Universe Sentinel) [1983] 1 AC 366 (HL).
23. The term flag of convenience refers to a practice where a ship is registered in a country to which it has no real connection, simply because the laws of that country provide a more favourable regulatory framework.
24. See NWL Ltd v Woods [1979] 1 WLR 1294 (HL).
25. [1983] 1 AC 366, 389 (Lord Diplock).
26. Ibid, 403 (Lord Scarman), 409 (Lord Brandon).
27. Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] 1 QB 833, 839 (Tucker J).
28. [2000] BLR 530.
29. Ibid, 131.
30. See Adam Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3481 (QB), [26] (David Donaldson QC).
31. [1989] 1 QB 833.
32. Ibid, 841.
33. (2010) 327 DLR 4th 752 (Newfoundland and Labrador Court of Appeal).
34. [1984] ICR 419 (CA).
35. North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705.
36. Although relief was ultimately denied in that case for other reasons, as discussed in section 12.2.5.
37. See Bonhams 1793 v Cavazzoni [2014] EWHC 682 (QB).
38. [2001] BLR 1 (QB).
39. Ibid, [22].
40. [2014] EWHC 1775 (Ch).
41. Ibid, [70].
42. 16 January 2013, Ch (unreported).
43. [2012] WL 11908384.
44. [1994] 4 All ER 714 (CA).
45. Ibid, 719 (Steyn LJ).
46. [2021] UKSC 40.
47. Ibid, [4].
48. Ibid, [40]–[57]. Lord Burrows dissented on this point and would have held illegitimate a bad faith demand which created or worsened the other side’s vulnerability.
49. Ibid, [58].
50. (1866) LR 1 HL 200.
51. [2012] EWHC 273 (Comm), [2012] 1 CLC 365.
52. Ibid, [42]–[43].
53. Al-Subaihi v Al-Sanea [2021] EWHC 2609 (Comm), [185].
54. Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] 1 QB 833, 839 (Tucker J).
55. B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419 (CA).
56. Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1 (QB).
57. [1976] AC 104 (PC).
58. Dimskal Shipping Co SA v International Transport Workers’ Federation (The Evia Luck) [1992] 2 AC 152 (HL).
59. [1999] CLC 230 (QB).
60. Ibid, 252.
61. Ibid, 250.
62. North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705.
63. For an application of the bar to duress, see Halpern v Halpern [2007] EWCA Civ 291, [2008] QB 195.
64. See eg Hart v Burbidge & others [2014] EWCA Civ 992.
65. Undue influence also applies to wills, but there are important differences between the doctrine as applied to gifts and contracts and the doctrine as applied to wills particularly in relation to presumed undue influence which does not apply in relation to wills. A full discussion of these differences is beyond the scope of this book, and the cases relating to wills are therefore not discussed in this chapter.
66. (1866) LR 1 HL 200.
67. BW 3:44 lid 4.
68. UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555, [86].
69. [1893] 1 Ch 736.
70. Ibid, 755.
71. Ibid, 756.
72. See CIBC Mortgages v Pitt [1994] 1 AC 200, 205 (Lord Browne-Wilkinson) (HL).
73. Re Craig (Deceased) [1971] Ch 95, 121 (Ungoed-Thomas J).
74. UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555, [87].
75. [2010] EWCA Civ 711.
76. KSH Farm Ltd v KSH Plant Ltd [2021] EWHC 1986 (Ch), [622].
77. Royal Bank of Scotland Plc v Etridge (No 2) [2002] 2 AC 773, [16], [18] (Lord Nicholls) (HL).
78. [2002] 2 AC 773 (HL).
79. (1887) 36 Ch D 145.
80. Ibid, 165–8.
81. Ibid, 171 (Cotton LJ).
82. Ibid.
83. Ibid, 185 (Lindley LJ).
84. Ibid, 186 (Lindley LJ).
85. Ibid, 190 (Bowen LJ).
86. Ibid, 172 (Cotton LJ).
87. Midland Bank plc v Shephard [1988] 3 All ER 17.
88. Avon Finance Co Ltd v Bridger [1985] 2 All ER 281.
89. National Westminster Bank Ltd v Morgan [1985] AC 686.
90. Barclays Bank Plc v O’Brien [1994] 1 AC 180 (HL).
91. [2002] 2 AC 773 (HL).
92. Ibid, [14].
93. Ibid, [18].
94. Ibid, [92] (Lord Clyde).
95. Birmingham City Council v Beech [2013] EWHC 518 (QB), upheld by the Court of Appeal in [2014] EWCA Civ 830.
96. Gorjat v Gorjat [2010] EWHC 1537 (Ch).
97. (1887) 36 Ch D 145.
98. [2003] UKPC 22.
99. Ibid, [24] (Lord Hoffmann).
100. [1975] QB 326 (CA).
101. [2005] All ER (D) 156 (Mar).
102. See eg National Westminster Bank Ltd v Morgan [1985] AC 686.
103. Allied Irish Banks plc v Rostaff Property Development Ltd [2017] IEHC 533, [6] (Barrett J).
104. See eg Barclays Bank plc v O’Brien [1994] 1 AC 180 (HL).
105. See eg Thompson v Foy [2009] EWHC 1076 (Ch) (in the context of a mother–daughter relationship).
106. [2002] 2 AC 773, [11] (HL).
107. [2004] EWCA Civ 904.
108. Dwyer (UK Franchising) Ltd v Fredbar Ltd [2021] EWHC 1218 (Ch), [257]–[258].
109. Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923.
110. See eg National Westminster Bank plc v Morgan [1985] AC 686.
111. [1994] 1 AC 200, [26] (HL).
112. [2002] 2 AC 773 (HL).
113. Ibid, [21] (Lord Nicholls).
114. Turkey v Awadh [2005] EWCA Civ 382, [15] (Buxton LJ).
115. Ibid.
116. See eg Watson v Huber [2005] All ER (D) 156 (Mar).
117. See eg Smith v Cooper [2010] EWCA Civ 722.
118. [2007] EWCA Civ 155.
119. See Royal Bank of Scotland Plc v Etridge (No 2) [2002] 2 AC 773, [20] (Lord Nicholls) (HL); Curtis v Curtis [2011] EWCA Civ 1602.
120. Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 (PC).
121. See TSB Bank plc v Camfield [1995] 1 WLR 430.
122. [2002] 2 AC 773 (HL).
123. [1994] 1 AC 200, [26] (HL).
124. [2010] EWCA Civ 711.
125. Barclays Bank v O’Brien [1994] 1 AC 180.
126. Ulster Bank Ltd v Caldwell [2018] NICh 22, [13].
127. Syndicate Bank v Dansingani [2019] EWHC 3439 (Ch).
128. 350 F2d 445 (DC Circuit, 1965).
129. [1975] QB 326 (CA).
130. [1985] AC 686 (HL).
131. LS Sealy, ‘Undue Influence and Inequality of Bargaining Power’ (1975) 34 CLJ 21, 23.
132. M Trebilcock, ‘The Doctrine of Inequality of Bargaining Power: Post-Benthamite Economics in the House of Lords’ (1976) 126 University of Toronto Law Journal 359.
133. R Epstein, ‘Unconscionability: A Critical Reappraisal’ (1975) 18 Journal of Law and Economics 293.
134. PS Atiyah, ‘Contract and Fair Exchange’ in PS Atiyah, Essays on Contract (Oxford University Press 1986).
135. SI 2008/1277.
136. Reg 7(1).
137. Reg 7(3)(b).
138. Reg 7(1).
139. Reg 7(2)(a).
140. Reg 7(2)(b).
141. Reg 7(2)(e).
142. Reg 7(2)(c).
143. BW Art 3:54 lid 2.
