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Duress and Undue Influence - Coggle Diagram
Duress and Undue Influence
• Undue Influence (UI): this is where cts look to protect an innocent party where the other party exercises a position of power over them. There are 2 types of UI (Barclays Bank v O’Brien): (i) actual or (ii) presumed. Presumed UI is further categorised as: (i) protected relationships (2a); or (ii) other cases (2b) where the influence is presumed but it is not automatic to do so.
• Actual UI: evidence that UI was in fact exerted: O’Flanagan v Ray-Ger Limited: no need for an existing relationship between the parties; the evidential burden they are subject to prove is that the innocent party’s free will to enter into a contract was overcome: Huyston SA V Peter Cremer.
• Presumed UI: special relationship where UI is presumed, and it is possible to rebut the presumption.
o 2a- protected relationships: defined relationships which give rise to a presumption of trust and confidence e.g. parent and child. Claimant does not have to prove the relationship, just that the transaction required explanation: Barclays Bank v Coleman. Other confidential relationships include: Lawless v Mansfield (solicitor/client); Mulhallen v Marum (guardian/ward); Allcard v Skinner (religious order/devotee); and McMackin v Hibernian Bank (parent/child).
o 2b- other relationships: any kind of relationship due to trust and confidence of the parties. McGonigle v Black (an uncle/nephew relationship). Must prove the transaction was entered into in favour of the other party was once that required explanation. See also: Armstrong v Armstrong (siblings); Tolhurst v Smith (members of pop group); Gregg v Kidd (siblings); Lloyd’s Bank v Bundy (bank/customer- based on their previous dealings and ct will assess whether the transaction was in the best interests of the customer); Credit Lyonnais Bank Nederland v Burch (employer/employee). Husband and wife are in this category: IBRC v Quinn. Not falling into first category above, but variety of case-law on point (new developments now with Irish cts following RBS v Etridge more recently). Barclays Bank v O’ Brien: leading UK authority and set out steps to be taken, there is a higher test here ‘manifest disadvantage test’. Bank of Ireland v Smyth: leading Irish case adopts O’Brien); RBS v Etridge modified law in UK; bank on notice any time wife guarantees husband’s debts. In Ireland, Ulster Bank v Fitzgerald and Ulster Bank v Roche (seemed to adopt Etridge but did not set out steps to be taken). It is possible to rebut presumption if you show that independent legal advice was taken by the innocent party: McMackin v Hibernian Bank. Again, the remedy is that the contract is voidable at the behest of the innocent party and the remedy of rescission may be applied to the contract.
Turkey v Awadh:
(i) do the facts give rise to the existence of a protected relationship or a relationship where it could be proved that one party exerted influence on the other;
(ii) if so, could the transaction be show to be one that could not be explained by ordinary motives and suggesting that some kind of UI resulted in the transaction;
(iii) can d rebut this presumption by establishing that there was no abuse of trust between the parties.
• UI and third parties: third party must be put on enquiry and once put on inquiry; the third party must take all reasonable steps to rebut the presumption. It is confirmed that UI by a third party on p may give rise to a claim of UI which can result in the contract becoming voidable. Barclays confirmed this rule making reference to the ‘doctrine of notice’. To be put on inquiry means they are aware that the contract is unusual and should make enquiries into the nature of the contract. There should be independent legal advice. Reasonable steps- explaining legal docs and getting independent legal advice: RBS v Etridge
In constructive notice, cts consider:
(i) whether the contracting party was put on inquiry;
(ii) if they were on inquiry, did they avoid notice of UI.
• Duress: where one party is coerced into a contract they do not want to enter into or which has unfavourable arrangements. A party can also be coerced by violence i.e. the nature of the threat must be sufficient to amount to duress; and the effect of the threat must have been that the claimant was forced into the contract. The remedy is that the contract is voidable and can be rescinded.
Barton v Armstrong: threats of violence where the threat is illegal, and a distinction is made when ascertaining the effect of the threat
whether there is a threat which results in a claimant voluntary entering the contract or whether they involuntarily entered the contract: Northern Ireland v Lynch;
Lessee of Blackwood v Gregg (abduction);
threat to invoke legal process (Griffith v Griffith);
ACC Bank v Dillon (consent must be wrongfully obtained).
• Economic duress: established in Pao on Lau: (i) coercion of the will that vitiates consent; and (ii) pressure or threat must be illegitimate. P must protest, it must also be considered if there an alternative course of action, and did p take steps to avoid the contract. There must also be a causal link between the threat and entering the contract e.g. the victim had no practical choice but to enter the contract.
In law, there is a difference between legitimate commercial bargaining and undue economic pressure: D&C Builders v Rees.
To be actionable, it has to illegitimate.
A legitimate threat could be rendered illegitimate if accompanied by a wrongful demand i.e. demanding to take industrial action against a shipping company (legitimate) unless a sum was paid (wrongful): Universe Sentinel.
A threat to break a contract would be regarded as illegitimate: Kolmar Group.
The test was applied in R v AG for England and Wales as:
(i) nature of the pressure;
(ii) nature of the demand.
DSND Subsea: must be and
(i) pressure;
(ii) the practical effect of which is compulsion i.e. lack of choice;
(iii) illegitimate pressure;
(iv) the pressure is a significant cause in inducing the claimant to enter the contract.
• Unconscionable bargain:
The elements to be established are:
(i) Bargaining impairment (Grealish v Murphy);
(ii) Exploitation (Rae v Joyce);
(iii) Manifestly Improvident (Rooney v Conway);
(iv) Lack of Adequate Advice (Grealish v Murphy).
bargaining impairment between the parties, other party exploited the advantage, transaction is manifestly improvident to the other party and the weaker party was not in receipt of adequate advice: Boustaney v Piggot. Here, there are no threats; no UI but there is an unfair advantage.