Unequal Bargaining Power / Improper Pressure Flashcards
(19 cards)
What is duress?
Where the contract has been entered into by unlawful or illegitimate forms of pressure or intimidation, it will be voidable
* Barton v Armstrong: Duress to the person made out, threat need not be the primary but for cause but must be a cause
What did the court say was needed for duress to be made out in the case of Pao On v Lau Yiu?
‘A coercion of will which vitiates consent, mere commercial pressure is not enough’
What does the Supreme Court tell us about when duress will be made out?
Times Travel v Pakistan International Airlines
Supreme Court said the doctrine of lawful act duress was in its infancy. The test for lawful act duress is:
1. Illegitimate threat or pressure by the defendant
2. Which caused the claimant to enter into the contract
3. (IN CASES OF ECONOMIC DURESS) claimant must have no reasonable alternative to giving into the threat
Threshld of illegtimacy will hardly be met in commercial dealings. Demand motivated by commercial self interest is generally justified, must deliberately create or increase C’s vulnerability to their demand, and acting in bad faith, knowing they are acting illegitimately. Threats to end relations and enter new ones are valid.
What should be looked at in deciding whether there was a coercion of will?
Pao On v Lau Yiu
* Whether they protested
* Whether an alternative course was available
* If independent advise was sought
* If after entering the contract the party tried to avoid it
What is economic duress?
Where there is threat of such serious financial consequence as to give the party no practical choice but to enter the contract (Pao On v Lau Yiu Long)
* Atlas Express v Kafco: This must be more than commercial pressure which is not sufficient to vitiate consent
What are the two opposing tests for economic duress and which cases do these come from?
- Was the pressure exerted legitimate or not? (The Universe Sentinel)
- Was there commercial pressure that vitiated consent? (Pao On v Lau Yiu)
In what ways will pressure be judged to be illegitimate?
- A threat to breach the contract will usually amount to illegitimate pressure (The Universe Sentinel)
Pakistan International Airlines v Times Travel
* Supreme Court has recognised that lawful act duress does exist in English law
* Question of whether pressure is illegitimate should focus on the nature of the demand rather than the threat
* A demand motivated by commercial interest is in itself justified
* Cases can either be threat to expose C’s (or close relatives) criminal activity, or manoeuvre them into a position of vulnerability
What will the remedies for duress be?
The Universe Sentinel: In cases of economic duress the remedy is not action for damages but an action for restitution of money or property exacted under duress
What is undue influence?
Provides a remedy where contracts have been entered into as the result of improper pressure on one party by the other, usually due to a relationship between the two that is exploited
(This may also include misrepresentation)
What are the two types of undue influence and what case showed this?
Barclays Bank v O’Brien:
1. Actual Undue Influence: C does not have to prove their is an existence of any special relationship, they must prove that their free will to enter a contract was overcome.
2. Presumed undue influence: C only needs to show a relationship of trust and confidence between the two parties and it is presumed that the wrongdoer abused this relationship
* 2(A): Certain realtions, such as solicitor and client, doctor and patient, but not spouses, raise the presumption as a matter of law
* 2(B): Where the relationship does not fall into the above, C must prove the de facto existence of a relationship of trust and confidence (no true presumption, just a shift in evidential onus)
What are the rules on third parties to a transaction of undue influence?
Barclays Bank v O’Brien:
C can set aside a transaction procured by D through undue influence (and misrepresentation) against a creditor bank where D is acting as an agent for the bank, or the creditor has actual or constructive knowledge of wrongdoing. Constructive knowledge arises if:
1. He is put on inquiry (the transaction is not on the face to benefit C and there is a non-commercial relation between C and the other person)
2. He fails to take reasonable steps to satisfy himself that the wife’s agreement to stand as surety has been obtained (can advise to take independent advice, warn of the risk they are running, extent of liability)
CIBC Mortgages v Pitt:
Third party creditor will not be put on inquiry when the transaction is to the joint benefit of the party that was induced and the person who exercised it
NOTE: This applies to cases of spouses, or people cohabiting who act as surety, such as elderly parents for their children
How does the rule on third party transactions differ when it is excessively onerous?
Credit Lyonnais v Burch
Where the transaction was so manifestly disadvantageous to D, the bank could not be said to have taken reasonable stps to avoid being fixed with constructive notice, necessary they actually recieve the advice and know the full extent of the issue / debt. Must take further steps than O’Brien
What did the House of Lords tell us about undue influence?
Royal Bank of Scotland v Etridge
ACTUAL UNDUE INFLUENCE: Burden of proof is on the party claiming to have been wronged. The amount of evidence required depends on the circumstances, including the parties, their relationship and the nature of the transaction
PRESUMED UNDUE INFLUENCE: Must show that C placed trust and confidence in the other party in relation to management of financial affairs and a transaction that calls for explanation
* Law presumes trust and confidence where one party has influence over another who is vulnerable and substantial gifts are not normally expected (e.g. parent and child, but not husband and wife)
* For third parties, bank is put on inquiry in every case where the relationship is non-commercial, no need for them to be aware of the state of relationship and degree of trust to be put on inquiry
* Bank must take reasonable steps to satisfy itself that C had brought to her the practical implications of the proposed transaction
How does the position differ if the party has an interest in the company?
RBS v Etridge
Where the loan is for a business it may not be manifestly disadvantegous where it may ultimately be for their benefit and income
In the case of a family business the lender will be put on notice where the security given is out all of proportion to the interest in that company
When will a transaction call for an explanation?
Allcard v Skinner: Where it is not a small gift but so large as to not be reasonably accounted for on the grounds that ordinary men act
What has the Privy Council noted on the most recent case of undue influence?
Nature Resorts v First Citizens Bank
* An ordinary commercial transaction such as a mortgage should rarely be regarded as one that is not readily explicable beacuse it turns out to be disadvantageous
* Those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of security
What is the effect if undue influence is made out?
The contract will be rescinded and treated as if it never existed (each party returned to thier original position, money paid back)
* Cheese v Thomas: The courts objective in orderign restitution the court’s objective is to restore the parties to their original positions, cancelling a transaction which the law will not permit to stand. Courts should look at all the circumstances whilst keeping the basic objective in mind
How will an unconscionable bargain (taking advantage of a weakness) be made out?
Cresswell v Porter:
1. The claimant is of lower income and not highly educated
2. The sum parted with was not inconsiderable
3. There was no independent advice given, especially with regards to complex matters
Alec Lobb v Total Oil
Court will only intervene where there was unconscionable conduct and exercise of coercive power by the stronger party
Boustany v Piggott
It must be proved otherwise be unconscionable in the sense that one of the parties has imposed the objectionable terms in a morally reprehensible manner, in a way which affects his conscience, therefore may be made out even where legal advice is sought if continous pressure is placed on C
What is meant by an inequality of bargaining power?
- Suggested as a principle in Lloyds Bank v Bundy, idea would give relief to parties who enter into contracts with unfair terms due to grievously impaired bargaining power
- Rejected in National Westminster Bank v Morgan where it was argued that one party will always have more power over the other without acting unconscionably
