CONTRACT LAW

LARGE GROUP 9
Student Guide

Duress and Undue Influence

Context

The essence of agreement, upon which contract law is based, is that the parties
freely consent to the agreed terms. So it follows that a party who has been forced
into a contract or variation of a contract by threats or undue pressure should not
necessarily be bound by it. Where there has been duress or undue influence exerted
upon an innocent party it is right to think that a contract should be capable of being
set aside.

Cases which involve threats of actual physical violence are quite rare. In the modern
commercial world, threats to a party’s economic or business interests are far more
common. Both of these can amount to duress.

The principle of undue influence is similar to duress in contract law, but there are
some important differences. Undue influence consists not of threats or violence but of
influence which goes beyond what is regarded as acceptable. The effects of both and
the remedy available for each, are the same. However, it can be difficult to decide
where legitimate commercial pressure ends and economic duress begins; similarly, it
can be difficult to say at what point acceptable influence becomes ‘undue’ influence.
The approach adopted by the law for both principles is to identify relationships which
are unequal and then to consider whether the transaction resulted from the dominant
party abusing that relationship.

Outcomes

By the end of this Large Group you should be able to:

1. Explain the law relating to duress.

2. Identify the connection between consideration and duress.
3. Explain the law relating to undue influence.
4. Advise on the impact of undue influence upon creditors and lending institutions.

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1. Introduction

1.1 What Constitutes Duress in Contract Law?

Activity 1 Identifying possible duress

Duress may take the form of violence or illegitimate threats or pressure which
coerce a party into entering a contract or varying a contract. Let’s consider some
situations and decide whether any of them involves duress:

Situation Duress?
Y/N
a) Mischa threatens to set fire to your house unless you sell her your car
for £50. You go ahead with the sale.

b) Sam threatens to beat you up unless you sell him your state-of-the-
art sound system for £10. You agree.

c) Designe Ltd tells Namco that if it does not enter into a contract with
Designe Ltd, they will never deal with Namco again. Namco agrees as
Designe Ltd is an important customer for Namco’s business and it
doesn’t want the business going to a competitor company.

Duress =

1.2 Physical threats

Barton v Armstrong (1975)

 Plaintiff executed (signed) a contract following threats of violence and to take

his life.
 Many of the threats were made over the phone and in the early hours of the
morning.
 Plaintiff was also allegedly being kept under surveillance by men hired by the
defendant.
 Plaintiff claimed the deed should be avoided based on duress.

Decision:

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1.3 Economic duress

Illegitimate pressure

Atlas Express v Kafco (1989)

Atlas Express was threatening to break its contract, when it said it would not deliver
goods to Woolworths’ stores, unless it was paid more money than the amount stated
in the original contract.

Decision:

1.4 Duress: Ingredients

Carillion Construction Ltd v Felix (UK) Ltd (2001)

The ingredients of actionable duress are that there must be pressure:

(a) whose practical effect is that there is compulsion on, or a lack of

practical choice for, the victim,
(b) which is illegitimate, and
(c) which is a significant cause inducing the claimant to enter into the
contract.

1.5 Additional Guidelines

Activity 2 Relevant factors for economic duress

Watch the Practitioner: Opel v Mitras media clip. The clip contains an interview with
a barrister, Donald McCue, of 11 Stone Buildings (a barristers’ chambers), who was
Opel’s counsel in the case of Adam Opel GmbH v Mitras Automotive Ltd [2007]
EWHC 3205. Note that Mr McCue refers to Opel at a number of points as GMR for
reasons which he states in the interview.

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As you watch, answer the following questions:

1. How were the elements of duress established on the facts of the case?

Pressure:

Which is illegitimate:

Significant cause of inducement:

Causing compulsion/lack of practical choice:

2. What did Mr McCue consider to be the two most important factors to put
before the court, and what were his major concerns?

3. What advice does Mr McCue give to practitioners about advising clients

who may be subject to duress?

1.6 Link between economic duress and consideration

Stilk v Myrick (1809)

Atlas Express v Kafco (1989)

Williams v Roffey (1991)

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2. Effect of Duress

Duress makes an original, or renegotiated, contract voidable. It is a similar

outcome to that which follows a proven misrepresentation.

Example:

2.1 Bars to rescission

(a) Affirmation.
(b) Undue delay.
(c) An innocent purchaser has already acquired an interest in the property.
(d) Impossible to restore goods or property

North Ocean Shipping v Hyundai Construction Co.(The Atlantic Baron) (1979)

 Construction of a ship called ‘The Atlantic Baron’.

 Building started, but the shipbuilders demanded more money and threatened to
stop work unless the claimants agreed to pay.
 Claimants agreed to pay the extra money; no practical choice but to agree to the
demand.
 Ship was delivered on time and the shipbuilders were then paid.
 Eight months later the claimants asked for repayment of the extra money on the
grounds of duress.
Decision:

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3. UNDUE INFLUENCE

3.1 Definition

No precise definition: influence which goes beyond what is regarded as

acceptable; or
where one party is in a position to influence another and takes unfair
advantage of that position.

3.2 Actual Undue Influence

Daniel v Drew (2005)

 Elderly Mrs Drew intensely disliked confrontation and was afraid of her nephew
and the prospect of going to court.
 He told her to sign a contract resigning from a family trust which included a large
farm and land in Hampshire, under the threat of taking court action.
 Mrs Drew signed feeling unable to refuse.

Decision:

3.3 Presumed Undue Influence

Royal Bank of Scotland v Etridge (No 2) (2001)

a) Relationship of trust and confidence

O’Sullivan v Management Agency Ltd (1985)

b) The transaction must call for an explanation

c) Can the presumption be rebutted?

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3.4 Undue Influence and the Position of Third Parties

EXAMPLE
Husband Undue Wife
(Debtor) influence (Surety)
Bank Loan Husband
(Creditor) agreement
Bank Security (guarantee) Wife
agreement

CIBC Mortgages plc v Pitt (1993) – notice of reason for surety

 A wife was pressured by her husband into signing a mortgage of £150,000 to

fund his stocks and shares trading
 The loan was said to be for the purchase of a holiday home
 Initially, the husband became a millionaire on paper, though he never cashed
in his shares, instead buying more
 In 1987, with the stock market crash, the husband lost everything and the
bank sought to repossess the house
 Mrs Pitt claimed undue influence to try and stop the re-possession.

Decision:

Actual or Constructive Notice

Barclays Bank v O’Brien (1994)

Constructive Notice

Royal Bank of Scotland v Etridge (No 2) (2001)

 Put on inquiry

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  Failed to take reasonable steps to ensure the surety understands the
implications of the transaction

o Private meeting to explain

o Obtain written confirmation from a solicitor that the risks have been
explained

3.5 Cases not involving husbands and wives

Credit Lyonnais Bank Nederland NV v Burch (1997)

 Junior employee was asked to secure her employer company’s debts with her
own house and take responsibility for any further debt.
 The bank quickly tried to enforce the security by repossessing the employee’s
house.
 Employee claimed undue influence from her employer.

Decision:

3.6 Has the law struck the right balance?

4. Engage 9.

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