What is duress and undue influence in contract law?

Duress and undue influence

Duress and undue influence essentially means that a person or party has been forced into a contract. The contract cannot be considered to be a valid agreement under these circumstances. Under common law, there are two doctrines to consider: duress and undue influence.

Duress

This is where someone enters into a contract as a result of undue pressure. Duress can take many different forms.

Threats of violence

In Barton v Armstrong (1976) the plaintiff threatened to kill the defendant if he did not sell his interest in the company they were both major shareholders in. The trial judge ruled that duress could not be pleaded since it was not established that the agreement would not have been entered into without the threats being made. The Privy Council, however, later ruled that a plea of duress should stand even if the death threat was not the only reason for entering into a contract.

Threats of unlawful restraint

In Cummings v Ince (1847), an elderly lady was told to sign over all her property or face not ever having a committal order to a mental asylum lifted. The contract was found to be void.

Threats to property

In Skeate v Beale (1840), the court decided that since the threat had been directed towards property, this did not constitute duress. However, in The Siboen and the Sibotre (1976), the court decided that serious threats that constituted burning a house or damaging expensive paintings should be considered as duress. Therefore, duress also covered property in the most serious circumstances.

Economic duress

In Atlas Express v Kafco (1989), the court decided that because there was a threat made to a small business for them to breach the rules of a contract it had entered into, this would be considered economic duress. In Universe Tankships of Monravia v ITWF (1982), the threat made by the union in the matter of a ship, because workers demanded a change in circumstances, was found to be economic duress.

In Pao On v Lau Yiu Long (1980), the Privy Council identified four matters to consider in determining whether economic duress was present:

  • Did the person claiming to be coerced protest?
  • Did the person have another viable course of action?
  • Were they independently advised?
  • After entering into the contract, did they take steps to avoid it?

Undue influence

Undue influence was introduced to deal with cases where a contract was entered into as a result of pressure, but this pressure did not amount to duress.

Undue influence can arise where there is a relationship between the parties which has been exploited by one party to gain an unfair advantage.

In Bank of Credit & Commerce International v Aboody (1990), the Court of Appeal set out three different classes of undue influence:

  • Class 1 – actual undue influence
  • Class 2a – presumed undue influence
  • Class 2b – presumed undue influence

Class 1 – actual undue influence

Actual undue influence requires proof that the contract was entered into as a result of the undue influence. It could include acts such as threatening to end a relationship or persistent pestering of a party where they have refused consent until they eventually submit.

Class 2a – presumed undue influence

In this class, there is no need to prove that improper influence was actually exerted. It must, however, be shown that that there was a relationship which in law gives rise to a presumption of undue influence (eg, parent/child; doctor/patient; solicitor/client) and the transaction cannot easily be explained by the relationship of the parties.

Class 2b – presumed undue influence

If a relationship exists which does not give rise to an automatic presumption under Class 2a, but in which it can be shown that someone placed their trust and confidence in another, a presumption of undue influence can still be found ((eg, employee/employer; cohabitees).

Rebutting presumed undue influence

The person accused of exerting undue influence can rebut the presumption by showing that the other party entered into the transaction of their own free will and were aware of the risks involved. Showing that they received independent legal advice before signing the contract might suffice.