Vitiating elements - Duress and undue influence

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Overview

Contract law relies on genuine and voluntary consent. When this is compromised, the validity of contracts is questioned. Duress and undue influence challenge the enforceability of agreements and can have significant consequences. A thorough understanding of these concepts is vital for SQE1 FLK1 exam candidates.

Duress: Coercion in Contract Formation

Duress involves forcing someone into a contract through unlawful pressure. This makes the contract voidable as it violates the principle of voluntary consent.

Elements of Duress

To prove duress, three essential points must be demonstrated:

  1. Coercion: The victim must be compelled due to applied pressure.
  2. Illegitimacy: The threat must be improper and unlawful.
  3. Causation: The pressure must significantly impact the decision to enter the contract.

Types of Duress

Physical Duress

This involves threats of harm or actual violence. Though less common now, it remains a clear example of forced agreement.

Example: A signs a contract under threat to their family. This is physical duress, rendering the contract voidable at A's option.

Economic Duress

Economic duress is prevalent when one party uses their financial power to coerce another into unfavorable terms.

The Pao On v Lau Yiu Long case established principles for identifying economic duress:

  1. Was there protest at the time?
  2. Was an alternative action, like a legal remedy, available?
  3. Was there independent advice?
  4. Were steps taken to avoid the contract afterward?

Example: "RetailCo" relies on "SupplierCorp" for a key product. SupplierCorp demands higher prices, threatening RetailCo's stability. This situation represents economic duress.

Legal Test for Duress

The test for duress was refined in DSND Subsea Ltd v Petroleum Geo Services ASA:

  1. Pressure: Was pressure applied?
  2. Illegitimacy: Was it improper?

Courts assess factors like threat nature, demand lawfulness, victim vulnerability, and alternative options.

Remedies for Duress

When formed under duress, contracts can be rescinded, restoring both parties to pre-contract positions. Limitations include:

  1. Affirmation: If the victim confirms the contract free from duress, they may lose rescission rights.
  2. Time Constraint: Rescission must be sought soon after duress ends.
  3. Third-Party Rights: Rescission may be blocked if third-party rights are involved.

Undue Influence: Abuse of Trust

Undue influence arises when one party abuses a position of trust, exploiting the other party’s decision-making.

Categories of Undue Influence

  1. Actual Undue Influence: Direct pressure to enter a contract.
  2. Presumed Undue Influence: Based on the nature of the relationship.

Actual Undue Influence

To claim actual undue influence, the following must be shown:

  1. Influence capacity
  2. Influence exercised
  3. Exercise was undue
  4. Transaction resulted

Example: A solicitor manipulates a client to transfer assets without proper advice, constituting undue influence.

Presumed Undue Influence

Certain relationships, like parent-child or solicitor-client, presume undue influence, placing the burden on the influencer to prove otherwise.

Example: "Ms. Generous" transfers property to "Mr. Needy" under suspect conditions, indicating possible undue influence.

Legal Test for Undue Influence

Established in Royal Bank of Scotland v Etridge:

  1. Trust Relationship: Existence of trust between parties.
  2. Transaction Explanation: The transaction requires justification.

If both are met, it's up to the defendant to disprove undue influence.

Remedies for Undue Influence

Rescission is the main remedy, with similar limitations:

  1. Restitutio in Integrum: Parties should be restorable to original status.
  2. Affirmation: Rights may be lost if affirmed knowingly.
  3. Time Limit: Must be acted upon swiftly after influence ceases.

Distinctions Between Duress and Undue Influence

Though both make contracts voidable, they differ:

FeatureDuressUndue Influence
NatureCoercive pressureExploiting trust
MotivationThreats or harmOverpowering other's will
RelationshipNot requiredPre-existing trust is key
ExamplesThreats of violenceUnfair manipulation of a dependent
Burden of ProofClaimant retainsBurden can shift to the defendant

Application: Analyzing Duress and Undue Influence

Hypothetical Scenario

Mrs. Smith, reliant on her nephew John, is persuaded to sign her house over to him for "safekeeping" without advice due to trust.

Analysis:

  • Likely presumed undue influence due to family ties.
  • Transaction is significant, needing explanation.
  • John must prove Mrs. Smith's independent decision.
  • Undue influence could allow Mrs. Smith to rescind if she acts promptly.

Conclusion

Duress and undue influence protect against non-consensual agreements. Key points for SQE1 FLK1 candidates include:

  1. Distinction between duress types and legal tests.
  2. Categories and proof burdens of undue influence.
  3. Remedies and their limitations.
  4. Importance of context in identifying these factors.

A comprehensive understanding of these concepts is essential for analyzing contractual issues and staying informed on legal developments.