The bank will not be able to enforce security if they knew that Ann and Derek were cohabitees and Ann was the surety, there has been undue influence, misrepresentation or some other legal wrong by Derek and the bank had constructive notice of the undue influence or misrepresentation and the wife’s right to set aside the transaction (objective test applies here). It is so, unless the bank took reasonable steps to ensure that she entered into the transaction freely and with the knowledge of the true facts (Barclays Bank v. O’ Brian [1994], Royal Bank of Scotland v. Etridge (No2)).
Reasonable steps would be warning the wife at a meeting not attended by the husband of the amount of potential liability and the risk involved, and advising her to take independent advice.
The Big Bank never organised a private meeting with Ann and although Big Bank sent a letter to Ann asking her to seek legal advice, the decision in Credit Lyonnais Bank Nederland NV v. Burch [1997] .
Even if there is no undue influence, certainly there will be misrepresentation by Derek and still he will be guilty as the same rules apply to misrepresentation.
As undue influence makes a contract voidable it seems likely that the contract could be set aside and Big Bank will be unable to enforce the transaction against Ann.
Question 1/b
Ildar will try to recover £ 1,000 extra money he paid Camilla arguing that he agreed to do that under economic duress.
Economic duress is different from legitimate commercial pressure because economic duress usually involves an improper (unlawful) threat and the innocent party has no alternative but to agree (The Sibeon and The Sibotre [1976], North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979]).
The basic rule is that performing an existing contractual obligation is insufficient consideration for a promise of more money (Stilk v. Myrick (1809)). As Ildar had a contract on 29 December with Camilla for the supply of plants it means that Camilla should have performed her contractual obligation.
Since Camilla is doing more than she had originally agreed to do (she is providing decorative pots), it seems that there will be consideration for Ildar’s promise of more money (Hartley v. Ponsonby(1857)).
But even though Camilla has given consideration for Ildar’s promise, Ildar may avoid paying if the promise was obtained by economic duress.
Camilla seems to have made an improper threat to break the contract and Ildar may have found it impossible to find someone else to supply the plants at such short notice (three days). And of course it would have been a big blow for Ildar to loose a customer such as the Earl of Blaxford (owner of a major stately home).
In order to establish duress the test in Pao On v. Lau Yiu Long [1980] must be satisfied. Ildar needs to show that he protested at the time of the alleged duress, had no alternative choice, took independent legal advice and that the length of time to avoid the contract he entered into was not too long.
It is clear that he protested when he was asked to pay more and in such a short notice the alternative choice seems pretty unlikely. Ildar doesn’t seem to have taken legal advice, which might be even justified given the short time during which the dispute occurred and there is nothing to suggest when Ildar wants to sue for his money, but the sooner he takes action the more likely he is to win.
If duress is established, it renders a contract voidable i.e. it is a valid contract until the innocent party avoids (rescinds) it.
Therefore Ildar would want to rescind the contract for the payment of the extra money and recover the extra £1,000. Rescission will be possible unless a bar to rescission applies e.g. affirmation or delay which does not seem to be the case here (it is unlikely to be long enough to bar rescission).
It looks as if the contract to pay the extra £1,000 is voidable for economic duress, thus Ilgar should be able to rescind the contract and recover the extra money.
ECONOMIC DURESS
In recent times, the courts have extended the concept of duress from its earlier limits so as to recognise that QB 705.
The Privy Council had an opportunity to consider economic duress, and agreed with the observations in The Sibeon and The Sibotre, in:
Pao On v Lau Yiu Long [1980] AC 614.
A further important development was the decision of the House of Lords, which modified the approach previously taken, in:
Universe Tankships v ITWF (The Universe Sentinel) [1982] 2 All ER 67.
A significant feature of this judgment is its departure from the previously stringent requirement of The Sibeon and Pao On that the victim's will and consent should have been 'overborne' by the pressure. This approach of Lord Scarman was cited and approved by the Court of Appeal in:
B&S Contractors v Victor Green Publications [1984] ICR 419.
The concept of economic duress was considered in two High Court cases:
Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] 1 All ER 641
Vantage Navigation Corp v Bahwan Building Materials (The Alev) [1989] 1 Lloyd's Rep 138.
It can be seen that from the cases since Pao On (1980) there has been a considerable relaxation of the criteria needed to prove economic duress. All that is now required is a suppression of the victim's will and voluntary consent.
The following case, considered by the House of Lords, is a useful reminder of the fact that the pressure applied must be improper in the legal sense:
Dimskal Shipping Co v ITWF (The Evia Luck) [1991] 4 All ER 871.
See also:
CTN Cash & Carry Ltd v Gallagher Ltd [1994] 4 All ER 714.
REMEDIES FOR DURESS
(A) The effect of duress is to make the contract voidable (not void). The injured party will, therefore, be entitled to have the contract set aside for operative duress, unless he has expressly or impliedly affirmed it. The victim of duress must seek rescission as soon as possible after the original pressure has ceased to operate (The Atlantic Baron (above)).
(B) As duress has been equated with the tort of intimidation (see the judgments of Lord Denning MR in D&C Builders v Rees (1966) and Lord Scarman in Universe Tankships (1982)), it would follow that a remedy for damages would lie in tort. See:
Morgan v Fry [1968] 2 QB 710 (for the definition of the tort of intimidation)
D&C Builders v Rees [1966] 2 QB 617
Universe Tankships v ITWF [1982] 2 All ER 67.
(For the measure of damages for the tort of intimidation, see Rookes v Barnard [1964] AC 1129.)
(C) There is, as yet, no authority on the question of whether or not an injured party who has affirmed the contract may nevertheless recover damages in tort. Chitty (para 501) has the view that damages should be recoverable, since otherwise a party who has lost the right to avoid the contract is left without a remedy for a clearly unlawful act
We are dealing with presumed undue influence.
A bank will be unable to enforce security if one cohabitee stands as surety for the debts of the other and the bank is aware of this, if there has been undue influence misrepresentation or some other legal wrong by the principal debtor and the bank will have constructive notice of the undue influence or misrepresentation and the cohabitee’s right to set aside the transaction, unless the bank took reasonable steps to ensure that she entered into the transaction freely and with knowledge of the true facts (Barclays Bank v. O’Brian [1994]).
In Barclays Bank v. O’Brian [1994] Lord Browne-Wilkinson referred to cohabitees therefore Ann would be classified as a cohabite as she has been living with Derek for three years.
Reasonable steps taken by the bank: 1)the bank warns the wife at a meeting not attended by the husband of the amount of her potential liability and the risk involved and 2) advises the wife to take independent advice. In this case these two steps are missing.
CLASS 2: PRESUMED UNDUE INFLUENCE
Such a confidential relationship can be established in two ways:
REBUTTING THE PRESUMPTION
The presumption of undue influence is rebutted if the party benefiting from the transaction shows that it was "the free exercise of independent will", even if no external advice was given or even though it was not taken (Inche Noriah v Shaik Allie bin Omar [1928] All ER 189). However, the most usual way of rebutting the presumption is to show that the other party had independent advice before entering into the transaction. Case examples include:
Re Craig [1970] 2 All ER 390
Re Brocklehurst [1978] 1 All ER 767.
Where a bank seeks to enforce its security against a wife who claims to have been induced by her husband's undue influence or misrepresentation to charge the matrimonial home by way of security, the principles which apply in determining whether the bank is able to rely on the fact that the wife received legal advice before entering into the charge to rebut the presumption of undue influence and imputed or constructive notice thereof and whether the bank ought to have been put on inquiry to ascertain whether the wife was subject to her husband's undue influence, were given by the Court of Appeal in:
Royal Bank of Scotland v Etridge (No 2) [1998]
REMEDIES
The remedy in cases of undue influence is rescission. Damages are not available, but see below.
RESCISSION
Where rescission is ordered, the whole transaction will be set aside. See:
TSB Bank v Camfield [1995] 1 All ER 951
Dunbar Bank v Nadeem [1998] 3 All ER 876.
Bars to rescission:
(i) IMPOSSIBILITY OF RESTITUTION
However, the fact that restitutio in integrum is impossible will not be a bar to rescission:
O'Sullivan v Management Agency & Music Ltd [1985] 3 All ER 351
Cheese v Thomas [1994] 1 All ER 35
Mahoney v Purnell [1996] 3 All ER 61.
(ii) DELAY
Delay defeats equity. For example, see:
Allcard v Skinner (1887) 36 Ch D 145.
SEVERANCE
It may be possible for the court to sever from an instrument affected by undue influence the objectionable parts leaving the part uncontaminated by undue influence enforceable. See:
Barclays Bank v Caplan and Another (1997) The Times, December 12.
DAMAGES
Damages are not available for undue influence, but if a bank has broken a duty of care to a wife-surety damages may be available in negligence under Hedley Byrne v Heller (1964).
See also, Royal Bank of Scotland v Etridge (No 2) [1998] 4 All ER 705, note 8 at p706: solicitor owes a duty of care to the wife
UNDUE INFLUENCE AND THIRD PARTIES
Undue influence is now regularly invoked by wife-sureties where their relationship with the bank-creditor is manipulated when the debtor-husband acts as intermediary. For example, a husband persuading his wife to guarantee his company's overdraft with a bank, using the matrimonial home, of which she is joint owner, as security for the debt. In such situations the creditor may be 'tainted' by the undue influence of the intermediary. If a bank entrusts certain duties to a debtor-husband who, as intermediary, is capable of exerting some influence over his wife, the position is as follows:
1. If the transaction is one which is (a) on its face not to the financial advantage of the party seeking to set it aside, and (b) if there is a substantial risk of its having been obtained by undue influence, then the third party will have constructive notice of undue influence giving the right to set aside the transaction. The creditor must take reasonable steps to ensure that the wife's consent was properly obtained. See:
Barclays Bank v O'Brien [1993] 4 All ER 417.
![Undue influence in the case of Barclays Bank v. O''Brian [1994] Lord Browne-Wilkinson was referring to cohabitees.](https://mbt-essays-prod-public.s3.eu-west-1.amazonaws.com/122943/listing/122943_1.jpg)
