In the case of Universe Tankships Inc. of Monrovia v. International Transport Workers’ Federation, The Universe Sentinel [1983] 1 AC 366 it was admitted by Lord Diplock and Scarman that duress does not involve the destruction of the will but intentional submission to the inevitable. This does not conform to the reasoning given for duress in Pao On involving the terms ‘coercion of the will vitiating consent’. It might be more appropriate to replace the above with ‘no realistic choice’ keeping in line with the view of Lord Diplock and Lord Scarman. However, the statement of the necessary ingredients cited in the judgement of Dyson J in DSND Subsea Ltd v. Petroleum Geo Services ASA [2000] BLR 530, does make reference to compulsion and lack of practical choice.
The case of Atlas Express Ltd v. Kafco Ltd [1989] 1 All ER 641 demonstrates a situation where the defendant had no realistic choice other than to sign a revised contract for carriage of its goods because it could not, at such a short notice, have obtained an alternative means of transport for the goods; and without the ability to deliver, it would have lost the contract to supply its major customer.
In a claim under economic duress, there must be evidence of pressure or a threat. Any improper pressure must be ‘decisive or clinching’ (per Mance J in Huyton SA v. Peter Cremer GmbH & Co. [1999] 1 Lloyds Rep 620). It must be established that the victim would not otherwise have made such a contract, or would not otherwise have contracted on those terms. The pressure must also be shown to be illegitimate. The distinction between legitimate and illegitimate pressure is not a clear one. In DSND Subsea Ltd v. Petroleum Geo Services AS [2000] BLR 530, Dyson J stated that ‘illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining’.
In Universe Tankships Inc. of Monrovia v. International Transport Workers’ Federation, The Universe Sentinel [1983] 1 AC 366, the issue of the legitimacy of the pressure hinged upon the interpretation of the Trade Union and Labour Relations Act 1974. The case involved a ship that had docked at a port and had received threats to be ‘blacked’ by the trade union so that it would be unable to leave port. The ship owners could overcome this happening if they agreed to pay the trade union an additional charge. If the ship was unable to leave the harbour, the losses would have been considerable, so the ship owner paid and then claimed the return of this money. The trade union argued that their actions were justified as actions ‘in contemplation of a trade dispute’ under the 1974 Act. The majority of the House of Lords (Lord Scarman and Brandon dissenting) believed that the threats were illegitimate because the trade union was not protected by this legislation. A lawful threat could still constitute duress if used, as in this case, to further an illegitimate purpose such as blackmail.
In the case of CTN Cash and Carry Ltd v. Gallagher Ltd [1994] 4 All ER 714, the plaintiffs purchased consignments of cigarettes from the defendants under individual contracts on the defendant’s standard terms. The defendants had also arranged credit facilities for the plaintiffs which they could withdraw for any reason at any time. One consignment had been incorrectly delivered to the wrong warehouse, but before the defendants could deliver it to the correct warehouse it had been stolen from the plaintiff’s premises. The defendants genuinely believed that the goods were at the plaintiffs’ risk at the time of the theft and accordingly invoiced them for the goods. The plaintiffs refused to pay and only did so after the defendants threatened to withdraw their credit facilities. They then claimed the return of the money paid on the basis that it had been obtained as a result of economic duress and that the pressure was illegitimate because the defendants had demanded money to which they were not entitled. It was held that the defendants’ conduct did not constitute duress.
In favour of the defendants, Steyn LJ illuminated three key elements: ‘[1] The fact that the defendants were in a monopoly position cannot . . . by itself convert what is not otherwise duress into duress . . . [2] the defendants were in law entitled to refuse to enter into any future contracts with the plaintiffs for any reason or for no reason at all . . .[3] the defendants bona fide thought that the goods were at risk of the plaintiffs owed the defendants the sum in question.’
Here, the plaintiffs were at a manifest disadvantage and had to choose between the lesser of the two evils. Similarly in the case of Pau On, the plaintiffs in this case had to make a commercial decision based on whether they wanted to lose their future contract with the defendants or make a comparatively small payment for the lost cigarettes. The defendants were perfectly entitled to withdraw their future contract with the plaintiffs at any time, and the weaker party in this case did have an alternative option open to them (i.e. not pay for the stolen cigarettes and contract elsewhere). Hence, the plaintiffs made a conscious decision to pay for the cigarettes in order to secure their future contract with the defendants.
Despite the case of CTN Cash & Carry being decided as a case in which the contract survived and there was no duress, an area of uncertainty lies in the fact that the principles in Atlas Express Ltd v. Kafco Ltd are not very different from that of CTN Cash & Carry which was found by the courts to be a case constituting economic duress. In both cases, there was a threat of termination of a contract and an additional charge being required for the task to go ahead. However the pressure in Atlas Express v. Kafco was said to be illegitimate and no realistic alternative option was said to be open to them. This area of law appears somewhat uncertain and inconsistent.
In the case of North Ocean Shipping Co. v. Hyundi, “The Atlantic Baron” [1979] the defendants threatened to breach a contract for the construction of a tanker unless plaintiffs agreed to pay 10% on top of the contract price. Consideration for this agreement was provided in the form of the defendants agreeing to provide an additional letter of credit as security of performance. The plaintiffs agreed to make the extra payment because if the tanker had not been available they would have lost a very valuable charter. The plaintiffs attempted to recover the extra payment 8 months after the delivery of the tanker. It was held that the threat to breach the contract without any legal justification amounted to duress by means of economic pressure, and therefore the agreement was voidable. However, the failure to protest or reopen the issue for such long time amounted to constructive affirmation of the contract. Consequently the plaintiffs were no longer entitled to a remedy based on duress.
Undue influence involves pressure that is subtler than in duress, because of the trusting nature of the relationship between the parties, one party is perfectly willing to enter into the contract on the terms proposed. It can be defined as ‘Influence that prevents someone from exercising an independent judgement with respect to any transaction.’ (Oxford Dictionary of Law, New Edition). The courts will intervene where there is some relationship between the parties which has been exploited and abused to gain an unfair advantage.
In the case of Lloyds Bank Ltd v. Bundy [1975] QB 326 (CA), the defendant was an elderly farmer, and his son had been customers of the plaintiffs bank for many years. The son’s company account was also held at the same branch. Previously the defendant had given a guarantee and a charge for £7,500 over his farmhouse (his only asset) to secure this company’s overdraft. On that occasion he had been advised by a solicitor that this was the most that he could afford to put into his son’s business. In December 1969, the son and the assistant bank manager visited the defendant, and the assistant manager told the defendant that the bank could only allow the company’s overdraft to increase if the defendant gave a further charge on the farmhouse. The defendant signed that charge documentation. The evidence was that the assistant manager knew that the defendant relied on him as a bank manager in the transaction and that he knew that the house was the defendant’s only asset. Subsequently, the bank enforced the charge and sought possession of the house. It was held that the charge should be set aside for undue influence. The bank had a conflict of interest and the defendant had received no independent legal advice as to the wisdom of the transaction.
The case of Credit Lyonnais Bank v. Burch [1997] was slightly less straightforward and gives rise to criticism. Here, the defendant was an employee of a company and the company wanted to increase its bank overdraft. The defendant was a friend of the plaintiff, the main shareholder in the company. The plaintiff asked the defendant to provide security to the bank for increased overdraft although she had no financial interest in the company. The defendant was to give a second charge over her flat and unlimited all moneys guarantee. At no point was she informed by the bank or the plaintiff of the company’s indebtedness or the extent of the overdraft being granted. Although she was advised by the bank to seek independent legal advice, she did not, and claimed that she understood the situation she was undertaking. The defendant signed the relevant documents but the company later went into liquidation and the bank demanded the outstanding debt from the defendant. When she failed to pay, the bank sought possession of her flat.
The trial judge considered that the relationship between the plaintiff and the defendant was based on trust and confidence giving rise to the presumption of undue influence and believed that the charge should be set aside. The bank appealed by arguing that it had discharged its duty by urging the defendant to seek legal advice and could not be responsible if she failed to do so. It was held that the bank knew of the relationship of the employer and employee and should have been aware that there was a real possibility of undue influence. Nevertheless, the bank had not explained the potential extent of her liability to the defendant.
In such circumstances the bank needed to ensure that the defendant obtained independent legal advice. Therefore the bank had constructive notice of undue influence and the transaction should be set aside.
It can be argued that it was the liking of the friend that induced the defendant to enter into the contract and not undue influence itself. This case gave rise to a particularly harsh decision since the bank did its best to inform the defendant of the nature and liability of the transaction that she would be entering into, and advised her to seek independent legal advise. The bank was held liable for not ensuring that she sought independent advice and so the matter was slightly out of their control. In general the bank did a good job by setting out the transactional procedure to the defendant, despite her failure to fully co-operate and her claim that she understood the process.
Finally, the case of Royal Bank of Scotland v. Etridge (No 2) [2001] 4 All ER, considers whether undue influence can be raised in a relationship between a marital couple. There must be evidence of something extraordinary for undue influence to suffice. The transaction that the husband and wife entered into was both advantageous and disadvantageous to Mrs Harris. The judge held that there was no undue influence in this case since ‘Her agreement is consistent with a normal trusting relationship between a married couple’.
So, to conclude, it is my opinion that the quotation claiming that the current law of duress and undue influence is so unclear that it creates chaos rather than certainty in the law, is a bit far-fetched. Since economic duress is a relatively new area of law which is still evolving, it is not surprising that there may still be inconsistencies evident amongst decided cases. However, in general, I believe that a clear pattern of precedent is developing in such a diverse area of law. The underlying principle remains the same, despite whether the courts refer to duress as ‘coercion of the will’, ‘an involuntary decision’ or the party having ‘no alternative choice’. In undue influence, the courts are ultimately trying to protect the manifestly weaker parties and prevent them entering transactions without thorough knowledge and understanding of what they are doing. It therefore seems acceptable that to ensure that this happens, certain criteria, such as ensuring that a “weaker” party seeks independent legal advice, need to be established.
