#7418 - Duress And Undue Influence - Contract Law

Week 12- Duress and undue influence and unconscionable dealing and statutory unconscionable conduct, unjust and unfair terms third party impropriety.

Duress:

• Three main categories: duress to the person, duress to goods and economic duress.

• Duress is when one party pressures the other to induce them to enter into a contract or to modify an existing contract.

• Not every kind of pressure will render the contract voidable. Duress must distinguish between negotiating strategies that result in a valid contract and illegitimate pressure that will allow a contract to be set aside.

• No issue of impaired consent (compulsion of the will) arises unless there is illegitimate pressure.

• Courts distinguish between lawful and unlawful pressure.

• The second element is impaired consent. That is the plaintiff’s actions are non-voluntary. They are incapable of acting as a free party. The contract is voidable because they consent to the contract terms because there is no other practical choice open.

  • The main question is one of causation. The illegitimate pressure must be a factor influencing their decision to enter the contract. Did the plaintiff protest? Did they seek independent advice? Were there alternative causes of action?

• Duress of the person:

  • The burden of proof is favourable to the plaintiff.

  • If the threat was to prosecute it can be illegitimate pressure.

• Duress of goods:

  • Duress can apply where promises are made to retrieve detained goods. It also relates to threatened damage to goods, seizure and detention of goods.

• Economic duress:

  • The defendant threatens to breach a contract unless the plaintiff enters into a new contract on terms which are more favourable to them. This issue is whether the modification has any consideration or whether it is a valid response to changed circumstances.

• Refusal to contract may be duress.

• The main remedy for duress is to have the contract set aside (rescinded) or for substantial restoration of parties to their original positions or the plaintiff could have affirmed the contract or restitution to retrieve money paid under duress (they must first rescind the contract to do this) or use the TPA.

Undue influence:

• Concerned with the exploitation of a relationship of influence. They prevent the plaintiff from making an independent judgement in entering the contract.

• May be actual undue influence (where the plaintiff affirmatively proves that the defendant exerted influence on the plaintiff to enter into the transaction) or presumed (deemed relationships of influence- as a matter of law there is a relationship, and relationships of influence of fact- you presume influence because of the trust they had in them).

• In Australia there is no manifest disadvantage in undue influence cases.

• In cases of actual undue influence the plaintiff needs to prove that they exerted undue influence so that they would enter the contract. The transaction must be the outcome of such influence so that it is not considered the plaintiff’s free act.

• Duress is illegitimate pressure in the form of threats. In undue influence the concern is the stronger party’s exploitation of their position of influence- it is more subtle.

• Actual undue influence may be hard to prove. However if they can prove a relationship of influence existed between the parties prior to a contract, there is a presumption in equity that the plaintiff was unduly influenced by the defendant. There is not evidential burden and the defendant has the burden to disprove undue influence by showing that they freely consented.

• Presumed relationships of influence include parent and child, religious adviser and disciple, solicitor and client, doctor and patient. An accountant and client and not all fiduciary relationships fit into this (not husband and wife).

• If they don’t fall into the presumed relationships they can prove that the relationship is a relationship of fact. They need to show through evidence that the plaintiff placed confidence and trust in the defendant for guidance. Then the presumption that there was undue influence will arise.

• There can be rebuttal which requires the defendant to show that the plaintiff exercised free and informed judgment. They look on whether there was adequate time and a well informed adviser.

• The relief available to plaintiffs is rescission (specific performance is denied to the defendant), substantial restoration. There cannot be delay or affirmation.

Unconscionable dealing:

• Looks to the conduct of the defendant in attempting to enforce or retain the benefit of a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.

• It is exploitation of a person’s special disadvantage.

• There must be an absence of any reasonable degree of equality, the disability must be sufficiently evident to make it prima facie unfair and when such circumstances are shown to exist the onus is on the defendant to show that the transaction was fair, just and reasonable.

• In most cases there is inadequate consideration.

• Special disability includes poverty, sickness, age, infirmity of body or mind, drunkenness, illiteracy, lack of assistance or explanation, mental disorder, emotional dependence, inequality of bargaining power (disparity in information, expertise and resources- Maybe used).

• The disability must be sufficiently evident to the defendant to make it prima facie unfair or unconscientious that he accepts the plaintiff’s assent to the transaction. It is a knowledge requirement. Wilful ignorance is also sufficient (i.e. shutting your eyes to the disability).

• Once it is shown that they have a special disability, the onus of proof is on the defendant to prove that the transaction is fair. They can show that they referred the victim to an independent adviser.

• The relief is the same as duress and undue influence.

• Undue influence is concerned with impaired consent induced by wrongful conduct. Unconscionable dealing is when the victim’s consent is already impaired.

Unjust contracts: way to group together stuff. The contract can be set aside by judge made law. It only ever let them set aside a contract for procedural unfairness.

• It would be unjust for a person to enforce a contract when their behaviour induced the other party to enter the contract due to a misrepresentation, mistakes which both parties shared, A’s duress or undue influence or by taking advantage of B’s inability to protect his own interests. There is procedural unfairness (unfairness in the methods of the party in getting entry into the contract) and substantive unfairness (unfairness in the contract provisions).

• Duress, coercion or compulsion: They have been pressured to make a contract by unlawful threats to person (In Barton v Armstrong there was a threat to kill the plaintiff unless a deed was signed) or property or economic interests (economic duress will allow them to set aside the contract- unless it was voluntary compromise rather than illegitimate pressure. The pressure must be illegitimate).

• The relief for duress or coercion is the remedy of specific performance or to rescind the contract. Rescission will not occur if it prejudices innocent third parties, substantial restitution is taken into account, if they have displayed conduct of affirming the contract or have had undue delay in seeking to set aside the contract.

• There can be undue influence even without obvious pressure to enter a transaction. They may have entered the contract willingly. There has to be a stronger person who gets another weak person’s consent and is disadvantageous to them. They need to prove on the balance of probabilities that a stronger person dominated their will on them.

• They will presume undue influence if they can show that prior to the transaction there was a relationship of influence with a stronger person and it is clear that the stronger person derived some substantial benefit from the transaction.

• You can show that they were in a relationship of influence by either showing that the parties had earlier been in a traditional special relationship of influence (e.g. parent/child, guardian/ward, physician/patient, solicitor/client, spiritual adviser/religious devotee) or to show that they were in a relationship that gave the stronger person the power to dominate the plaintiff’s will.

• A transaction may be set aside because a stronger person has unconscionably taken advantage of another’s special inability to protect themselves. They have to show there was not a reasonable degree of equality between them and the special disability was sufficiently evident to the stronger party. Same relief as undue duress, coercion...etc.

• Sometimes a contract can be set aside due to improper conduct by a third party which one party had a good reason to suspect. C will derive some clear benefit from A and B’s transaction even though C was not a party. E.g. C’s duress forces A into a contract with B. B’s conscience will be bound by C’s improper conduct. B must know or have reason to know of the fact amounting to C’s improper conduct or C was B’s agent. A could set aside the contract in equity.

• The TPA is limited to unconscionable conduct by corporations but the fair trading acts of the states allow provisions similar to s. 51AB in regard to individuals. In NSW it is the Contracts Review Act 1980.

Unconscionable conduct, unjust contracts and unfair contracts under statute:

• The Contracts Review Act 1980 (NSW) was a precursor to unconscionable conduct under the TPA.

• Part IVA of the TPA 1974 (Cth) deals with...