#6; ECONOMIC DURESS, UNDUE INFLUENCE

AND RESTRAINT OF TRADE

1.

ECONOMIC DURESS

http://a-level-law.com/contract/vitiating_factors/duress_cases.htm
Read: Barton v Armstrong, The Sibeon and The Sibotre, The Atlantic
Baron and Pao On v. Lau Yiu Long
-

When free volition is compromised and the representee enters a

contract against his free will/ not voluntarily but by the exercise
of force or the threat of force.
Exerting pressure to persuade or induce a party to enter into a
contract.
The pressure exerted is such as to go beyond what the law
considers acceptable or legitimate = contract would be
voidable.
The burden of proof is on he party who is complaining; they have
to show that because of the threat that the opposition is posing
i.e. physical harm/ economic harm would be suffered: has to
show that he had no other choice. Must prove that the
consequences of not accepting the contract are so bad that no
reasonable person would choose the other route.

I.e. pay me what you owe me is a legal right but pay me more than
what you owe me, in contrast, is economic duress.
Duress to the person
Barton v Armstrong [1976]
- Threat to not fulfill contract and felt that this amounted to economic
duress = an implied threat to commit an illegal act in which the other
party had no commercial choice i.e. in this case the victim had no
choice but to accept the 10% demand as they could not get a new ship
built.
Duress to property
The Sibeon and The Sibotre [1976]
Economic duress

The rationale for allowing a contract to be vitiated (destroy or impair

the legal validity of) or avoided on this ground justified by 2 rival
theories: (a) the overborne will theory which focuses on whether
the victim is under such extreme pressure that he cannot be said to
be exercising his own free will; and (b) the illegitimate pressure
theory which focuses on the legitimacy of the threat or pressure.

(a) Overborne Will theory

According to this theory, before pressure can amount to duress, it
must be so great as to deprive the party pressured of any ability to
exercise free will. Hence, it is very difficult to prove. As a result, the
contemporary approach is to ask if there was a threat made, was
the threat improper (in the sense that they intended to create illegal
act/ breach of contract), did the threat cause the victim to enter into
the contract.
(b) Illegitimate Pressure Theory
This theory focuses on the inquiry on the propriety of the pressure
exerted and whether this crossed the boundaries of what is legally
acceptable.

In Pao On v Lau Yiu Long, Lord Scarman outlined certain factors

indicative of illegitimate commercial pressure amounting to
economic duress. These factors aid in determining whether the
pressure applied suffices to vitiate consent. These factors are not
exhaustive or conclusive:
1. Whether the victim protested at the alleged point of coercion.
2. Whether he had any alternative course open to him e.g. an
adequate legal remedy = they could have litigated. As long as
there was a legal recourse available it shows that they had a

choice. In the case of The Atlantic Baron, there was no

alternative.
3. Whether he had received independent legal advice.
4. Whether he took steps to avoid the contract after entering
into it.

5.
-

UNDUE INFLUENCE

When one party abuses his trust or position

When the victim relies on the other party and enters into the r/s
thinking that the contract would actually be beneficial to him.
The doctrine of undue influence is a very particular doctrine,
which looks at the r/s between the parties; looks to see if a r/s of
trust and reliance is evident.
The burden of proof has shifted; the stronger party has to prove
that they have not extracted from the weaker party by an
exercise of undue influence.

Good rebuttals to undue influence:

- If the transaction was the weaker partys idea.
- Present evidence to show that the weaker party (although in
some form of relationship with the other party) was in a position
to make rational decisions i.e. law graduate.
- Third party involvement:
What happens if the person who exercised the undue influence
was a third party, and not the party to the contract? The contract
will be voidable for undue influence if either agency or notice of
the undue influence is established i.e.
Barclays Bank v. OBrien (1994)
CIBC Mortgages pls c. Pitt [1994]
Royal Bank of Scotland v. Etridge (2002)

Actual and Presumed Undue Influence

Barclays Bank plc v. OBrien [1994]
Royal Bank of Scotland v. Etridge (No.2) [2001]
Lloyds Bank Ltd v. Bundy, (1975)
National Westminster Bank plc v. Morgan (1985)
Actual Undue Influence (Class 1)

This class does not depend upon the existence of some special
r/s between the parties.
The party alleging undue influence bears the burden of
proving that the defendant had exercised undue influence over
him.
Once actual undue influence is established, the claimant is
entitled to relief.

Presumed Undue Influence (Class 2)

-

In cases of presumed undue influence, the relationship between

the parties is such as to give rise to a presumption that one party
had influence over the other; 1) A r/s of trust and confidence
existed between the parties 2) the transaction is manifestly
disadvantageous to the claimant.
Since undue influence is presumed and is regarded as prima
facie (accepted as correct until proven wrong) the burden of
proof then shifts to the defender to show that the victim in
fact exercised an independent will when entering into the
contract. The presumption once raised can then be rebutted by
evidence.

There are two sub-categories of presumed undue influence.

1. The first includes those recognized relationships, which
automatically give rise to a presumption in law e.g.
parent/child, guardian/ward, doctor/patient, lawyer/client,
religious advisor/disciple, husband/wife.
Hence, the claimant need only prove the existence of the r/s and
not the reposed trust and confidence in the defendant.
2. The second class includes those relationships of influence
proven as a matter of fact, where no presumption of influence
applies e.g. employer/employee, husband/wife, siblings.

END

6. ILLEGALITY AND PUBLIC POLICY: CONTRACTS IN RESTRAINT OF

TRADE
Shenoy, [15.26]ff
4.1. When does a restraint of trade arise? Nordenfelt v Maxim
Nordenfelt Guns & Ammunition Co. Ltd [1894] CB 788; Esso
Petroleum Co. Ltd v. Harpers Garage (Stourport) Ltd [1968] CB 792
4.2. Why is a restraint against public policy?
4.3. In what circumstances will a restraint of trade clause be valid?
Shenoy, [15.33]
(a) Legitimate Interest: contracts of employment (Herbert Morris Ltd
v. Saxelby [1916] CB 789), Sale of Business ( Nordenfelt case CB
788).
Man Financial (S) Pte Ltd v. Wong Bark Chuan David [2008]SLR 663
CLAAS Medical Centre Pte Ltd v. Ng Boon Ching [2010]SGCA 3
(b) Reasonable Scope
Geographical Area of Restraint; Mason v. Provident Clothing &
Supply Co. [1913] CB792
Duration of Restraint: Esso Petroleum case CB 792
Adequacy of Consideration and Bargaining Positions: Esso CB 792
and Alec Lobb (Garages) Ltd v. Total Oil [1985] CB 795, Schroeder
Music Publishing Co. v. Macaulay [1974] CB 795.
(c) Not injurious to the Public Interest:
Thomas Cowan & Co. Ltd v. Orme [1961] 1 MLJ 41, Singapore High
Court.
4.4
Severance-the Blue Pencil test
Goldsoll v. Goldman [1915] CB 797
CLAAS Medical Centre Pte Ltd v. Ng Boon Ching (supra)