Law of Obligations

Assignment 1

Gareth Wilcox
R1901D7340906
LLM-Laws V2
Ugochukwu Obibuaku
12 May 2019
Table of Cases

Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 183

Barton v Armstrong [1976] AC 104

Boustany v Pigot (1995) 69 P & CR 198

Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144

Cresswell v Potter [1978] 1 WLR 255

Demarara Bauxite Co Ltd v Hubbard [1923] AC 673

Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125

Hart v Connor [1985] AC 1000

Lloyds Bank v Bundy [1975] QB 326

National Westminster Bank plc v Morgan [1985] AC 686

Pao On v Lau You Long [1980] AC 614

Portman Building Society v Dusangh [2000] 2 All ER (Comm) 221

Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773

Skeate v Beale (1840 11 Ad & E 983

Strydom v Vendside [2009] EWHC 2130 (QB)

The Siboen and The Sibotre [1976] 1 Lloyds Rep 293

Welch v Cheesman [1973] 1 WLUK 611

Table of Statutes

Consumer Credit Act 1974

Unfair Contract Terms Act 1977

Unfair Terms in Consumer Contracts Regulations 1999

Assignment 1

Critically evaluate whether duress and undue influence together constitute an appropriate law

against unconscionable contracts.

-------------------

Introduction

‘Despite initial appearances to the contrary, the rules which make up English contract law are

concerned with the fairness of the bargain reached by the parties’ 1. These rules have been

derived from the common law doctrine of duress, and the equitable doctrine of undue

influence. Since Bundy2, there has been a growing debate about whether this the two afore-

mentioned doctrines provide the law with the required ‘fairness’, or whether there is a need to

develop a new ‘fairness’ doctrine which, incorporating also the doctrines of duress and undue

influence, can more fully provide the redress needed in all ‘unfair’ situations.

Freedom to Contract

The dominant basis of contract law in England is the classical will theory under which the

parties are at liberty to choose their contractual obligations. ‘Freedom of contract and sanctity

of contract are the dominant ideologies’ 3. The ability of parties to freely enter into a contract

is one of the basic tenets of contract law which provides the parties with a legal framework to

guide the formation and operation of agreements between contracting parties.

Fairness

Situations arise however where agreements are made by parties which are either made in an

unfair manner (procedural unfairness), in which unfair terms are agreed (substantive

unfairness) or a combination of both. The courts are therefore unwilling to intervene in

contracts where the parties have freely agreed even if the terms of the agreement appear to be

1
E Mckendrick, Contract Law (6th edn. Palgrave Macmillan 2005) 378
2
Lloyds Bank v Bundy [1975] QB 326
3
McKendrick (n 1) 3
unfair to a party external to that agreement. Throughout the history of the common law

doctrine of duress and the equitable law of undue influence are many such cases.

However, where a party enters into a contract after the imposition of an unacceptable degree

of influence by the other party, this situation allows the courts to intervene to correct an

unfair bargain. Relief for the injured party may be available by statute law, under the

common law of duress and through the doctrines of undue influence in equity. Protection

against an unconscionable bargain is also available. 4 The legal profession is divided over

whether there is a need for a doctrine which would try to encompass all situations of

contractual “unfairness” or whether the current doctrines of duress and undue influence are

capable of being developed to deal with all types of ‘unfairness’. While there are similarities

between the doctrines of duress, undue influence and unconscionability, they have developed

in different ways and provide the legal profession with precedent and statute law to cover the

different situations. All, however, are concerned with the fairness of contract relationships.

The doctrines of Duress and Undue Influence

Freedom of contract is maintained by the courts and that agreement should be voluntary and

not reached because one party has been forced into it.

Action could be taken under the common law for duress, and under the equitable doctrine of

undue influence. The specific action taken would depend upon the type and the level of the

force. The remedy would be to render any contract voidable, the contract could be set aside

and the party which had been forced into the contract would no longer have to fulfil its

obligations.

In Cumming v Ince5, where an inmate in a mental asylum was coerced into signing away title

to all her property, the court decided that her agreement had not been obtained of her own

free will and that she could not be bound by it. Such threats to person and sometimes to

4
G Treitel, The Law of Contract (13th ed, Sweet and Maxwell 2011) 441
5
(1847) 11 QBD 112
goods or property must be unlawful to amount to duress. A threat to perform a lawful action

will not allow an action in duress.

There are three recognised types of duress. Duress to the person is illegal actual violence or

threats of violence to persons or those near. In Barton v Armstrong 6, where the chairman of a

company threatened to have his managing director killed, the Privy Council held

‘that it was for the respondent to prove that the threats and unlawful pressure did

not in fact contribute to the appellant's decision to sign the deed and, since the

proper inference to be drawn from the facts found was that although the appellant

might have executed the deed even if the respondent had not made any threats,

the threats and unlawful pressure did in fact contribute to the appellant's decision

to sign the deed, the deeds were executed under duress and were void so far as the

appellant was concerned.

Duress to goods or property is the threat of damage to the property of a person. The ruling in

Skeate v Beale7 in 1840 Lord Denman CJ held

“We consider the law to be clear, and founded on good reason, that an agreement

is not void because made under duress of goods. There is no distinction in this

respect between a deed and an agreement not under seal; and, with regard to the

former, the law is laid down in 2 Inst. 483, and Sheppard's Touchstone, p. 61, and

the distinction pointed out between duress of, or menace to, the person, and

duress of goods.”

This decision was the ruling precedent in duress to property until 1976 when economic duress

was recognised in The Sibeoen and The Sibroen8 and changed the direction of the ruling in

Skeale9.

6
[1976] AC 104
7
(1841) 11 Adolphus and Ellis 983; 113 E.R. 688
8
Occidental Worldwide Investment Corp v Skibs A/S Avanti (The Siboen and The Sibotre) [1976] 1 Lloyd's
Rep. 293;
9
Skeate v Beale (1840 11 Ad & E 983
The third type of duress, Economic Duress, is a wider development of the rules against

improper pressure and inequality of bargaining power where one party is coerced in an

illegitimate manner by the commercial strength of the other party to enter into a contract. In

The Universal Sentinel10 where a ship was ‘blacked’ by the a Workers Union and forced t pay

towards a welfare fund in order to release the ship from the ‘blacking’. The court ruled that

was economic duress and the contract was vitiated since the pressure was illegitimate.11

In recent times, actions for economic duress have been developed in addition to the duress to

the person and duress to property while the restrictions on claims of undue influence have

been relaxed for relationships where one party has a fiduciary relationship to the other. The

case of Lloyds Bank Ltd v Bundy12 is an example of the effect that a fiduciary relationship

between the parties has on the validity of a contract. In this case, a bank official omitted to

properly advise a customer to seek independent advice rather than follow a route which

benefited the bank and was to the detriment of the customer. It was held that “the relationship

between the bank and the defendant was one of trust and confidence”13

‘A contract which has been made under duress is voidable’ 14. One party must have had no

practical choice but to consent to the contract and …. there must be a sufficient causal link

between the pressure or threat and the consent15.

“Undue influence “renders a contract voidable when one party has abused a relationship with

another party to influence the latter’s assent to a contract” 16Undue influence is an equitable

concept ‘where one party has abused a relationship with another party to influence the latter’s

assent to a contract’17. It can be subdivided into two streams, actual undue influence and
10
Universal Tankship Incorporated of Monrovia v International Transport Workers Federation [1983] 1 AC 366
11
C Turner, Unlocking Contract Law (4th edn, Routledge 2014) 232
12
[1975] QB 326
13
Ibid
14
G Treitel, The Law of Contract (13th ed, Sweet and Maxwell 2011) 446
15
M Moore, ‘Why Does Lord Denning’s Lead Balloon Intrigue Us Still? The Prospects of Finding a Unifying
Principle for Duress, Undue Influence and Unconscionability’ Law Quarterly Review 2018 2
16
Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773
17
Moore M, ‘Why Does Lord Denning’s Lead Balloon Intrigue Us Still? The Prospects of Finding a Unifying
Principle for Duress, Undue Influence and Unconscionability’ Law Quarterly Review 2018
presumed undue influence. ‘In Eldridge 18, the House of Lords described these as two distinct

ways of proving one doctrine of undue influence, rather than two different doctrines; … it

draws attention to these two distinct ways of proving undue influence, one of which relies on

the availability of a presumption under specific conditions’ 19. The second group is further

subdivided into those relationships of trust, the first subgroup deemed to have relationships of

trust and the others subgroup requiring proof of such a relationship.

The required process for an equitable claim for undue influence is more complicated where

the proof of undue influence is insufficient. The claimant must also prove that his claim and

any award is equitable. In Allcard v Skinner20 the court applied the equitable maxim ‘delay

defeats equity’, “and would not apply the doctrine to declare the contract voidable since the

woman had waited six years …. before she made the complaint”21

The doctrines of both duress and undue influence allow the courts to intervene to correct

situations where there is procedural unfairness. The courts have not intervened in the past

where there has been substantive unfairness, i.e. where the terms of the agreement are unfair,

which is in compliance with the maxim of contract law that parties should be free to contract

under whatever terms they decide.

The doctrine of Inequality of Bargaining Power or Unconscionability

The principle of unconscionability (or inequality of bargaining power) relies on both

procedural and substantive unfairness. The doctrine is similar to the equitable doctrine of

undue influence but does not require the ‘trust and confidence’ relationship. Recently there

have been arguments about the need for a doctrine of inequality of bargaining power. These

followed the judgement of Lord Denning MR in Lloyds Bank v Bundy 22, a case in which a

bank manager giving advice on a transaction to a father and son who were both customers of

18
Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773
19
Moore (n 17) 260
20
(1887) 36 Ch D 145
21
Turner (n 11) 236
22
[1975] QB 326 (n 2)
a bank, a situation which created a conflict of interest for the bank manager. The majority

ruled on the usual grounds holding that the bank had failed to rebut the presumption of undue

influence. Lord Denning MR, however, gave a judgement which he hoped would set out a

new principle of inequality of bargaining power:

“The cases, other than cases of fraud, misrepresentation or mistake, in which the

courts will set aside a contractor transfer of property are based on a single

principle which rests on inequality of bargaining power. By virtue of that

principle English Law give relief to one who, without independent advice, enters

into a contract on terms which are very unfair or transfers property for a

consideration which is grossly inadequate where his bargaining power is

grievously impaired by reason of his own needs or desires, or by his own

ignorance or infirmity, coupled with undue influences or pressures brought to

bear on him, not necessarily wrongfully, by or for the benefit of the other.”23

Lord Denning’s position was rebuffed by Lord Scarman in Pao On v Lau Yin Long 24 and

again in National Westminster Bank plc v Morgan 25 where he took the position that there was

no need for a principle of the inequality of bargaining power and that Parliament, with

statutes such as the Consumer Credit Act 1974, was addressing the issues raised by Lord

Denning.

Notwithstanding the rebuff, as evidenced by rulings in cases such as Alec Lobb (Garages)

Ltd. v Total Oil (Great Britain) Ltd 26 the courts are already allowing equitable relief against

unfair bargains. Lord Scarman did not, like Lord Denning, want to impose limits on equity

and stated that “the court in the exercise of this equitable jurisdiction is a court of

conscience”. Those with the same mind as Lord Scarman consider that cases such as Earl of

23
Ibid
24
[1980] AC 614
25
[1985] AC 686
26
[1985] 1 WLR 173
Chesterfield v Janssen27, Demarara Bauxite Co Ltd v Hubbard 28, Cresswell v Potter29 and

Credit Lyonnais Bank Nederland NV v Burch30 have provided sufficient precedent for the

courts to provide justice when dealing with unconscionable bargains.

However, there are objections to this position. The first is that not defining the basis of the

doctrines leads to uncertainty and inconsistency. For example, the rulings in the Boustany v

Piggot31 and Portman Building Society v Dusangh32 show that the position of the law on this

subject is still developing. The imposition by Lord Denning of his principle of inequality of

bargaining power seems to usurp the role of the legislature. It may well be that such a

doctrine will develop in the future, but equity has not yet developed to that stage yet.

Instead, Parliament has intervened with legislation such as the Consumer Credit Act 1974,

the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts

Regulations 1999 which were drafted to protect small consumers from companies having the

desire to impose conditions on small buyers in an attempt to protect those companies from

litigation. Such litigation is generally applied to one-to-many contracts and allows two parties

willing to enter into a commercial contract together to agree the terms of that contract

generally without interference from legislation.

The principle set out in Lord Denning’s minority opinion in Bundy 33 was meant to establish a

new umbrella ‘inequality of bargaining power’ doctrine which would bring together those

doctrines seeking to provide redress for unfair behaviour by one of the parties to an

agreement. This concept did not find agreement among members of the judiciary at the time

but opened the door for wide ranging discussions since. Mckendrick argued that “the issue of

whether a doctrine of inequality of bargaining power exists in English law has been one of

27
(1751) 2 Ves Sen 125
28
[1923] AC 673
29
[1978] 1 WLR 255
30
[1977] 1 All ER 144
31
(1995) 69 P & CR 298
32
[2000] 2 All ER (Comm) 221
33
[1975] QB 326
controversy” 34, while McCamus considered that “Lord Denning’s suggestion that these

existing doctrines (of duress, undue influence and unconscionability) can be rationalised and

restated in the form of a single principle of ‘inequality of bargaining power’ is a bold and

interesting one”35, Anson, less sure of the direction in which Denning was heading, writes

“whether the courts might yet be willing to take the step of unifying the doctrines of duress,

undue influence and unconscionable bargains, as Lord Denning sought to do, remains

uncertain”36

Forty years on from Bundy, the differences of opinion remain; whether there is a need for a

new doctrine or whether the existing doctrines can and will continually evolve to meet the

requirements of our legal system.

There is need for an unconscionable act before a contract can be set aside on the ground of

unconscionability. In Hart v O’Connor37, the Privy Council ruled that unconscionable conduct

was required before a contract could be set aside as an unconscionable act and ruled

“… since the vendor's lack of sufficient mental capacity was unknown to the defendant and

there were no imputations against his conduct, the agreement for the sale of the land was

valid and could not be rescinded for incapacity and unfairness, nor were the plaintiffs entitled

to have it set aside as an unconscionable bargain …” and commented further “Under the

doctrine of unconscionable bargain substantive and procedural factors intertwine.”

Unconscionability is also an equitable doctrine. Blair J in Strydom v Vendside38 summarised

the requirements of the doctrine as “one party has to have been disadvantaged in some

relevant way as regards the other party, that other party must have exploited that

disadvantage in some morally culpable manner, and the resulting transaction must have been

overreaching and oppressive.”.

34
E McKendrick, Contract Law (6th ed, Palgrave Macmillan 2005)103
35
J McCamus, The Law of Contracts (2nd edn, Irwin Law 2012) 378
36
W Anson and others, Anson’s Law of Contract (OUP 2010) 376
37
[1985] AC 1000
38
[2009] EWHC 2130 (QB)
There have been developments since Bundy39 and O’Brien40, to ensure that the common man

is protected from unfair contracts. These moves have been both statutory and in the

development of the law of equity, moving toward an all-encompassing doctrine of fairness in

contract. But Mckendrick41 believes that four important objections should be raised against

such a doctrine. Identifying unfair contracts is the first issue; the courts may not understand

the context in which the contract has been negotiated. The second issue is uncertainty. The

dislike that English law has for broad, general rules is the third issue, and the fourth is that it

is not the function of the law to create a society where wealth is more evenly distributed.

Both duress and undue influence provide relief for persons who have been coerced in some

way into a contract. Both doctrines require that the coerced party is at a disadvantage to the

other party. Relief under the doctrine of undue influence however requires that a relationship

of trust and confidence exists between the parties while the doctrine of unconscionability

requires that one party is at a disadvantage, that advantage has been exploited and that the

disadvantage is overarching and oppressive (Blair in Strydon v Kendside). The doctrine of

unconscionability has no requirement for a relationship of trust and confidence.

Brightman in Hart v Connor42 1995 “confirmed that the stronger party must be guilty of

unconscionable conduct before the court can set aside a contract as an unconscionable

bargain”.

Conclusion

The doctrines of duress and undue influence provide the courts with satisfactory means to

deal with procedural unfairness but there is no consensus how to deal with substantive

unfairness. Capper believes that substantive unfairness is a source for determining bases for

determining contract invalidity while Professor Stephen Smith argues that substantively

39
Lloyds Bank v Bundy [1975] QB 326
40
Barclays Bank plc v O’Brien [1993] 4 All ER 417 HL
41
McKendrick E, Contract Law (8th ed, Palgrave Macmillan 2009) 379
42
Hart v Connor [1985] AC 1000
unfair contracts are bad. There is a need to agree a greater coherence in judicial rulings

concerning substantive unfairness.

Bibliography

Books

Anson W and others, Anson’s Law of Contract (OUP 2010)

McCamus J, The Law of Contracts (2nd edn, Irwin Law 2012)

McKendrick E, Contract Law (8th ed, Palgrave Macmillan 2009)

Treitel G, The Law of Contract (13th ed, Sweet and Maxwell 2011

Turner C, Unlocking Contract Law (4th edn, Routledge 2014)

Journal Articles

Moore M, ‘Why Does Lord Denning’s Lead Balloon Intrigue Us Still? The Prospects of

Finding a Unifying Principle for Duress, Undue Influence and Unconscionability’ Law

Quarterly Review 2018

Pawlowski M, ‘Unconscionability as a unifying concept in equity”, The Denning Law

Journal