Duress & Undue Influence
Nature of Invalidating Duress I
Duress covers a range of types of pressure and influence. It may range ranging from threats or actual direct unlawful violence to the application of other, less direct unlawful pressures.
Duress involving the threat of violence clearly negates consent and contracts thereby entered. The position in respect of lower level and more indirect duress is less clear.For the most part, economic or circumstantial distress is not enough to invalidate a contract.
A threat to commit a civil wrong, presumptively constitutes duress and may potentially allow recovery of benefits transferred under the apparent contract. It may arise, for example, in the case of money paid to release goods wrongfully detained. The fact that the person concerned believed that his had a right to make the threat, does not affect the right of restitution.
Nature of Invalidating Duress II
It appears on balance that threats of breach of contract, provided they are sufficiently coercive may give right to restitution. There is significant authority for the proposition that monies paid under a threat of breach of contract is recoverable by way of restitution. Many of the cases involve a refusal to perform a contract where no alternative is available, unless more monies than the contract provides for, are paid.
Demands by public authorities contrary to law may be the subject of restitution at common law. Unlawful or further payments insisted on by bodies which already owe statutory obligation to render a service, to perform that service have been the subject to recoupment in older cases, although it is not clear to what extent actual duress was in fact a factor. It appears that a threat of breach of trust or other unlawful act may be sufficient to allow restitution.
Unlawful Element Usually Required
There must usually be some element of unlawfulness which is sufficiently coercive in the circumstances so as to affect the claimant’s freedom of actions. There is authority for the proposition industrial action that is immunised under the Industrial Relations Act, is not unlawful for this purpose.
Threats not to do business in the future do not appear to be sufficient. A person is entitled not to do business with another. Other than in exceptional circumstances where there is an abuse of a dominant position, there will be no unlawful element..
The fact that something in the circumstances is contrary to statute or is in some way unlawful is not of itself sufficient. There must be causation. There must be coercion which causes the claimant to act as he does. It must be reasonable that he so acted. It must cause him to so act.
Lawful Threats Sometimes Invalidate
Restitution may be allowed for payments and benefits conferred which were tainted by a duress and undue influence, notwithstanding the absence of specific illegality. Threats to unlawfully involve the criminal process may be deemed illegitimate for this purpose, even if person who so threatens is lawfully entitled to do so.
This arises where the menaces being akin to those which constitute an unlawful demand / blackmail. Demanding monies with menaces may be unlawful, notwithstanding that what is threatened may be lawfully done.
Apart from the above circumstances, a person is generally entitled to threaten to do anything which he might lawfully do. He may keep a gain so made.
Legal Action
Seeking reasonable compensation for a civil wrong is permissible. However, it appears that it is not permissible to threaten criminal sanction in order to seek more compensation than is lawfully due.
Settlements and payments made under threat of litigation, express or implied, are usually irrecoverable. This is necessary in the interests of the finality of litigation. The litigation must be conducted in good faith. It must not be an abuse of process.
It is arguable that threats to do things that are technically lawful such as terminate long-standing contractual relationships lawfully, may given rise to right of recovery and restitution, if it amounts to an abuse. The position is not clear.
It is arguable that threats by public authorities to do things outside their powers, thereby requiring benefits and payments is unlawful for this purpose. Public bodies must act in accordance with their constitutive law in accordance with fundamental principle that that they are bound by and must conform with the rule of law.
Response of Claimant and Waiver
The claimant’s response must be reasonable and proportionate. It will depend on the circumstances as to whether there is operative coercion, which causes the claimant to pay or to do what the threat required, typically payment of monies.
The claimant will be expected to act reasonably, given the alternatives put to him. This is analogous to the obligation on a person who suffers a wrong or breach of contract, to mitigate his loss.
Undue Influence and Improvident Bargain
Undue influence may arise from the actual abuse of personal influence, due to a particular interpersonal relationship. The classic case involves pressure exerted on an vulnerable spouse or elderly person to give a guarantee or security in support of another’s loan at great personal risk and for little or no personal benefit.
Restitution will be available in respect of transfers which constitute an improvident bargain or unconscionable bargain. As with undue influence, the poor or improvident person must be shown to have entered the transaction as the exercise of his free will.
Presumption of Undue Influence
Apart from actual undue influence, the parties’ relationship may create a presumption of undue influence. Certain relationships are presumed to be subject to the risk of abuse of authority including doctor and patient, solicitor and client, religious minister and member of church, trustee and beneficiaries, parent and child and perhaps, husband and wife. It appears that an employer and employee are not subject to this principle.
Where in the actual circumstances, there is a relationship of dependence and vulnerability, there may be a presumption of undue influence, once this relationship is proved. Any unfair advantage taken, particularly of elderly or vulnerable persons, where there is a relationship of trust may give rise to restitution.
In each case, the effect of the presumption is that stronger party, must rebut the presumption of undue influence where he has benefited from a transaction with the other party. He must show that the transaction is entered freely and fairly by the other party as a result of his informed free will. He must understand the risks. Independent legal advice may suffice to rebut the presumption of undue influence.
The claimant must show that he has suffered detriment in the circumstances. Accordingly, if the new charge restates an older charge which is admitted to be valid, there is no basis for restitution.
Third Parties
The person who exercise duress is must repay benefits received and to pay for services rendered. The position is more difficult when the services are rendered to a third party.
It appears the duress need not necessarily be directly operative against the claimant. It may, for example, be in respect of a related entity or a company, which that person owns. There must, however, be some connection between the person to whom the threat to undertake the lawful action is made and the claimant.
It is not clear if restitutionary relief may be had against third parties who are not bona fide purchasers. Persons connected with the person exercising the threat or duress would not be bona fide for this purpose.
Undue influence issues may arises in relation to a third-party, such as a bank which takes the benefit of a guarantee which is entered on foot of undue influence by their customer, is prejudiced by the invalidity. If the third party has notice of the risk of undue influence, in the context of a gratuitous benefit received, they are likely to be bound if there is in fact undue influence, unless they have evidence that it was freely entered and understood, usually on foot of independent legal advice.
Consequeances
Duress negates a contract.A personal claim may also lie for the value transferred, as well as the proprietary claim.
In thos cases where economic or circumstantial distress is enough to invalidate a contract, it appears that the contract may be at most voidable rather than void.
A benefit or payment made under duress or undue influence, which would otherwise gives rise to a right of restitution, may later be waived and discharged. If when the duress or influence is removed, the payment or benefit is freely affirmed or ratified, it may be deemed waived.