Vitiating Elements – Lecture Outlines

Misrepresentation

Professor Catharine MacMillan

The Dickson Poon School of Law

KING’S COLLEGE LONDON

NOVEMBER 2021

Key Learning Objectives

This topic introduces the effect upon an otherwise valid contract of a
misrepresentation made prior to entering into a contract. A number of key
learning objectives are involved:
- The elements necessary to make a statement actionable as a
misrepresentation
- What is required to establish different types of misrepresentations
- When damages will be paid for a misrepresentation and how these
damages are calculated
- When the remedy of rescission will be granted for a misrepresentation
- The comparative advantages of the different remedies available for
misrepresentation
- The limits placed upon an exclusion of liability for misrepresentation

Reading:
Anson, chapter 9
McKendrick, casebook, chapter 17
Morgan, Great Debates in Contract Law, chapter 6

You may also wish to refer also to one of:

Davies, JC Smith’s The Law of Contract, ch 16
McKendrick, Contract Law, ch 13
O’Sullivan & Hilliard, The Law of Contract, ch 10

 denotes a significant case

I. The concept of misrepresentation

We are concerned here with the effect of express statements made prior to
entering into a contract. These statements may become terms of the contract or
they may be ‘mere’ representations. If the statement is a term of the contract
which proves to be false an action will lie for a breach of contract (something we
© Professor C.A. MacMillan November 2021 1
will consider at the end of this module). In contrast, a ‘mere’ representation may
be actionable as a misrepresentation. An actionable misrepresentation is an
unambiguous false statement of existing fact or law which induced a party to
enter into the contract. In a limited number of circumstances a failure to disclose
a matter may be treated as a misrepresentation. The potential remedies for a
misrepresentation are a rescission of the contract and damages. The right to
rescind (an equitable remedy) can be lost. The amount of damages, if any, will
depend upon whether the misrepresentation was innocent, negligent or
fraudulent. Damages may be available at common law for the torts of deceit or
negligent misstatement. The Misrepresentation Act 1967 also provides that
damages may be awarded for a misrepresentation.

Where a party attempts to exclude liability for a misrepresentation the terms

which attempt to do this will be regulated by legislation. Where the contract is a
commercial one, an attempt to exclude liability will generally be subject to the
test of reasonableness in the Unfair Contract Terms Act 1977 by virtue of the
Misrepresentation Act 1967, s. 3. Where the contract is one between a trader
and a consumer, however, there is a different legislative regime and the term will
be subject to a test of fairness under the Consumer Rights Act 2015, s. 62 and
Schedule 4.

II. The difference between misrepresentations and warranties

The determination of whether or not a pre-contractual statement was a term of
the contract was more important before 1967 than it is today because:
-The remedies for misrepresentation were limited; and
-When a misrepresentation was incorporated as a contractual term the remedy
of rescission for misrepresentation was lost.

Both of these factors were changed by the Misrepresentation Act 1967. There are
now much more extensive remedies in damages available for misrepresentation
(under s.2 of the Act) and s.1(a) provides that a contract may be rescinded for
misrepresentation, even if the misrepresentation is also a term of the contract.
The question may, however, still be of importance. If, for example, the pre-
contractual statement is in the form of a promise rather than a statement of fact
then a remedy for misrepresentation is unlikely to be available. The only
possible argument for the claimant will therefore be to show that the statement
had become a term of the contract.

Heilbut, Symons & Co v Buckleton [1913] AC 30

"They must be proved strictly. Not only the terms of such contracts but the
existence of an animus contrahendi on the part of all the parties to them must be
clearly shown."

Clark Goldring & Page Limited v ANC Limited (2001)

Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 375

© Professor C.A. MacMillan November 2021 2
"It is sometimes supposed that the tribunal must look into the minds of the
parties to see what they themselves intended. That is a mistake. . . . The question
of whether a warranty was intended depends on the conduct of the parties, on
their words and behaviour, rather than their thoughts. If an intelligent
bystander would reasonably infer that a warranty was intended that will suffice."

III. The requirements of an actionable misrepresentation

In order for a misrepresentation to be actionable, it must induce the person to
whom it is addressed to make a contract. This simply means that the statement
must be one of the factors which led the person to enter into the contract – it does
not have to be the sole or main reason.

For a misrepresentation to be actionable it must be a false statement of existing

fact or law. A statement of opinion is not generally a misrepresentation – see
Bisset v Wilkinson (1927). Two exceptions exist. The first is where the person
expressing the opinion is aware of facts which indicate that the opinion cannot
be sustained. Thus, in Smith v Land House Corporation (1884) a tenant who, the
landlord knew, was behind with the rent could not be described as a ‘most
desirable tenant’. The landlord’s statement to this effect was therefore a
misrepresentation (see also Esso Petroleum Co Ltd v Mardon (1976)).

The second exception, which can lead to a statement of opinion being treated as
a false statement of fact, is where there is evidence that the person making the
statement does not believe it at the time that it is made. Proof that the maker of
the statement was aware of contradictory facts may prove that they did not
believe the statement was true. See Edgington v Fitzmaurice (1885), where it
was held that the ‘state of a man’s mind is as much a fact as the state of his
digestion’. The fact falsely stated in these cases is the speaker’s state of mind. The
speaker represents the fact that he or she believes that what is being said is true,
whereas in fact no such belief is held.

The Edgington v Fitzmaurice approach can also be used to turn statements of

intention into misrepresentations, if at the time of making the statement, the
person did not have the stated intention. (This was, in fact, the situation in
Edgington v Fitzmaurice itself.)

Traditionally, statements of law were not regarded as being statements which, if

false, will give rise to remedies for misrepresentation. It seems, however, that
now that the House of Lords has recognised the possibility of restitutionary
remedies for mistake of law (in Kleinwort Benson Ltd v Lincoln City Council
(1999)), the same approach may well apply in the area of misrepresentation.
This was the view of the High Court in Pankhania v Hackney London Borough
Council (2002). In any case, if the statement of law is not believed by the person
making it, then the principle in Edgington v Fitzmaurice will apply, so that the
statement will be treated as a misrepresentation of the person’s state of mind.

Lambert v Co-Operative Insurance Society Ltd [1975] 2 Lloyd's Rep. 485 – a

contract treated as being ‘of the utmost good faith’ (uberrimae fidei). Disclosure
required, regardless of questioning. Is there a general duty of good faith? Yam
© Professor C.A. MacMillan November 2021 3
Seng Pte v International Trade Corp [2013] EWHC 111 indicates so but this has
not been received in appellate decisions, Mid Essex Hospital Services NHS Trust v
Compass Group UK and Ireland Ltd [2013] EWCA Civ 200.

Dimmock v Hallet [1860] L.R. 2 Ch App 21

Gordon v Sellico (1986) 278 EG 53

A. The representation must be false

Is the statement false within the requirements of making a claim for
misrepresentation?

Dimmock v Hallet [1860] L.R. Ch. App. 21

Can keeping silent about a statement which is true when made but subsequently
becomes false be a misrepresentation?
With v O'Flanagan [1936] Ch. 575
Misrepresentation Act 1967, s. 2(1)

Conlon v Simms [2006] EWHC 401 – non-disclosure

B. The representation must be one of fact, not of opinion

Bisset v Wilkinson [1927] AC 177
"If a reasonable man with the vendor's knowledge could not have come to the
conclusion he stated, the description of that conclusion as an opinion would not
necessarily protect him against rescission for misrepresentation, but what was
actually the capacity in competent hands of the land the purchasers purchased
had never been, and never was practically ascertained."

A statement of opinion is not generally a misrepresentation but exceptions exist

to this rule.
Esso Petroleum Ltd v Mardon [1976] QB 801

Smith v Land and House Property Corp (1884) 28 Ch D 7

"the facts are equally known to both parties, what one says to the other is
frequently nothing but an expression of opinion . . . But if the facts are not equally
well known to both sides, then a statement of opinion by one who knows the
facts best involves very often a statement of material fact, for he impliedly states
that he knows facts which justify his opinion."

C. The representation must be one of fact, not of intention

Wales v Wadham [1977] 1 WLR 199

Edgington v Fitzmaurice [1885] 29 Ch D 459

"there must be a mis-statement of an existing fact; but the state of a man's mind
is as much a fact as the state of his digestion. It is true that it is very difficult to
prove what the state of a man's mind at a particular time is, but if it can be
© Professor C.A. MacMillan November 2021 4
ascertained it is as much a fact as anything else. A misrepresentation as to the
state of a man's mind is, therefore, a mis-statement of fact."

Limit No2 Ltd v Axa Versicherung AG [2008] EWCA Civ 1231

The words ‘would not normally write construction unless...’ was a statement of
intention which was a representation of existing fact.

D. May the representation be one of law?

Traditionally, statements of law were not capable of being misrepresentations
but the situation has now changed.

Pankhania v Hackney London Borough Council [2002] EWHC 2441 (Ch) applying
the House of Lords’ decision in Kleinwort Benson Ltd v Lincoln City Council (1999)
to contract law.

E. The representation must be addressed to the party misled

Commercial Banking Co of Sydney v RH Brown and Co [1972] 2 Lloyd's Rep 360

F. The representation must be intended to be acted upon

Peek v Gurney [1873] L.R. 6 HL 377
Andrews v Mockford [1896] 1 QB 372

G. The representation must induce the contract and it must (in

that sense) be material
In order for a misrepresentation to be actionable, it must induce the person to
whom it is addressed to make a contract. This simply means that the statement
must be one of the factors which led the person to enter into the contract – it
does not have to be the sole or main reason. It is not sufficient, however, for the
claimant to demonstrate that ‘he was supported or encouraged in reaching his
decision by the representation in question’. The representation must play a real
and substantial part of the claimant’s decision to enter into the contract. It does
not matter that the claimant had the opportunity to discover the untruth of the
statement but did not take the opportunity. In Redgrave v Hurd (1881) the
purchaser of a solicitor’s practice had the opportunity to consult documents
which would have revealed the falsity of the seller’s statement about the
practice’s income. His failure to do so did not preclude his later claim based on
misrepresentation.

If the misrepresentation would have induced a reasonable person to contract,

the court will presume that it did so induce the representee to contract. The
representor must then show that the representee did not rely upon the
representation. Where, however, the misrepresentation would not have induced
a reasonable person to enter into the contract, the onus falls upon the
representee to show that the misrepresentation did, in fact, induce him to
contract
© Professor C.A. MacMillan November 2021 5
Dimmock v Hallet (1866) LR 2 Ch App 21
JEB Fasteners v Marks, Bloom and Co [1983] 1 All ER 583
Horsfall v Thomas (1862) 1 H & C 90
Smith v Chadwick (1884) 9 App Cas 187
Atwood v Small (1838) 6 Cl & F 232
Redgrave v Hurd (1881) 20 Ch D 1
Smith v Eric S Bush [1990] 1 AC 831
Edgington v Fitzmaurice [1885] 29 Ch D 459

BV Nederlandse Industrie van Eiproducten v Rembrandt Enterprises, Inc [2019]

EWCA Civ 596
‘[T]here is an evidential presumption of fact (not law) that a representee will
have been induced by a fraudulent representation intended to cause him to enter
the contract and that the inference will be “very difficult to rebut” ‘. [43] per
Longmore LJ and it is required that ‘the representee . . . prove inducement albeit
with the assistance of a presumption that “will be very difficult to rebut” ‘. [at 45]

A question of fact: Zurich Insurance Co plc v Hayward [2016] UKSC 48; [2016] 3
WLR 637

IV. Types of misrepresentations

The distinction between these categories is vital in determining the remedies
which may be available to the person relying on the statement. It is also
important to remember that a claimant is required to establish different matters
to prove different types of misrepresentation. As a general observation, where
the misrepresentation is made by another party to the contract, the easiest claim
to prove will be under s.2(1) of the Misrepresentation Act, 1967.

A. Fraudulent
– the maker of the statement knows or believes that the statement is untrue, or
makes it not caring whether it is true or false. A fraudulent misrepresentation is
actionable as the tort of deceit. The burden of proving the fraud is a heavy one
and lies with the claimant.

Derry v Peek (1889) 14 App. Cas. 337

Doyle v Olby (Ironmongers) ltd [1969] 2 Q.B. 158
Archer v Brown [1984] 2 All E.R. 267
East v Maurer [1991] 2 All E.R. 733
Zurich Insurance Co plc v Hayward [2016] UKSC 48; [2016] 3 WLR 637

B. Innocent
– the maker of the statement genuinely believes it is true, and does not act
negligently (at common law or under statute) in making it.

Newbiggin v Adam (1866) 34 Ch. D. 582

Whittington v Seal Hayne (1900) 82 LT 49
© Professor C.A. MacMillan November 2021 6
 C. Negligent
The maker of the statement and the person relying upon it are in some sort of a
‘special relationship’ which gives rise to a duty of care or is one by which the
maker assumes responsibility towards the receiver. The maker of the statement
fails to take care in making the statement. The tort of negligent misstatement
was identified in Hedley Byrne v Heller (1964). Note that in many cases it may
now be preferable to bring an action under the Misrepresentation Act, 1967.

(1) The Duty of Care Principle

– the maker of the statement and the person relying on it are in a ‘special
relationship’ giving rise to a duty of care under the principles of Hedley Byrne v
Heller (1964) and the maker of the statement acts in breach of this duty.

Hedley Byrne & Co Ltd v Heller Partners Ltd (1964) A.C. 465; [1963] 3 WLR 101;
[1963] 2 All ER 375
"if someone possessed of a special skill undertakes, quite irrespective of contract,
to apply that skill for the assistance of another person who relies upon such skill,
a duty of care will arise. The fact that the service is to be given by means of or by
the instrumentality of words can make no difference. Furthermore, if in a sphere
in which a person is so placed that others could reasonably rely upon his
judgment or his skill or upon his ability to make careful inquiry, a person takes it
upon himself to give information or advice to, or allows his information or advice
to be passed on to, another person who, as he knows or should know, will place
reliance upon it, then a duty of care will arise." [at 502-503]

Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2018] UKSC 43

(2) The Assumption of Responsibility Principle

Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145; [1994] 3 W.L.R. 761;
[1994] 3 All E.R. 506
“if a person assumes responsibility to another in respect of certain services,
there is no reason why he should not be liable in damages for that other in
respect of economic loss which flows from the negligent performance of those
services.” [[1994] 3 W.L.R. 761 at 776]

P&P Property Ltd v Owen White & Catlin LLP; Dreamvar (UK) Ltd v Mishcon De
Reya [2018] EWCA Civ 1082

(3) Concurrent duties in tort and contract

Esso Petroleum Co Ltd v Mardon

Henderson v Merrett Syndicates Ltd [1994] 3 W.L.R. 761

“the common law is not antipathetic to concurrent liability, and that there is no
sound basis for a rule which automatically restricts the claimant to either a
tortious or a contractual remedy. The result may be untidy; but, given that the
© Professor C.A. MacMillan November 2021 7
tortious duty is imposed by the general law, and the contractual duty is
attributable to the will of the parties, I do not find it objectionable that the
claimant may be entitled to take advantage of the remedy which is most
advantageous to him . . . “. (per Lord Goff at 788)

Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146

D Statutory
– the maker of the statement has no reasonable grounds for believing it to be
true (s.2(1) Misrepresentation Act 1967). The enactment of the
Misrepresentation Act fundamentally changed the landscape of this area of law.
This is something to bear in mind when reading earlier cases.

Misrepresentation Act 1967, s. 2(1)

"Where a person has entered into a contract after a misrepresentation has been
made to him by another party thereto and as a result thereof he has suffered loss,
then, if the person making the misrepresentation would be liable in damages in
respect thereof had the misrepresentation been made fraudulently, that person
shall be so liable notwithstanding that the misrepresentation was not made
fraudulently, unless he proves that he had reasonable ground to believe and did
believe up to the time the contract was made that the facts represented were
true."

Resolute Maritime Inc v Nippon Kaiji Kyokai [1983] 2 All ER 1

Howard Marine and Dredging Co v Ogden & Sons Ltd [1978] 2 WLR 514; [1978]
QB 574; [1978] 2 All ER 355
Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297
Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15, [2002] E.M.L.R. 27
Al-Hasawi v Nottingham Forest FC Ltd [2019] EWCA Civ 2242

V. Remedies for misrepresentations

The remedies for a misrepresentation depend on whether it was made
innocently, negligently or fraudulently. There are potential remedies available
under the common law (both in contract and tort) and under statute (the
Misrepresentation Act 1967). The main categories of remedies are:
1. rescission of the contract; and
2. damages for losses arising from the misrepresentation

A. Damages
The common law was late in recognizing a right to damages for non-fraudulent
misrepresentations. An innocent misrepresentation only entitled a party to
rescind the contract – a situation which often left them with substantial damages
(eg Wittington v Seal-Hayne) which were left uncompensated.

In contrast, a fraudulent misrepresentation could constitute the tort of deceit, for

which damages are available.
© Professor C.A. MacMillan November 2021 8
Note that the underlying principles by which damages are assessed and limited
in misrepresentation are different than those from a breach of contract. The
former actions lie in tort (negligent mis-statement or deceit) while the latter lie
in contract.

(1) Fraudulent Misrepresentation

Archer v Brown [1984] 2 All ER 267
East v Maurer [1991] 2 All ER 733
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 at 167
"in contract, the defendant has made a promise and broken it. The object of
damages is to put the plaintiff in as good a position, as far as money can do it, as
if the promise had been performed. In fraud, the defendant has been guilty of a
deliberate wrong by inducing the plaintiff to act to his detriment. The object of
damages is to compensate the plaintiff for all the loss he has suffered, so far,
again, as money can do it. In contract, the damages are limited to what may
reasonably be supposed to have been in the contemplation of the parties. In
fraud, they are not so limited. The defendant is bound to make reparation for all
the actual damages directly flowing from the fraudulent inducement. The person
who has been defrauded is entitled to say:

"I would not have entered into this bargain at all but for your representation.
Owing to your fraud, I have not only lost all the money I paid you, but, what is
more, I have been put to a large amount of extra expense as well and suffered
this or that extra damages."

Smith New Court Securities Ltd v Citibank N.A. [1997] A.C. 254

4 Eng Ltd v Harper and Simpson [2008] EWHC 915 (Ch) – damages available in
deceit for the loss of a chance.

Glossop Carton and Print Ltd v Contact (Print & Packaging) Ltd [2021] EWCA Civ
639.

(2) Negligent Misrepresentation

Hedley Byrne & Co Ltd v Heller Partners Ltd (1964) A.C. 465; [1963] 3 WLR 101;
[1963] 2 All ER 375

The normal rule of remoteness is that the injury was "reasonably foreseeable":
see Esso Petroleum v Mardon [1976] QB 801 at 822.

IFE Fund SA v GSI International [2007] EWCA Civ 811

South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 at
213; [1996] 3 All ER 365 at 371:
'A mountaineer about to undertake a difficult climb is concerned about the
fitness of his knee. He goes to a doctor who negligently makes a superficial
examination and pronounces the knee fit. The climber goes on the expedition,
which he would not have undertaken if the doctor had told him the true state of

© Professor C.A. MacMillan November 2021 9

his knee. He suffers an injury which is an entirely foreseeable consequence of
mountaineering, but has nothing to do with his knee.' [per Lord Hoffmann]

Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2017] 3 All ER 969

[40] “In cases falling within Lord Hoffmann's 'advice' category, it is left to the
adviser to consider what matters should be taken into account in deciding
whether to enter into the transaction. His duty is to consider all relevant matters
and not only specific factors in the decision. If one of those matters is negligently
ignored or misjudged, and this proves to be critical to the decision, the client will
in principle be entitled to recover all loss flowing from the transaction which he
should have protected his client against. The House of Lords might have said of
the 'advice' cases that the client was entitled to the losses flowing from the
transaction if they were not just attributable to risks within the scope of the
adviser's duty but to risks which had been negligently assessed by the adviser. In
the great majority of cases, this would have assimilated the two categories. An
'adviser' would simply have been legally responsible for a wider range of
informational errors. But in a case where the adviser is responsible for guiding
the whole decision-making process, there is a certain pragmatic justice in the
test that the Appellate Committee preferred. If the adviser has a duty to protect
his client (so far as due care can do it) against the full range of risks associated
with a potential transaction, the client will not have retained responsibility for
any of them. The adviser's responsibility extends to the decision. If the adviser
has negligently assessed risk A, the result is that the overall riskiness of the
transaction has been understated. If the client would not have entered into the
transaction on a careful assessment of its overall merits, the fact that the loss
may have resulted from risks B, C or D should not matter.”

[41] “By comparison, in the 'information' category, a professional adviser

contributes a limited part of the material on which his client will rely in deciding
whether to enter into a prospective transaction, but the process of identifying
the other relevant considerations and the overall assessment of the commercial
merits of the transaction are exclusively matters for the client . . . In such a case . .
. the defendant's legal responsibility does not extend to the decision itself. It
follows that even if the material which the defendant supplied is known to be
critical to the decision to enter into the transaction, he is liable only for the
financial consequences of its being wrong and not for the financial consequences
of the claimant entering into the transaction so far as these are greater.
Otherwise the defendant would become the underwriter of the financial fortunes
of the whole transaction by virtue of having assumed a duty of care in relation to
just one element of someone else's decision.” (per Lord Sumption)

(3) Misrepresentation Act 1967, s. 2

(a) Subsection (1)

Misrepresentation Act s.2(1)
"Where a person has entered into a contract after a misrepresentation has been
made to him by another party thereto and as a result thereof he has suffered loss,
then, if the person making the misrepresentation would be liable in damages in
© Professor C.A. MacMillan November 2021 10
respect thereof had the misrepresentation been made fraudulently, that person
shall be so liable notwithstanding that the misrepresentation was not made
fraudulently, unless he proves that he had reasonable ground to believe and did
believe up to the time the contract was made that the facts represented were true."

Naughton v O'Callaghan [1990] 3 All ER 191

East v Maurer [1991] 2 All E.R. 733
Royscot Trust v Rogerson [1991] 2 Q.B. 297
"in view of the wording of the subsection it is difficult to see how the measure of
damages under it could be other than the tortious measure and, despite the
initial aberrations referred to above, that is now generally accepted."

Smith New Court Securities Ltd v Citibank N.A. [1997] A.C. 254 at 283: [the court
is reluctant to find that] “the rather loose wording of the statute ‘ compels the
court to treat a person who was morally innocent as if he was guilty of fraud
when it comes to the measure of damages.”

Forest International Gaskets Limited v. Fosters Marketing Limited [2005] EWCA

Civ 700 [at paras 11-17]

Foster v Action Aviation Ltd [2013] EWHC 2439 (Comm); appeal allowed [2014]
EWCA Civ 1368

Lost profit from alternatives as a part of the reliance measure: Yam Seng Pte Ltd
v International Trade Corporation Ltd [2013] EWHC 111 (QB); [2013] 1 All ER
(Comm) 1321

Taberna Eruope CDO II plc v Selskabet AF [Link] 2008 (formerly Roskilde

Bank A/S) [2016] EWCA Civ 1262, [2017] 3 All ER 1046
‘the background to the legislation and the language of s 2(1) itself read in the
context of s 2(2) point to the conclusion that it is concerned only with
representations made by a person who enters into a contract with the
representee and with losses arising as a result of entering into that contract.’
[44] . . . Section 2(1) of the Misrepresentation Act 1967 creates a form of
statutory liability sounding in negligence. In principle, therefore, contributory
negligence ought to be available as a defence . . .. [52] (per Moore-Bick LJ)

(b) Subsection (2)

Misrepresentation Act 1967 s. 2(2):
"Where a person has entered into a contract after a misrepresentation has been
made to him otherwise than fraudulently, and he would be entitled, by reason of
the misrepresentation, to rescind the contract, then, if it is claimed, in any
proceedings arising out of the contract, that the contract ought to be or has been
rescinded, the court or arbitrator may declare the contract subsisting and award
damages in lieu of rescission, if of opinion that it would be equitable to do so,
having regard to the nature of the misrepresentation and the loss that would be
caused by it if the contract were upheld, as well as to the loss that rescission would
cause to the other party."

© Professor C.A. MacMillan November 2021 11

"Damages may be awarded against a person under subsection (2) of this section
whether or not he is liable to damages under subsection(1) thereof, but where he is
so liable any award under the said subsection (2) shall be taken into account in
assessing his liability under the said subsection (1)."

William Sindall plc v Cambridgeshire County Council [1994] 3 All ER 932

Salt v Stratstone Specialist Ltd (t/a Stratstone Cadillac Newcastle) [2015] EWCA
Civ 745
[17] ”The point appears to be open at the level of the Court of Appeal. The words
of the statute are ‘if it is claimed … that the contract ought to be or has been
rescinded the court … may declare the contract subsisting and award damages in
lieu of rescission’. No doubt a claimant can be said to make a claim even if he is
subsequently held not to be entitled to do so. But the words ‘in lieu of rescission’
must, in my view, carry with them the implication that rescission is available (or
was available at the time the contract was rescinded). If it is not (or was not
available in law) because e.g. the contract has been affirmed, third party rights
have intervened, an excessive time has elapsed or restitution has become
impossible, rescission is not available and damages cannot be said to be awarded
‘in lieu of rescission’.
[18] “On the hypothesis, therefore, that DJ Hickman was correct to say that
restitutio in integrum was not possible, the discretion under section 2(2) to
award damages was not available to him.” (per Longmore LJ)

B. Rescission
The principal common law remedy for a misrepresentation which induced a
contract was rescission. This was, and is still, available whether the
representation was innocent, negligent or fraudulent. ‘Rescission’ in this context
means that the contract is set aside, and the parties put into the position they
would have been in had the contract never been made. Any goods or money
which have been exchanged must be returned.

The remedy of rescission must be sought by the claimant: it does not occur
automatically. Until rescission has taken place, the contract will continue to exist.
In other words, misrepresentation renders a contract ‘voidable’ rather than
‘void’. Generally speaking the right of rescission will be exercised by giving
notice to the other party. There is one authority, however, which holds that
rescission can be effected by giving notice to relevant third parties.

(1) The nature of rescission

Car & Universal Finance v Caldwell [1965] 1 QB 525
Inntrepreneur Pub Co (CPC) Ltd v Sweeney [2002] EWHC 1060, The Times June
26, 2002

(2) Misrepresentation incorporated as a term of the contract

Pennsylvania Shipping Co v Compagnie Nationale de Navigation [1936] 2 All ER
1167
© Professor C.A. MacMillan November 2021 12
Misrepresentation Act 1967, s. 1(a)

(3) The claimant’s choice between seeking rescission and

claiming damages for fraud (where a fraudulent misrepresentation)
Archer v Brown [1984] 2 All ER 267

(4) Rescission and an indemnity

Whittington v Seal Hayne (1900) 82 LT 49

(5) Restrictions on the right to rescind

There are some situations in which the right to rescind is lost with the result that
the innocent party cannot rescind the contract. These situations are often
referred to as ‘bars’ to rescission.

(a) Restitution impossible

Erlanger v New Sombrero Phosphate Co (1873) 2 App. Cas. 1218 at 1278
T.S.B. Bank plc v Camfield [1995] 1 W.L.R. 430

Salt v Stratstone Specialist Ltd (t/a Stratstone Cadillac Newcastle) [2015] EWCA
Civ 745

(b) Affirmation/Lapse of Time, Estoppel

Leaf v International Galleries [1950] 2 KB 86
Salt v Stratstone Specialist Ltd (t/a Stratstone Cadillac Newcastle) [2015] EWCA
Civ 745
“Whatever the position under the current law, I think that it will then no longer
be possible to align the equitable right to rescind for pre-contractual
misrepresentation with the statutory scheme governing contractual rights. “
([46] per Roth LJ)

Long v Lloyd [1958] 1 WLR 753

Peyman v Lanjani [1985] 2 WLR 154; [1984] 3 All ER 703

(c) Third party rights

Phillips v Brooks [1919] 2 KB 243
Car & Universal Finance v Caldwell [1965] 1 QB 525

VI. Exclusion of liability for misrepresentations

Contractual exclusions or restrictions of liability or remedies for
misrepresentations are only effective to the extent that they are reasonable
under s. 11(1) of the Unfair Contract Terms Act 1977:

s. 3(1) If a contract contains a term which would exclude or restrict—

© Professor C.A. MacMillan November 2021 13
(a) any liability to which a party to a contract may be subject by reason of any
misrepresentation made by him before the contract was made; or
(b) any remedy available to another party to the contract by reason of such a
misrepresentation,
that term shall be of no effect except in so far as it satisfies the requirement of
reasonableness as stated in s11(1) of the Unfair Contract Terms Act 1977; and it is
for those claiming that the term satisfies that requirement to show that it does.

Raiffeisen Zenbtralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC

1392 (Comm)
AXA Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133

Taberna Eruope CDO II plc v Selskabet AF [Link] 2008 (formerly Roskilde

Bank A/S) [2016] EWCA Civ 1262, [2017] 3 All ER 1046

Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221

HIH Casualty & General Insurance Ltd v Chase Manhattan Bank, Chase Manhattan
Bank v HIH Casualty & General Insurance Ltd [2003] UKHL 6, [2003] 1 All E.R.
(Comm) 349

First Tower Trustees Ltd and another v CDS (Superstores International) Ltd
[2017] EWHC 891 (Ch), [2017] 4 WLR 73

IFE Fund SA v GSI International [2007] EWCA Civ 811

‘The foundation for liability for negligent misstatements demonstrates that
where the terms on which someone is prepared to give advice or make a
statement negatives any assumption of responsibility, no duty of care will be
owed. Although there might be cases where the law would impose a duty by
virtue of a particular state of facts despite an attempt not “to assume
responsibility”, the relationship between GSI either as arranger or as vendor
would not be one of them.’ ([28] per Waller LJ)

Note that s. 3 does not apply to a contract between a consumer and a trader:
Misrepresentation Act 1967, s3(2) This section does not apply to a term in a
consumer contract within the meaning of Part 2 of the Consumer Rights Act

s. 62 Consumer Rights Act 2015 provides that an unfair term of a consumer

contract between a trader and a consumer is not binding upon a consumer.
‘Consumer’ is defined in s. 2(3) as ‘an individual acting for purposes that are
wholly or mainly outside that individual's trade, business, craft or profession’;
‘trader’ is defined in s.2(2) as ‘a person acting for purposes relating to that
person's trade, business, craft or profession, whether acting personally or
through another person acting in the trader's name or on the trader's behalf’.

s. 62 of the Consumer Rights Act 2015 provides the means by which it is to be

determined if a term is unfair.

© Professor C.A. MacMillan November 2021 14

TEST YOUR KNOWLEDGE
You may want to try the self-test at the end of chapter 17 in the casebook for this
module (McKendrick’s Contract Law: Text, Cases, and Materials (9th ed)) to assess
your knowledge of misrepresentation. The self-test is found online through Law
Trove at:
[Link]
resources/mckendrick9e-chapter-17-self-test-questions

FURTHER READING ON MISREPRESENTATION

If you would like to extend your knowledge of the topic of misrepresentation,
you may wish to look at one of the following articles available through the KCL
databases:

 P. S. Atiyah and G.H. Treitel, ‘Misrepresentation Act 1967’ (1967) 30 MLR

369.
 Richard Buxton, ‘How the common law gets made: Hedley Byrne and
other cautionary tales’, (2009) 125 LQR 60
 Hooley, ‘Damages and the Misrepresentation Act 1967’, (1991) 107 L.Q.R.
547
 Taylor, ‘Expectation, Reliance and Misrepresentation’, (1982) 45 MLR 139

© Professor C.A. MacMillan November 2021 15

 Mistake

Key Learning Objectives

This topic introduces the effect upon an otherwise valid contract of a mistake
entertained by one or both parties in entering into their agreement. A number of
key learning objectives are presented in relation to this topic:
 What is contractual mistake?
 An understanding of contractual mistake in relation to its historical
origins within the common law
 The relationship between the doctrines of mistake and misrepresentation
including the different effects of each if established
 The different categories of operative mistake including key distinctions
between unilateral and bilateral mistakes and the varying vocabularies
used to describe key distinctions and concepts
 The criteria necessary to establish a mistake as operative upon the
formation of a contract
 The distinction and relevance of the different approaches of law and
equity to questions of mistake

Reading:
Anson, chapter 8
McKendrick, casebook, chapter 16
Morgan, Great Debates in Contract Law, chapter 6

You may also wish to refer also to one of:

Davies, JC Smith’s The Law of Contract, ch 6, ch 14, ch 22
McKendrick, Contract Law, ch 4, ch 14
O’Sullivan & Hilliard, The Law of Contract, ch 3, ch 14

Introduction
“If mistake operates at all it operates so as to negative or in some cases to nullify
consent. The parties may be mistaken in the identity of the contracting parties,
or in the existence of the subject-matter of the contract at the date of the
contract, or in the quality of the subject-matter of the contract. These mistakes
may be by one party, or by both, and the legal effect may depend upon the class
of mistake above mentioned.”

"To apply the principle to the infinite combinations of facts that arise in actual
experience will continue to be difficult, but if this case results in establishing
order into what has been a somewhat confused and difficult branch of the law it
© Professor C.A. MacMillan November 2021 16
will have served a useful purpose." [Per Lord Atkin, Bell v Lever Brothers, Ltd
(1931), [1932] A.C. 161 at 227]

English law lacks a coherent reason for a doctrine of mistake in contract law: see
Catharine MacMillan, Mistakes in Contract Law (Hart Publishing, 2010)

I. MISTAKE AT COMMON LAW

A. INTRODUCTION
The distinction between mistakes of fact and mistakes of law - Kleinwort Benson
v Lincoln City Council [1998] 4 All E.R. 513.

Mistake of law recognised: Brennan v Bolt Burdon [2004] EWCA Civ - but
difficult where an agreement which settles a legal claim

B. ABSENCE OF GENUINE AGREEMENT

Raffles v Wichelhaus (1864) 2 H. & C. 906
Scriven Bros. & Co. v Hindley & Co. [1913] 3 K.B. 564

C. COMMON MISTAKE
1. Mistake as to the Existence of the Subject Matter
Couturier v Hastie (1852) 5 H.L.C. 673
McRae v Commonwealth Disposals Commission
(1951) 84 C.L.R. 377 (HCA)

2. Mistake as to the Possibility of Performance

(a) Physical Impossibility
Sheikh Brothers Ltd v Ochsner (1957), [1957]
A.C. 136
(b) Legal Impossibility
Cooper v Phibbs (1867) L.R. 2 H.L. 149
(c) Commercial Impossibility
Griffith v Brymer (1903) 19 T.L.R. 434

3. Mistake as to a quality of the Subject Matter

Bell v Lever Brothers, Ltd (1931), [1931] A.C. 161
‘If mistake operates at all it operates so as to negative or in some cases to nullify
consent. The parties may be mistaken in the identity of the contracting parties,
or in the existence of the subject-matter of the contract at the date of the
contract, or in the quality of the subject-matter of the contract. These mistakes
may be by one party, or by both, and the legal effect may depend upon the class
of mistake above mentioned.’ [per Lord Atkin]

‘Mistake as to quality of the thing contracted for raises more difficult questions.
In such a case mistake will not affect assent unless:
© Professor C.A. MacMillan November 2021 17
[1] it is the mistake of both parties,
[2] and is to the existence of some quality which makes the thing without the
quality essentially different from the thing as it was believed to be.’ [per Lord
Atkin, 218]

[But] "it would be wrong to decide that an agreement to terminate a definite

specified contract is void if it turns out that the agreement had already been
broken and could have been terminated otherwise. The contract released is the
identical contract in both cases, and the party paying for release gets exactly
what he bargains for. It seems immaterial that he could have got the same result
in another way, or that if he had known the true facts he would not have entered
into the bargain." [Per Lord Atkin, 223]

"it is of greater importance that well established principles of contract should be

maintained than that a particular hardship should be redressed; and I see no way
of giving relief to the plaintiffs in the present circumstances except by confiding
to the Courts loose powers of introducing terms into contracts which would only
serve to introduce doubt and confusion where certainty is essential." [per Lord
Atkin, 229]

Nicholson & Venn v Smith-Marriott (1947) 177 L.T. 189

"there was a mutual mistake of the kind or category calculated to vitiate the
assent of the parties and therefore to enable the plaintiffs to treat themselves as
not bound by the contract."

Galloway v Galloway (1914) 30 T.L.R. 531 (KBD)

Scott v Coulson (1903), [1903] 2 Ch. 249

Associated Japanese Bank (International) Ltd v Credit

du Nord S.A. (1988), [1989] 1 W.L.R. 255
"The non-existence of the subject matter of the principal contract is therefore of
fundamental importance. Indeed the analogy of the classic res extincta cases . . .
is fairly close." [per Steyn, J]

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA
Civ 1407; [2002] 4 All ER 689 (CA)
Lord Phillips added to Lord Atkin’s criteria and a mistake is only operative:
1. where non-existence of particular state of affairs not attributable to
either party;
2. non-existence of state of affairs renders contract impossible to
perform; and
3. state of affairs may be the existence/vital attribute of consideration to
be provided or circumstances subsisting to allow possibility of
performance of K.

4. Fundamental Mistake going to the Root of the Contract

Bell v Lever Brothers, Ltd (1931), [1931] A.C. 161.

© Professor C.A. MacMillan November 2021 18

The case is not without difficulties: Catharine MacMillan, “How Temptation Led
to Mistake: An Explanation of Bell v Lever Bros”, (2003) 119 Law Quarterly
Review 625.

D. UNILATERAL MISTAKE
1. Mistake as to the Promise
Smith v Hughes (1871) L.R. 6 Q.B. 597
‘and may be thus expressed: “The promiser is not bound to fulfil a promise in a
sense in which the promisee knew at the time the promiser did not intend it.”
And in considering the question, in what sense a promisee is entitled to enforce a
promise, it matters not in what way the knowledge of the meaning in which the
promiser made it is brought to the mind of the promisee, whether by express
words, or by conduct, or previous dealings, or other circumstances. If by any
means he knows that there was no real agreement between him and the
promiser, he is not entitled to insist that the promise shall be fulfilled in a sense
to which the mind of the promiser did not assent.
If, therefore, in the present case, the plaintiff knew that the defendant, in dealing
with him for oats, did so on the assumption that the plaintiff was contracting to
sell him old oats, he was aware that the defendant apprehended the contract in a
different sense to that in which he meant it, and he is thereby deprived of the
right to insist that the defendant shall be bound by that which was only the
apparent, and not the real bargain.’ [per Hannen, J, 610]

Hartog v Colin & Shields (1939), [1939] 3 All E.R. 566

2. Mistake as to Identity
Hardman v Booth (1863) 1 H. & C. 803, 158 E.R. 1107
Cundy v Lindsay (1878) 3 App. Cas. 459
King's Norton Metal Co. v Edridge (1897) 14 T.L.R. 98
Phillips v Brooks Ltd (1919), [1919] 2 K.B. 243
Ingram v Little (1960), [1961] 1 Q.B. 31
Lewis v Averay (1971), [1972] 1 Q.B. 198
Shogun Finance Ltd v Hudson [2003] UKHL 62 noted by Catharine MacMillan,
‘Mistake as to Identity Clarified?’, [2004] 120 L.Q.R. 369.

An explanation for the nature of the development of the law in this area
can be found in: Catharine MacMillan, ‘Rogues, Swindlers and Cheats: the
Development of Mistake of Identity in English Contract Law’, (2005) 64
Cambridge Law Journal 711.

II. MISTAKE IN EQUITY

A. WHEN IT OCCURS
Solle v Butcher [1950] 1 K.B. 671
"It is now clear that a contract will be set aside if the mistake of the one party has
been induced by a material misrepresentation of the other, even though it was
© Professor C.A. MacMillan November 2021 19
not fradulent or fundamental; or if one party, knowing that the other is mistaken
about the terms of an offer, or the identity of the person whom it is made, lets
him remain under his delusion and concludes a contract on the mistaken terms
instead of pointing out the mistake." [Per Lord Denning, 692]

"A contract is also liable in equity to be set aside if

[1] the parties were under a common misapprehension either as to facts or as to
their relative and respective rights, provided
[2] that the misapprehension was fundamental and
[3] that the party seeking to set it aside was not himself at fault." [Per Lord
Denning, 693]
Grist v Bailey (1966), [1967] Ch. 532
Clarion v National Provident Institution [2000] 2 All ER 265

But does it still occur?

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
[2002] EWCA Civ 1407; [2002] 4 All ER 689 (CA)
‘We can understand why the decision in Bell v Lever Bros Ltd did not find favour
with Lord Denning MR. An equitable jurisdiction to grant rescission on terms
where a common fundamental mistake has induced a contract gives greater
flexibility than a doctrine of common law which holds the contract void in such
circumstances. Just as the Law Reform (Frustrated Contracts) Act 1943 was
needed to temper the effect of the common law doctrine of frustration, so there
is scope for legislation to give greater flexibility to our law of mistake than the
common law allows.’ [per Lord Phillips MR at para 161]

Pitt v Holt; Futter v Futter [2013] UKSC 26

B. THE EFFECT OF MISTAKE IN EQUITY

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
[2002] EWCA Civ 1407; [2002] 4 All ER 689 (CA)
‘We can understand why the decision in Bell v Lever Bros Ltd did not find favour
with Lord Denning MR. An equitable jurisdiction to grant rescission on terms
where a common fundamental mistake has induced a contract gives greater
flexibility than a doctrine of common law which holds the contract void in such
circumstances. Just as the Law Reform (Frustrated Contracts) Act 1943 was
needed to temper the effect of the common law doctrine of frustration, so there
is scope for legislation to give greater flexibility to our law of mistake than the
common law allows.’ [per Lord Phillips MR at para 161]

Kyle Bay Ltd (t/a Astons Nightclub) v Underwriters [2006] EWHC 607

A range of commentators have written about the decision in Great Peace

Shipping:
 Phang, ‘Controversy in Common Mistake’, 2003 Conv. 247
{Westlaw}

© Professor C.A. MacMillan November 2021 20

  Reynolds, ‘Reconsider the Contract Textbooks’ (2003) 119
L.Q.R. 177; Midwinter, ‘The Great Peace and Precedent’;
(2003) 119 L.Q.R. 180 {Westlaw}
 Hare, ‘Inequitable Mistake’, (2003) 62 C.L.J. 29
 Chandler, Devenney and Poole, ‘Common Mistake:
Theoretical Justification and Remedial Inflexibility’ J.B.L.
2004, Jan, 34-58 {Westlaw}

C. EQUITABLE RELIEF
1. Refusal of Specific Performance
- leaving the party to a suit for damages
Malins v Freeman (1837) 2 Keen 25; 48 E.R. 537
Tamplin v James (1880) 15 Ch.D. 215
"a Court of Equity will refuse specific performance of an agreement when the
Defendant has entered into it under a mistake, and where injustice would be
done to him were performance to be enforced. The most common instances of
such refusal on the ground of mistake are cases in which there has been some
unintentional misrepresentation on the part of the Plaintiff or where from the
ambiguity of the agreement different meanings have been given to it by the
different parties."

2. Rescission
Solle v Butcher
Grist v Bailey
Magee v Pennine Insurance
Rescission on terms? Cooper v Phibbs
- does it still exist? The Great Peace.

3. Rectification
- mistakes in the recording of the agreement and not the formation of the
agreement.
F.E. Rose (London) Ltd v William Pim Jnr & Co. [1953]
2 Q.B. 450
"Rectification is concerned with contracts and documents, not with intentions.
In order to get rectification it is necessary to show that the parties were in
complete agreement on the terms of their contract, but by an error wrote them
down wrongly; and in this regard, in order to ascertain the terms of their
contract, you do not look into the inner minds of the parties-into their
intentions-any more than you do in the formation of any other contract. You
look at their outward acts, that is, at what they said or wrote to one another in
coming to their agreement, and then compare it with the document which they
have signed." [per Lord Denning]

Chartbrook Ltd v Persimmon Ltd [2009] UKHL 38

‘The party seeking rectification must show that: (1) the parties had a common
continuing intention, whether or not amounting to an agreement, in respect of a
© Professor C.A. MacMillan November 2021 21
particular matter in the instrument to be rectified; (2) there was an outward
expression of accord; (3) the intention continued at the time of the execution of
the instrument sought to be rectified; (4) by mistake, the instrument did not
reflect that common intention’ [per Lord Hoffmann]

Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ
1153

For recent scholarship on rectification, see David

McLauchlan ‘Refining Rectification’ (2014) 130 LQR 83

FSHC Group Holdings Ltd v Glas Trust Corporation Ltd [2019] EWCA Civ 1361

II. THE RELATIONSHIP BETWEEN COMMON LAW MISTAKE AND

MISTAKE IN EQUITY

Associated Japanese Bank (International) Ltd v Credit du Nord S.A.

(1988), [1989] 1 W.L.R. 255
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
[2002] EWCA Civ 1407; [2002] 4 All ER 689 (CA)

TEST YOUR KNOWLEDGE

You may want to try the self-test at the end of chapter 16 in the casebook for this
module (McKendrick’s Contract Law: Text, Cases, and Materials (9th ed)) to assess
your knowledge of misrepresentation. The self-test is found online through Law
Trove at: [Link]
student-resources/mckendrick9e-chapter-16-self-test-questions

FURTHER READING ON MISTAKE

If you would like to extend your knowledge of the topic of misrepresentation,
you may wish to look at one of the following articles available through the KCL
databases:

 Melvin Eisenberg, ‘The Role of Fault in Contract Law: Unconscionability,

Unexpected Circumstances, Interpretation, Mistake, and Non-
Performance, (2009) 107 Mich. L. Rev. 1413
 MacMillan, Catharine, “How Temptation Led to Mistake: An Explanation of
Bell v Lever Bros”, (2003) 119 L.Q.R. 625
 MacMillan, Catharine, ‘Rogues, Swindlers and Cheats: the Development of
Mistake of Identity in English Contract Law’, (2005) 64 C.L.J. 711.
 Andrew B.L. Phang, "Common Mistake in English law: the proposed
merger of common law and equity", 9 Legal Studies 291
 C.J. Slade (1954), "The Myth of Mistake in the English Law of Contract",
70 LQR 385.
 J.C. Smith, "Contracts-Mistake, Frustration and Implied Terms", (1994)
110 LQR 400.
© Professor C.A. MacMillan November 2021 22
  Samuel Stoljar, 'A New Approach to Mistake in Contract' (1965) 28 MOD L
REV 265
 Sean Thomas, ‘Mistake of identity: a comparative analysis’ (2008) Lloyd’s
Maritime and Commercial Law Quarterly 188

© Professor C.A. MacMillan November 2021 23

 Duress, Undue Influence, Unconscionability
and Inequality of Bargaining Power

Key Learning Objectives

This topic introduces the effect upon an otherwise valid contract when one party
is in a much weaker position than the other party and, sometimes, where the
stronger party exerts pressure upon this weaker party. In some limited
circumstances courts are concerned to protect parties within a particular
relationship. It is important that you are able to understand – and to apply to a
problem analysis – the key elements and supporting authorities in these areas
including:
 The development of duress, particularly economic duress
 The requirements necessary to establish a finding of duress
 An understanding of the requirements of economic duress including
whether or not lawful acts may constitute economic duress
 The effects upon a contract’s enforceability of a finding of duress
 The definition and different categories of undue influence
 How to establish various forms of undue influence
 The effects, if established, of undue influence both between contracting
parties and also between a contracting party and a third party
 The elements necessary to establish the presence of unconscionability in
contractual transactions
 The effect of a finding of unconscionability upon a contract
 The extent to which inequality of bargaining power is a consideration in
not enforcing contracts

Reading:
Anson, chapter 10
McKendrick, casebook, chapters 18-20
Morgan, Great Debates in Contract Law, chapter 6

You may also wish to refer also to one of:

Davies, JC Smith’s The Law of Contract, ch 17, ch 18, ch 19
McKendrick, Contract Law, ch 17
O’Sullivan & Hilliard, The Law of Contract, ch 11, ch 12, ch 13

Introduction
English courts are reluctant to introduce a doctrine of good faith into contract
law. Courts are, however, reluctant to set aside a contract between parties of
unequal bargaining power solely on the basis of the inequality. At the same time,
however, courts will not allow the strong to push the weak to extract agreement
and, in certain circumstances, courts will set aside apparent contracts. Law and
© Professor C.A. MacMillan November 2021 24
equity developed different responses to the use of illegitimate pressure. Courts
of equity would set aside a contract where one party had unduly influenced the
other to enter into a transaction. Courts of common law were slower to develop a
response to the use of illegitimate pressure but do now recognise, under the
doctrine of duress, to render a contract voidable where one party has employed
illegitimate pressure during the contractual process. English law, unlike
Australian or Canadian law, has struggled to recognise a general doctrine of
unconscionability.

I. Duress
The common law was slow to develop a doctrine of duress, recognising only
threats to the personal security of an individual, as a form of duress. Gradually,
though, the law expanded to recognize duress to goods and, more recently and
importantly, economic duress.

Universe Tankships of Monrovia v International Transport Workers Federation

("The Universe Sentinel") [1983] 1 A.C. 366
"The rationale is that his [the party under duress] apparent consent was induced
by pressure exercised upon him by that other party which the law does not
regard as legitimate, with the consequence that the consent is treated in law as
revocable unless approbated either expressly or by implication after the
illegitimate pressure has ceased to operate on his mind." [at 384]

1. Forms of Duress
(a) to the person
Barton v Armstrong [1976] A.C. 104

(b) to goods
Skeate v Beale (1840) 11 Ad & E 983
The Siboen and The Sibotre [1976] 1 Lloyds Rep 293

(c) economic duress

This is a topic you have already considered in relation to the provision of
consideration in re-negotiated or varied contracts (eg, Williams v Roffey Bros). In
Stilk v Myrick (1809), Campbell’s report stated that the contract was not good
because it lacked consideration. Espinasses’s report (long ignored) stated that
the promise was not upheld on policy grounds. This is, possibly, an indication of
the application of duress.

Economic duress occurs when one party uses its superior economic power to
force the weaker party into an agreement. The problem is – how can the law
distinguish between those circumstances in which overbearing behavior is
acceptable and those in which it is not?

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

Pao On v Lau Yiu Long [1980] A.C. 614

© Professor C.A. MacMillan November 2021 25

"Duress, whatever form it takes, is a coercion of the will so as to vitiate consent".
(Lord Scarman, 635) In a contractual situation, mere commercial pressure will
not be sufficient.

The pressures "must be such that the victim must have entered the contract
against his will, must have had no alternative course open to him and must have
been confronted with coercive acts by the party exerting the pressure." [at
636] . . . "It must be shown that the payment made or the contract entered into
was not a voluntary act on his part." [636]

Further, "in determining whether there was a coercion of will such that there
was no true consent, it is material to inquire
[1] whether, at the time he was allegedly coerced into making the contract, he
did or did not have an alternative course open to him such as an adequate legal
remedy;
[2] whether he was independently advised;
[3] and whether after entering the contract he took steps to avoid it.
[at 635]

Since then courts seem to be concerned with whether the illegitimate pressure is
such as to ‘deflect’ rather than ‘destroy’ the will: Huyton v Cremer (1999) [1999]
1 Lloyd's Rep. 620

DSND Subsea v Petroleum Geo-Services (2000) [2000] B.L.R. 530 per Dyson, J.:
‘The ingredients of actionable duress are that there must be pressure, (a) whose
practical effect is that there is compulsion on, or a lack of practical choice for, the
victim, (b) which is illegitimate, and (c) which is a significant cause inducing the
claimant to enter into the contract . . .’

Determination of illegitimate pressure requires court to consider a range of

factors including whether:
- there has been an actual or threatened breach of contract;
- had the victim any realistic practical alternative but to submit to the
pressure;
- person allegedly exerting pressure acted in good or bad faith;
- victim protested at time;
- victim later affirmed and sought to rely on contract.

The coercion is an essential element of the claim of economic duress and must be
a reason the party has entered into the contract: Morley v RBS [2021] EWCA Civ
338. The case also illustrates the importance of a ‘victim’ acting promptly to set
aside the contract once the pressure is removed.

An illustrative example of economic duress: Atlas Express v Kafco (Importers and

Distributors) Ltd [1989] 1 All ER 641

R v A-G for England and Wales [2003] UKPC 22

Unlawful pressure vs Illegitimate pressure

© Professor C.A. MacMillan November 2021 26

Lawful act duress – CTN Cash & Carry v Gallaher [1994] 4 All E.R. 714; Times
Travel (UK) Ltd v Pakistan International Airlines Corpn [2021] UKSC 40;
Ukraine v Law Debenture Trust Corp Plc [2018] EWCA Civ 2026 – appeal pending
and to be heard 12 November 2021

2. Effect of Duress
Does duress render a contract void or voidable? This is important because of the
potential effect upon a third party.
Barton v Armstrong [1976] A.C. 104 – void – but is this correct?

The better view is that duress renders the contract voidable:

Halpern v Halpern [2007] EWCA Civ 291

The consequences of finding that the contract is voidable for duress are evident
in:
North Ocean Shipping v Hyundai Construction [1979] 3 W.L.R. 129 and Morley v
RBS [2021] EWCA Civ 338

3. Duress distinguished from commercial pressure

Alec Lobb Ltd v Total Oil [1983] 1 W.L.R. 87
Times Travel (UK) Ltd v Pakistan International Airlines Corpn [2021] UKSC 40

4. Lawful act duress

Whether or not a lawful act could be a cause of economic duress was considered
in CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714 and Marsden v
Barclays Bank plc [2016] EWHC 1601. While this was something of an open
question, the matter has now been resolved by the UK Supreme Court in Times
Travel (UK) Ltd v Pakistan International Airlines Corpn [2021] UKSC 40 which
has acknowledged that lawful act duress does exist in English law.

Times Travel (UK) Ltd v Pakistan International Airlines Corpn [2021] UKSC 40
‘English law has never recognized a general principle of good faith in contracting.
Instead, English law has relied on piecemeal solutions in response to
demonstrated problems of unfairness’ [27] . . . ‘The absence of these doctrines
restricts the scope for lawful act economic duress in commercial life’ [28]. (both
per Lord Hodge DPSC)

The work of Professor Jack Beatson (as he then was) was cited by Lord Hodge to
explain the development of the modern doctrine of economic duress. The
relevant quote is found at [28]:
‘All that is not prohibited is permitted and there is no general doctrine of
abuse of rights. If therefore a person is permitted to do something, he will
generally be allowed to do it for any reason or for none. In the context of
contractual negotiations this position enables people to know where they
stand and provides certainty as to what is acceptable conduct in the
bargaining process but it does leave many forms of socially objectionable
conduct unchecked. Again, this is soundly based for judges should not, as

© Professor C.A. MacMillan November 2021 27

 a general rule, be the arbiters of what is socially unacceptable and attach
legal consequences to such conduct .’
Lord Hodge agreed with Professor Beatson’s characterisation that the role for
lawful act duress was ‘extremely limited’. [28]

Consequently, for Lord Hodge (with whom Lord Reed PSC, Lord Lloyd-Jones and
Lord Kitchin JJSC agreed), lawful act duress would rarely arise:
‘Against this commercial background the pressure applied by a negotiating party
will very rarely come up to the standard of illegitimate pressure or
unconscionable conduct. It will therefore be a rare circumstance that a court will
find lawful act duress in the context of commercial negotiation.’ [30]

An illegitimate pressure in a commercial transaction required behaviour with

‘reprehensible characteristics’ in order to set aside the transaction on the basis
of economic duress. [57]

5. How is duress distinct from undue influence?

Duress – law
Undue Influence – equity - Royal Bank of Scotland v Etridge (No 2) [2001] 3
WLR 1021
Times Travel (UK) Ltd v Pakistan International Airlines Corpn [2021] UKSC 40:
‘[M]orally reprehensible behaviour which in equity was judged to render the
enforcement of a contract unconscionable in the context of undue influence has
been treated by English common law as illegitimate pressure in the context of
duress.’ (per Lord Hodge DPSC at [2])

TEST YOUR KNOWLEDGE

If you would like to assess your knowledge of duress, do try the self-test on
duress at the end of chapter 18 in the casebook for this module (McKendrick’s
Contract Law: Text, Cases, and Materials (9th ed)).
You can find this activity online in Law Trove at:
[Link]
resources/mckendrick9e-chapter-18-self-test-questions

II. Undue Influence

Equity, in contrast to law, did not focus upon the use of force or threats in the
making of the agreement but upon the relationship between the parties to the
contract. Equity acts upon the conscience and the equitable doctrine of undue
influence operates where the people are in a relationship such that one party
relies upon the other.

English law, as we shall see, has taken a rather unusual focus with regard to the
law of undue influence.

© Professor C.A. MacMillan November 2021 28

The law will ‘investigate the manner in which the intention to enter into the
transaction was secured’ (per Nicholls, Royal Bank of Scotland v Etridge (No 2)
[2001] 3 WLR 1021, para 7) It will seek to ascertain “how the intention was
produced” (Lord Eldon LC, Huguenin v Baseley 14 Ves 273, 300)

Lord Nicholls, in Royal Bank of Scotland v Etridge (No 2) describes undue

influence as ‘one of the grounds of relief developed by the courts of equity as a
court of conscience. The objective is to ensure that the influence of one person
over another is not abused.’

1. FORMS OF UNDUE INFLUENCE

Barclays Bank plc v O'Brien [1993] 4 All ER 417
But note this division in RBS v Etridge (No 2) - Lord Clyde, in particular, believed
that ‘a division into cases of “actual” and “presumed” undue influence appears
illogical. It appears to confuse definition and proof.” (para 92) He thought that
the subdivision of categories within presumed undue influence was equally
unhelpful: ‘All these classifications to my mind add mystery rather than
illumination.’

(a) ACTUAL
CIBC Mortgages plc v Pitt [1993] 4 All ER 433
"Actual undue influence is a species of fraud. Like any other victim of fraud, a
person who has been induced by undue influence to carry out a transaction
which he did not freely and knowingly enter into is entitled to have that
transaction set aside as of right . . . A man guilty of fraud is no more entitled to
argue that the transaction was beneficial to the person defrauded than is a man
who has procured a transaction by misrepresentation. The effect of the
wrongdoer's conduct is to prevent the wronged party from bringing a free will
and properly informed mind to bear on the proposed transaction which
accordingly must be set aside in equity as a matter of justice."

(b) PRESUMED
RBS v Etridge (No 2)

(i) relationships presumed by law

These relationships include parent and child, religious adviser and disciple,
doctor and patient, and solicitor and client; trustee and beneficiary

(ii) de facto relationships

In some instances the relationship may not fall within those presumed by law.
However, the complainant may prove the de facto existence of "a relationship
under which the complainant generally reposed trust and confidence in the
wrongdoer, the existence of such relationship raises the presumption of undue
influence."

© Professor C.A. MacMillan November 2021 29

Sir Eric Sachs in Lloyds Bank v Bundy [1975] 1 Q.B. 326 at 341: "Such cases
tend to arise where someone relies on the guidance or advice of another, where
the other is aware of that reliance and where the person upon whom the reliance
is placed obtains, or may well obtain, a benefit from the transaction or has some
other interest in it being concluded. In addition, there must, of course, be show
to exist a vital element . . . referred to as confidentiality . .. which is so impossible
to define."

In RBS v Etridge (No 2), Lord Nicholls states that ‘the principle is not confined to
cases of abuse of trust and confidence.’ There is no ‘single touchstone’ for
determining whether the principle is applicable. (para 11.)

Spouses? Barclays Bank plc v O'Brien [1993] 4 All ER 417

2. MUST THE TRANSACTION BE MANIFESTLY

DISADVANTAGEOUS?
CIBC Mortgages plc v Pitt [1993] 4 All ER 433
RBS v Etridge (No 2) at [28-29]

3. THE EFFECT OF UNDUE INFLUENCE

(a) WITH RESPECT TO THE WRONGDOER
Lloyds Bank v Bundy

(b) WITH RESPECT TO A THIRD PARTY

Barclay's Bank v O'Brien
1. wrongdoer as agent of the third party; or
2. third party takes with actual or constructive notice of the wrongdoing

RBS v Etridge (No 2):

In any kind of non-commercial transaction, a creditor is put to an inquiry:
1) the transaction is on its face not to the financial advantage of the wife; and
(2) there is a substantial risk in transactions of that kind that, in having the wife
agree to act as a surety, the husband has committed a legal or equitable wrong
that entitles the wife to set aside the transaction.

When a bank is put in inquiry it must:

1. Check directly with the wife the name of the solicitor she wishes to act for her
– must not proceed with transaction until it has received an appropriate
response directly from wife;
2. Bank must send solicitor necessary (depends on facts of case) financial
information pertaining to the transaction;
3. Where the bank believes the wife has been misled or is entering the
transaction against her free will they must inform her solicitors of this
The bank must in every case obtain a written confirmation that the solicitor has
explained fully to the wife the nature of the transaction and the practical
implications the transactions will have for her.

© Professor C.A. MacMillan November 2021 30

Banks can send the surety out to a solicitor, but the advice given must be
meaningful and not perfunctory. In addition, the solicitor must be aware of the
nature of the transaction involved.

What should be the content of the legal advice? Lord Nicholls suggests the
following.

First, the solicitor should explain to the surety the reason he has become
involved in the transaction and explain, in particular, that in the event of
problems, the bank will rely on his presence to counter any suggestion that the
will of the surety was overborne by the debtor or that she did not understand the
nature of the transaction.

Second, the solicitor needs to obtain instructions to act for the surety in the
matter and advise him/her on the legal and practical implications of the
proposed transaction.

Thirdly, the solicitor must, before giving the bank confirmation that the surety
has been independently advised ensure that he has explained the following
matters as a core minimum (para 65)

(1) solicitor explains the nature of the documents and the practical
consequences for surety if signed;
(2) point out the seriousness of the risks involved;
(3) solicitor needs to state clearly that the surety has a choice – the
decision is hers
(4) solicitor should check whether wife wishes to proceed

Solicitor’s meeting with surety should take place at a face to face meeting in
absence of husband.

Solicitor’s role is not a formality.

TEST YOUR KNOWLEDGE

If you would like to assess your knowledge of undue influence, do try the self-
test on undue influence at the end of chapter 19 in the casebook for this module
(McKendrick’s Contract Law: Text, Cases, and Materials (9th ed)).
You can find this activity online in Law Trove at:
[Link]
resources/mckendrick9e-chapter-19-self-test-questions

© Professor C.A. MacMillan November 2021 31

III. UNCONSCIONABILITY AND INEQUALITY OF BARGAINING
POWER

1. Unconscionability
Aylesford v Morris (1873) 8 Ch App 484
‘The victim comes to the snare (for this system of dealing does set snares, not,
perhaps, for one prodigal more than another, but for prodigals generally as a
class), excluded, and known to be excluded, by the very motives and
circumstances which attract him, from the help and advice of his natural
guardians and protectors, and from that professional aid which would be
accessible to him, if he did not feel compelled to secrecy. He comes in the dark,
and in fetters, without either the will or the power to take care of himself, and
with nobody else to take care of him.’ [per Lord Selborne at 491-92]

Fry v Lane (1888) 40 Ch D 312

Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 173, 183:
‘[t]he courts would only interfere in exceptional cases where as a matter of
common fairness it was not right that the strong should be allowed to push the
weak to the wall’ [per Dillon LJ]

Boustany v Pigott [1995] 69 P & CR 298

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

Uber Technologies Inc, et al v Heller 2020 SCC 16

‘where the traditional assumptions underlying contract enforcement lose their
justificatory authority, the doctrine of unconscionability provides relief from
improvident contracts. When unfair bargains cannot be linked to fair bargaining
— when they cannot be attributed to one party’s “donative intent or assumed
risk”, as Professor Benson puts it — courts can avoid the inequitable effects of
enforcement without endangering the core values on which freedom of contract
is based (p. 182; see also Eisenberg, at pp. 799-801; S.M. Waddams, “Good Faith,
Unconscionability and Reasonable Expectations” (1995), 9 J.C.L. 55, at p. 60).
This explains how unconscionability lines up with traditional accounts of
contract theory while recognizing the doctrine’s historical roots in equity, which
has long operated as a “corrective to the harshness of the common law” ‘ [59]. . .
‘Unconscionability, in our view, is meant to protect those who are vulnerable in
the contracting process from loss or improvidence to that party in the bargain
that was made’ [60] . . . ‘Openly recognizing a doctrine of unconscionability also
promotes fairness and transparency in contract law’ [61] per Abella and Rowe JJ.

‘This appeal was framed by the parties in terms of unconscionability, which

presents an unfortunate difficulty since applying unconscionability here
amounts to forcing a square peg into a round hole. My colleagues Abella and
Rowe JJ. seek to avoid this difficulty by vastly expanding the scope of the
doctrine’s application and removing any meaningful constraint. As I will explain,
their approach is, in my respectful view, both unnecessary and undesirable.
Unnecessary, because the law already contains settled legal principles outside
the doctrine of unconscionability which operate to prevent contracting parties
© Professor C.A. MacMillan November 2021 32
from insulating their disputes from independent adjudication. And undesirable,
because it would drastically expand the doctrine’s reach without providing any
meaningful guidance as to its application. Charting such a course will serve only
to compound the uncertainty that already plagues the doctrine, and to introduce
uncertainty to the enforcement of contracts generally.’ [103] . . .‘Freedom of
contract is of central importance to the Canadian commercial and legal system
and, to promote the certainty and stability of contractual relations, often trumps
other societal values . . .. Indeed, a hallmark of a free society is the freedom of
individuals to arrange their affairs without fear of overreaching interference by
the state, including the courts. . . .[108] But while privileging freedom of
contract, the common law has never treated it as absolute. Quite simply, there
are certain promises to which contracting parties cannot bind themselves. . . . .
[112] Access to civil justice is a precondition not only to a functioning
democracy but also to a vibrant economy, in part because access to justice allows
contracting parties to enforce their agreements. A contract that denies one party
the right to enforce its terms undermines both the rule of law and commercial
certainty. That such an agreement is contrary to public policy is not a
manifestation of judicial idiosyncrasies, but rather an instance of the self-evident
proposition that there is no value in a contract that cannot be enforced. Thus, the
harm to the public that would result from holding contracting parties to a
bargain they cannot enforce is “substantially incontestable” . . .. It really is this
simple: unless everyone has reasonable access to the law and its processes
where necessary to vindicate legal rights, we will live in a society where the
strong and well-resourced will always prevail over the weak.’ Per Brown J.

2. An inequality of bargaining power?

Lloyds Bank Ltd v Bundy [1975] QB 326
Lord Denning M R reviewed the various instances in which a court would
intervene to protect a weaker party and stated:

‘Gathering all together, I would suggest that through all these instances there
runs a single thread. They rest on "inequality of bargaining power." By virtue of
it, the English law gives relief to one who, without independent advice, enters
into a contract upon terms which are very unfair or transfers property for a
consideration which is grossly inadequate, when 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 by or for the benefit of the other. When I use the word "undue" I do
not mean to suggest that the principle depends on proof of any wrongdoing. The
one who stipulates for an unfair advantage may be moved solely by his own self-
interest, unconscious of the distress he is bringing to the other. I have also
avoided any reference to the will of the one being "dominated" or "overcome" by
the other. One who is in extreme need may knowingly consent to a most
improvident bargain, solely to relieve the straits in which he finds himself. Again,
I do not mean to suggest that every transaction is saved by independent advice.’
[at 339]

National Westminster Bank plc v Morgan [1985] AC 686, 707-708

© Professor C.A. MacMillan November 2021 33

Lord Denning M.R. believed that the doctrine of undue influence could be
subsumed under a general principle that English courts will grant relief where
there has been "inequality of bargaining power" (p. 339). He deliberately
avoided reference to the will of one party being dominated or overcome by
another. The majority of the court did not follow him; they based their decision
on the orthodox view of the doctrine as expounded in Allcard v. Skinner, 36 Ch.D.
145. The opinion of the Master of the Rolls, therefore, was not the ground of the
court's decision, which was to be found in the view of the majority, for whom Sir
Eric Sachs delivered the leading judgment.

Nor has counsel for the respondent sought to rely on Lord Denning M.R.'s
general principle: and, in my view, he was right not to do so. The doctrine of
undue influence has been sufficiently developed not to need the support of a
principle which by its formulation in the language of the law of contract is not
appropriate to cover transactions of gift where there is no bargain. The fact of an
unequal bargain will, of course, be a relevant feature in some cases of undue
influence. But it can never become an appropriate basis of principle of an
equitable doctrine which is concerned with transactions "not to be reasonably
accounted for on the ground of friendship, relationship, charity, or other
ordinary motives on which ordinary men act" (Lindley L.J. in Allcard v. Skinner, at
p. 185). and even in the field of contract I question whether there is any need in
the modern law to erect a general principle of relief against inequality of
bargaining power. Parliament has undertaken the task - and it is essentially a
legislative task - of enacting such restrictions upon freedom of contract as are in
its judgment necessary to relieve against the mischief.’ [per Lord Scarman]

TEST YOUR KNOWLEDGE

If you would like to assess your knowledge of unconscionability and inequality of
bargaining power, do try the self-test on unconscionability and inequality of
bargaining power at the end of chapter 20 in the casebook for this module
(McKendrick’s Contract Law: Text, Cases, and Materials (9th ed)).
You can find this activity online in Law Trove at:
[Link]
resources/mckendrick9e-chapter-20-self-test-questions

FURTHER READING ON DURESS, UNDUE INFLUENCE,

UNCONSCIONABILITY AND INEQUALITY OF BARGAINING POWER
If you would like to extend your knowledge of the topics of duress, undue
influence, unconscionability and inequality of bargaining power, you may wish to
look at one of the following articles available through the KCL databases:
 Andrew Phang & Hans Tjio, ‘The uncertain boundaries of undue influence’, ,
L.M.C.L.Q. 2002, 2(May), 231-245
 Fehlberg, "The Husband, the Bank, the Wife and her Signature-the
Sequel”, (1996) 59 MLR 675.
 Hooley, "Taking Security after O'Brien", [1995] LMCLQ 346
 Smith, S, ‘Contracting Under Pressure: A Theory of Duress’ [1997] CLJ
343.
© Professor C.A. MacMillan November 2021 34
  Capper, D, ‘The Unconscionable Bargain in the Common Law World’,
(2010) 126 LQR 403
 Marcus Moore, ‘The HMCS Unconscionability: adrift in the Atlantic’ (2021)
Oxford University Commonwealth Law Journal 1.
 Thal, SN ‘The Inequality of Bargaining Power Doctrine: The Problem of
Defining Contractual Unfairness’ (1988) 8 OJLS 17.

© Professor C.A. MacMillan November 2021 35