Law of ContractLAWW1013

VITIATING FACTORS
Howard Bennett
Hind Professor of Commercial Law

INTRODUCTION
● Vitiating factors taint the consent that, through agreement, provides the foundation for a
contract. They are:

o Misrepresentation: misleading statements

o Duress: coercion
o Undue influence: taking advantage of relationships of dependence
o Unconscionable bargains: taking advantage of particular characteristics

● These four doctrines evolved over time (indeed are still evolving) and combine responses at
common law and in equity to the underlying issues. The remedial side of misrepresentation
is affected by statute. The result is not always neat and tidy.

● A vitiating factor renders a contract voidable. This means that the contract comes into
existence but is liable to be set aside with retrospective effect through the remedy of
rescission. Until and unless the contract is rescinded, it operates as normal.

● Terminology: you rescind/avoid a voidable contract by exercising the remedy of

rescission/avoidance. Vitiating factors do not render a contract void. A void contract is a
contradiction in terms, since void means the contract never comes into existence in the first
place. Rescission is irrelevant as there is nothing to rescind.

● Rescission is the primary and sometimes the only remedy for a vitiating factor. Damages are
relevant only if rescission is unavailable (there are four bars to rescission) or if the innocent
party has sustained loss that rescission does not address. Damages are available only if the
facts that generate a vitiating factor constitute an actionable tort, or if a statute gives a
damages remedy. Since vitiating factors affect contractual negotiations, they precede the
contract. They do not operate through implied contractual terms and do not, of themselves,
give rise to a claim for remedies for breach of contract.

MISREPRESENTATION
● The law’s concern: A’s consent to concluding a contract on the specified terms was induced
by a false statement by B. A therefore made an induced mistake. B may have honestly
believed in the truth of what was said and have had reasonable grounds for that belief, but
the fact is that the statement was false and it misled A. B is responsible for that misleading,
even if not morally culpable.

● Nevertheless, the precise requirements for an actionable misrepresentation and the

remedies available may be affected by the culpability of the misrepresentor, in particular
whether the representation was made fraudulently.

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o Derry v Peek (1889) 14 App Cas 337: a representation is fraudulent if made

▪ Intentionally, knowing it is untrue

▪ Recklessly, meaning subjectively aware that the statement may be untrue or
careless as to whether it is true or not. In either case therefore the
representor makes the statement as if the representor positively believes it
is true when it holds no such positive belief.

o The key point is that the test for fraud, in all forms, is subjective. There is a
fundamental fault-line in degrees of culpability between fraud, judged subjectively
by reference to the mind of the individual, and negligence, judged objectively by
reference to a reasonable person. See Derry v Peek itself.

● For C to be able to invoke an actionable misrepresentation against D, C must prove: (1) a

statement (2) of fact (3) made by or on behalf of D (4) to C (5) that is false, (6) that is
material, and (7) that induces C to enter into the contract.

1. A STATEMENT
● Right to exploit information advantage; silence is not, of itself, a misrepresentation. Only a
few transactions attract a law of non-disclosure, of which the most significant is insurance.

● Thus, if S sells some goods knowing that they are affected by a defect, even one that is latent
so that B could not reasonably be expected to discover it, and keeps silent about their
condition, at common law B has no remedy for what S does not say. Although it may be the
case today that the law will imply into the resulting contract a term covering the point (see
later lectures), this cannot be guaranteed and the basic principle in the law of
misrepresentation holds good.

● Half truth: statement literally true but misleading in what is left unsaid

o Dimmock v Hallett (1866) LR 2 Ch App 21: A sells land divided into farms to B. Prior
to the contract being concluded, A states that all the farms are fully let. This is
accurate, but all the tenants have given notice to quit.

● Continuing misrepresentation:

o Temporal reach of a statement: Cramaso LLP v Ogilvie-Grant [2014] UKSC 9, [2014]

AC 1093 at [16]-[23]

▪ Question of interpretation whether representation confined to

circumstances as at time of representation or intended to be relied upon as
true through to time of conclusion of the contract.
▪ Generally, correct interpretation is of continuing reliability. In which case,
statement false when made is not denied actionability simply because of
lapse of time between making of statement and conclusion of contract.

o Continuing representation true when made but ceases to be true before contract
concluded: representor is responsible for the continuing accuracy of the
representation; cessation of truth creates actionable misrepresentation.

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▪ With v O’Flanagan [1936] Ch 575: A sells his medical practice to B. Six

months prior to the sale, A correctly represents to B that the practice is
worth £x. By the time the contract is in fact concluded, the value has fallen
considerably to £y (because A had himself been ill in the meantime).1

● Note also ‘the rule in Smith v Hughes’ (1871) LR 6 QB 597: a mistake as to the terms of the
contract known to the other party prevents a contract from coming into existence (the so-
called ‘contract’ is void). The mistake must be as to what is being promised, not as to the
subject of the contract, although the promise may in turn relate to the subject of the
contract.

2. OF FACT
● To be actionable, the statement must be one of fact. A distinction must be drawn between
fact and (a) opinion or belief, (b) intention.

(a) Statements Of Opinion Or Belief2

● A statement of opinion, as such, is never actionable. After all, even experts are allowed
to be wrong.

o Bissett v Wilkinson [1927] AC 177: vendor of land misstated its sheep-bearing

capacity. Vendor was a sheep farmer but the land in question had never been
used for sheep farming.

o Anderson v Pacific Fire & Marine Insurance Co (1872) LR 7 CP 65: shipowners

wished to insure freight to be earned from carriage of cargo on a certain vessel.
They showed insurers a letter from the master of the vessel to be insured in
which the master stated of a proposed anchorage: ‘It is considered by the pilot
as a good and safe anchorage, and well sheltered. I have been out and seen the
place, and consider it quite safe.’ While subsequently at anchor there, a storm
arose, and vessel and freight were lost.

● But this can be a difficult area. Liability can arise in various circumstances.

o First, any expression of opinion must be founded on something. A blind guess is

not an opinion. To state an opinion (as opposed to making it clear that what is

1 It is arguable that an actionable misrepresentation in such circumstances in fact requires knowledge by the
representor that the representation has ceased to be true. The judgments in With v O’Flanagan all refer to
such knowledge, although it was present on the facts so the Court was not asked to consider the law in its
absence. A number of subsequent cases have reiterated the requirement of knowledge, relying on With.
Against any knowledge requirement: (1) the concept of an actionable misrepresentation is based on strict
liability and there is no obvious reason for greater leniency in these circumstances; (2) the Misrepresentation
Act 1967, s 2(1) (discussed below) separates the question of whether a misrepresentation has been made that
induces a contract from the state of the mind of the representor (the relevance of which appears confined to
the availability of damages); (3) Cramaso LLP v Ogilvie-Grant [2014] UKSC 9, [2014] AC 1093 at [16]-[23],
although concerned with the continuing effect of a representation false from inception, may be read as
supporting strict liability responsibility for the continuing accuracy of a statement that is true when made.
2 Bennett, ‘Statements of Fact and Statements of Belief in Insurance Contract Law and General Contract Law’
(1998) 61 MLR 886 at 886-9

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being expressed is a mere guess) involves impliedly stating the existence of a

sufficient basis to merit opinion status: Economides v Commercial Assurance Co
plc [1998] QB 587 at 598.

o Secondly, a statement of opinion always imports a statement that the

representor does indeed possess that opinion. That is a fact, and actionable (and
necessarily fraudulent) if the representor in truth does not have that opinion:
Bissett v Wilkinson [1927] AC 177 at 182.

o Thirdly, in appropriate circumstances, a statement of opinion imports a

representation that the opinion is based upon reasonable grounds. The
existence of reasonable grounds justifying the opinion is a fact. There will be
liability if the reasonable grounds do not exist. In effect, liability arises not
because the opinion turns out to be wrong, but because it was negligently
formulated.

▪ Appropriate circumstances: the representor either is factually in a good

position to know the relevant circumstances against the background of
which the representation is made or holds itself out as possessed of
expertise in relation to the matter about which the opinion is expressed.

▪ Esso Petroleum Co Ltd v Mardon [1976] QB 801: Esso acquires a site on a

busy main street for a petrol station on the basis of calculations showing
that, as from the third year, sales will be 200,000 gallons. Subsequently,
the local planning authority requires the station to be constructed so as
to be accessible only via side streets, adversely affecting possible sales,
but Esso does not revise its figures. M negotiates for a tenancy of the
station. During negotiations, a representative of Esso tells M in good
faith of their calculations. M is dubious but is convinced by the greater
experience of A. Despite M’s best endeavours, only 78,000 gallons are
sold in the first 15 months.

● Note also the possibility for an implied representation of the fact of holding an opinion
or the fact that an opinion based on reasonable grounds to be true at the time of being
initially made but then cease to be true before the contract is concluded.

● Note further again that determining whether the statement is properly to be considered
as one of opinion or fact can be difficult.

o Smith v Land & House Property Corp (1884) 28 ChD 7: V sells his house to P. Prior
to the contract, V states that it is let to ‘a most desirable tenant’ on certain
terms ‘thus offering a first-class investment’. In fact, the tenant has fallen into
arrears of rent and in the past the rent has been obtained only with difficulty.
CA: sale voidable for misrepresentation. But why? Two possible analyses: (1) the
statements were of opinion, but V was in a much better position to know the
relevant circumstances than P, so the statement must be construed as
containing an implied representation of fact, namely the existence of reasonable
grounds to justify the opinion, and those reasonable grounds did not exist; (2)
the statements were of fact, namely that V knew nothing to render
inappropriate the description of the tenant as desirable. The judgments provide
support for both!

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▪ Bowen LJ: if a landlord ‘says that he considers that the relations

between himself and his tenant are satisfactory, he really avers that the
facts peculiarly within his knowledge are such as to render that opinion
reasonable.’ (15) But also V’s statement was ‘an assertion that nothing
has occurred in the relations between the landlords and the tenant
which can be considered to make the tenant an unsatisfactory one. That
is an assertion of a specific fact.’ (15)

▪ Why does it matter? If statement of opinion, essentially looking for

evidence of negligence. If statement factual, question is simply whether
wrong.

(b) Statements Of Intention

● A mere failure to do something you have stated you will do is not of itself a basis of liability.
A promise is not an actionable representation, because, in relation to its fulfilment, it is not a
statement of existing fact. Put another way, there is no legal duty not to change your mind.

● But a promisor does state as a fact the current existence of the intention to do the promised
thing. A statement that your intention is x when in fact x is not your intention is a fraudulent
misrepresentation of fact. The law does not overlook fraud.

o Edgington v Fitzmaurice (1885) 29 ChD 459: A borrows money from B on the basis
that A intends to use it to improve and expand A’s company. In fact, A’s intention is
different, namely the payment of existing company debts. ‘The state of a man’s
mind is as much a fact as the state of his digestion.’

● Moreover, while a statement of what is currently your future intention carries no guarantee
that you will not change your mind, if you change your mind before the contract is
concluded, there is an actionable misrepresentation if you do not inform the representee.

o Traill v Baring (1864) 4 DJ & S 318: insurance company sought reinsurance;

represented intended to retain part of the risk to be reinsured (thereby retaining
financial interest in that risk not generating claims); before reinsurance contract
concluded, changed mind and reinsured the part represented to be retained. Held:
reinsurance contract voidable. Turner LJ (at 329):

‘I take it to be quite clear, that if a person makes a representation by which he

induces another to take a particular course, and the circumstances are
afterwards altered to the knowledge of the party making the representation,
but not to the knowledge of the party to whom the representation is made, and
are so altered that the alteration of the circumstances may affect the course of
conduct which may be pursued by the party to whom the representation is
made it is the imperative duty of the party who has made the representation to
communicate to the party to whom the representation has been made the
alteration of those circumstances; and that this Court will not hold the party to
whom the representation has been made bound unless such a communication
has been made.’

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3. MADE BY OR ON BEHALF OF THE DEFENDANT TO THE CLAIMANT

● If C is induced into a contract by something false said by a third party, that in general
constitutes no ground for challenging the resulting contract. The exception is where the
other contracting party (D) has notice of the misrepresentation and fails to take reasonable
steps. The relevant law is now laid down in Royal Bank of Scotland (No 2) v Etridge [2001]
UKHL 44, [2002] 2 AC 773 (discussed later).

● Even if representation made by D, C cannot invoke it against D unless made by D to C. A

statement made by D to a third party that C happens to overhear cannot be relied upon by
C.

● Continuing misrepresentation and change of party

o Cramaso LLP v Ogilvie-Grant [2014] UKSC 9, [2014] AC 1093 at [16]-[19], [21]-[23]

▪ Negotiations commence between A and B.

▪ A makes a representation to B intended to be true not just at the time it is
made but through to the time of conclusion of the contract. Representation
untrue.
▪ B is then succeeded in the negotiations by C.
▪ It is possible (depending on the precise facts) for C to ‘inherit’ and continue
the same negotiations, so that the misrepresentation made to B is continued
and thereby made to C.

4. FALSE
● The statement must be false. Determining whether it is true or false is generally
straightforward, provided the fact stated has been correctly identified.

● But it may present difficulty. S owns a shop selling cameras. A notice in her shop window
advertises the Nikolta X99, stating it is ‘the best value on the market today’ at £249. The
camera is of good quality but is being superseded by a new model, the Nikolta 21C that
offers many more features but costs £325. Chain stores are offering a package of the X99
together with accessories worth £50 for the price of £259. S’s personal preference, if buying
a camera for her own use, would be to buy the Nikolta 21C.

Is there a misrepresentation? (a) What exactly is being represented? (b) Is it untrue? What
does ‘best value’ mean? How is it assessed? To what does ‘best value’ refer?

o The Nikolta X99 rather than any other model of camera offers the best value for
money generally?
o The Nikolta X99 is the best camera available at the price of £249?
o The Nikolta X99 is the best camera available within a price bracket of [£x]-[£y]?
o This is the best price for the Nikolta X99?
o This is the best value overall deal under which you can obtain a Nikolta X99?
o If I were to buy a camera today, I would opt for the Nikolta X99?

Whenever the word ‘best’ is applied to a camera, what does it mean? Most reliable? Most
features? Highest resolution?

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5. MATERIALITY
● A representation is material if a reasonable person in the position of the representee would
regard the misstated fact as relevant in deciding whether to enter the contract and, if so, on
what terms. It is an objective concept and to be distinguished from the requirement of
subjective inducement of the actual representee (see next section).

● Materiality not an issue in cases of fraud: either materiality not required or fraudster not
permitted to deny the materiality of their fraudulent statements.

● Even in non-fraud cases, materiality, although analytically necessary, is hardly ever a

problem. It is unlikely that a court will conclude that a misstated fact induced the actual
representee but would have been regarded as irrelevant by a reasonable representee. The
requirement, however, explains why a statement that objectively ought not to be relied
upon (sometimes called a ‘mere puff’) cannot be relied upon by an irrational representee.
(Such statements may also not state any fact: ‘probably the best lager in the world’).

6. INDUCEMENT
● A misrepresentation is actionable only if it induces the actual representee to conclude the
contract on the terms agreed, ie the misrepresentation causes the conclusion of the
contract. In contrast to the objective concept of materiality, inducement is a subjective
concept.

(a) The Required Causal Link

● In principle, a misrepresentation induces entry into a contract where, had no statement

been made, the representee either would not have concluded the contract at all or would
have concluded it but on different terms.

o Assicurazioni Generali SpA v Arab Insurance Group (BSC) [2002] EWCA Civ 1642,
[2002] Lloyd’s Rep IR 131 at [62] per Clarke LJ:

‘In order to prove inducement the [representee] must show that the …
misrepresentation was an effective cause of his entering into the contract on the
terms on which he did. He must therefore show at least that, but for the relevant
… misrepresentation, he would not have entered into the contract on those
terms.’

▪ The counterfactual is what the representee would have done had no

representation been made (as opposed to what the representee would have
done had the truth been stated): Raiffeisen Zentralbank Osterreich AG v
Royal Bank of Scotland plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s
Rep 123 at [174]-[191].

● In cases of fraud, however, the requirement is reduced. The representee must show merely
that the misrepresentation acted as an inducement into the contract, that it was ‘actively
present’ in the misrepresentee’s mind when deciding whether to conclude it. There is no
requirement that a fraudulent misrepresentation be shown to have had, by itself, a decisive

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impact on the mind of the representee in terms of the decision to enter the contract or any
of the terms agreed. Put another way, if the representee relied on the fraudulent statement
in deciding to conclude the contract, there is inducement even if the representee would
have made the same decision without the statement being made.

o Barton v Armstrong [1976] AC 104, 118 per Lord Cross

‘If … Barton relied on the [fraudulent] misrepresentation Armstrong could not

have defeated his claim to relief by showing that there were other more weighty
causes which contributed to his decision to execute the deed, for in this field the
court does not allow an examination into the relative importance of contributory
causes. “Once make out that there has been anything like deception and no
contract resting in any degree on that foundation can stand”: per Lord Cranworth
in Reynell v Sprye (1852) 1 De G M & G 660, 708.’

● There is no requirement that a misrepresentation be the sole inducement. In the course of

contractual negotiations, many statements may be made. In deciding whether to contract
and, if so, on what terms, C may ignore some statements completely, consider but then
discard some others as unimportant, but then take a decision based on a body of factors
including a number of statements from D and other matters as well. One statement made by
C proves to be false. Assuming it is not fraudulent, C has to be able to show that that single
statement considered individually altered C’s decision in some way. But provided C can do
that, it is irrelevant that C also relied on other statements by D that were true or on other
matters. Assuming D’s statement was fraudulent, the matter is easier. C need show only that
the statement was ‘actively present’ in C’s mind when deciding to contract, regardless of
how C would have acted had the statement not been made.

o Edgington v Fitzmaurice (1885) 29 ChD 459: C contracted to lend money to a

company on the basis of (a) fraudulent misstatements by the company directors (D)
about the purpose for which the money was sought and (b) C’s own mistake that the
loan would be secured by a charge on the company’s property. CA: D’s statement
‘actively present’ in C’s mind when deciding to lend (Bowen LJ at 483); D liable in
deceit.

‘It is true that if he had not supposed he would have a charge he would not
have taken the debentures; but if he also relied on the misstatement in the
prospectus, his loss none the less resulted from that misstatement. It is not
necessary to shew that the misstatement was the sole cause of his acting as he
did. If he acted on that misstatement, though he was also influenced by an
erroneous supposition, the Defendants will be still liable.’ (Cotton LJ at 481)

‘The Plaintiff says: I had two inducements, one my own mistake, the other the
false statement of the Defendants. The two together induced me to advance
the money. But in my opinion if the false statement of fact actually influenced
the Plaintiff, the Defendants are liable, even though the Plaintiff may have been
also influenced by other motives.’ (Fry LJ at 485)

(b) Demonstrating No Inducement

● Representee does not believe what is represented, or conducts its own investigations into
the matter: Attwood v Small (1836) 6 Cl & F 232.

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● Representee would still have concluded the contract on the same terms had the statement
not been made: JEB Fasteners Ltd v Marks, Bloom & Co [1983] 1 All ER 583.

● Suppose IP could have discovered the truth

o Is there any onus on the representee to check a statement? No. Nocton v Ashburton
[1914] AC 932 at 962 per Lord Dunedin:

‘No-one is entitled to make a statement which on the face of it conveys a false

impression and then excuse himself on the ground that the person to whom he
made it had available the means of correction.’

▪ Redgrave v Hurd (1881) 20 ChD 1: statement as to value of business

supported by documents that indicated lower value; D asked about the
difference; C showed D documents that C said demonstrated the extra
business; D did not read those documents; in fact they revealed almost no
extra business; contract concluded but D declined to perform on
discovering the truth; C sued. J: C’s carelessness in failing to avail himself of
opportunity to ascertain the truth denied reliance on the misrepresentation.
CA: judgment reversed; negligently failing to discover inaccuracy does not
negate the right to seek relief based on that inaccuracy.

o For some time, it was questioned whether this approach was confined to fraud. It
seems now clear that it applies to all forms of misrepresentation: Standard
Chartered Bank v Pakistan National Shipping Corp (No 2) [2002] UKHL 43, [2003] 1
AC 959 at [17].

7. MISREPRESENTATION & CONTRACTUAL TERMS

● Pre-contractual statement can also be a contractual term.

● Heart of the distinction: intention of representor as objectively apparent. Would a

reasonable person in the position of the recipient of the statement believe that the other
party was undertaking its truth as a matter of contract? In practice, often not much
evidence, so the courts are driven to take into account matters such as the proximity in time
of the statement to the conclusion of the contract and the extent of likely reliance by the
representee on the statement. Consequently, statements made by expert traders to non-
expert customers are more likely to have dual status than those made between parties of
equal expertise.

● Different sets of remedies. Traditionally, great emphasis placed on the fact that damages not
available for innocent misrepresentation and therefore important not readily to accept that
pre-contractual representations were incorporated into the contract. Since the 1960s,
damages more widely available for misrepresentation so that maintaining a distinction less
important (even though damages for misrepresentation are tortious and not contractual),
and arguably it is indeed easier to establish that pre-contractual statement is also
incorporated as a term of the contract.

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o Where goods are sold by description, it is an implied condition of the contract that
the goods correspond to that description: Sale of Goods Act 1979, s 13. Statements
forming part of the description of goods are, of course, pre-contractual
representations. S 13, in effect, incorporates such statements into the contract and
provides the strongest contractual remedies (because of the status of s 13 as an
implied condition: see later in the course).

● Misrepresentation Act 1967, s 1: any idea of hierarchy of norms and merger of

misrepresentation into term (probably wrong anyway) abolished.

● Today, if misrepresentation also incorporated into the contract as a term, can have any
combination of remedies provided not contradictory.

DURESS
● The law’s concern: A’s consent to contract on the specified terms was procured by the
exercise of illegitimate coercion. A may have fully and accurately understand the import of
the contract being concluded but the decision to consent was coerced in a manner the law
considers illegitimate.

● Successful plea of duress requires proof of three elements

o Illegitimate threat
o Causation
o Sufficient coercive power in the eyes of the law

1. ILLEGITIMATE THREAT
● Coercion is not of itself illegitimate. Just as English law permits the exploitation of
information advantage, so it also permits the exploitation of circumstantial advantage. A has
something B needs and there is no alternative source of supply. A can take advantage of
such circumstances to extract a premium price. A cannot challenge the price it is compelled
to agree. The doctrine of consideration does not allow a review of adequacy (ie fairness of
the exchange), and the same review cannot be secured by re-labelling the issue one of
coercion.

● A threat of unlawful conduct is in principle illegitimate, eg a threat to break a contract.

o Possibly legitimate if act is understandable commercial response in the

circumstances (and perhaps in good faith in that genuinely if mistakenly believe
entitled so to act).

● Threat not to contract: generally simply the exercise of the rights underpinning freedom of
contract and therefore legitimate.

● It appears, however, that one can have ‘lawful act’ duress, but only in exceptional and as yet
undefined circumstances.

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o CTN Cash & Carry v Gallagher [1994] 4 All ER 714: C ordered £17,000 worth of
cigarettes from D; D mistakenly delivered to the wrong warehouse from which they
were stolen; D demanded payment in erroneous belief that the goods were at C’s
risk; C paid only when D threatened that credit facilities for future deals (which D
not obliged to enter into) would be withdrawn. C claimed return of the £17,000 on
the ground of duress. CA: no. Commercial transaction at arm’s length and D honestly
believed it was entitled to the money. However, Steyn LJ (at 719):

‘Outside the field of protected relationships, and in a purely commercial

context, it might be a relatively rare case in which “lawful act duress” can be
established. And it might be particularly difficult to establish duress if the
defendant bona fide considered that his demand was valid. In this complex and
changing branch of the law I deliberately refrain from saying “never”.’

Nicholls V-C: confessed to being troubled at the overall outcome.

o Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] EWHC 273, [2012] 1 CLC 365

▪ Voyage charterparty between shipowners (D) and charterers (C) for carriage
of goods C had resold to sub-buyer (S), laycan (contractual period within
which vessel to be made available by shipowner to charterer) 15-21 April
2009, no right to substitute vessel.
▪ D stated intended to perform with possible substitute and laycan of 15-24
April. This was a repudiatory breach of contract.3 C did not terminate.
▪ D conceded their error and undertook to find alternative vessel to load
between 27-30 April and to compensate C for losses caused.
▪ S agreed to accept late delivery from C provided price reduction of US$8 per
metric ton.
▪ D offered only US$2 per metric ton reduction in freight rate.
▪ C then agreed to D’s proposal but reserving rights in relation to damages for
losses caused by the original breach.
▪ D: ‘take it or leave it’ offer of performance by different vessel with $2 price
reduction and waiver of all claims for compensation in relation to the breach
of the original contract.
▪ C in difficult position: (a) resale, market price had dropped, so S would not
agree to any further variation without significant price reduction; (b) goods
were in barges in respect of which C was incurring additional charges
because of the extended period of use; (c) because of D’s assurances of
substitute performance and compensation, C had not made any alternative
plans.
▪ C agreed. Was this new agreement voidable for duress?
▪ Held (Cooke J): duress.
▪ New agreement not induced by unlawful threat, because no obligation to
conclude new agreement.
▪ But coercion all stemmed from D’s original unlawful conduct and D’s
conduct in negotiating the consequences to flow from that breach, which

3 Breaches of contract are either repudiatory or non-repudiatory. Only a repudiatory breach gives the
innocent the right to terminate the contract. Both types of breach give the innocent party the right to sue for
damages corresponding to the loss caused by the breach, which may of course be affected by whether the
innocent elects to terminate.

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meant that C no realistic alternative but to waive rights of compensation or

suffer massive losses on the resale.

o Times Travel (UK) Ltd v Pakistan International Airlines Corp [2017] EWHC 1367 (Ch),
reversed [2019] EWCA Civ 828, [2019] 3 WLR 445

▪ 2008, C (travel agent mainly selling airline tickets to Pakistani community in

Birmingham) contracted (Ag1) with D (only airline operating direct flights
between Pakistan and UK) to sell flight tickets in return for commission.
▪ 2012, C induced to conclude new agreement (Ag2) under which relinquished
all accrued commission claims under Ag1.
▪ C alleged Ag2 procured by duress: (1) unless able to sell D tickets, C would
go out of business; (2) 14 Sept 2012, D served notice of termination of Ag1
pursuant to its terms, notice expiring on 31 October 2012, with offer of Ag2
in substitution; (3) tickets allocated by D to agents on fortnightly basis, C’s
allocation 300 and able to obtain and sell additional 200 each fortnight,
reduced on 17 Sept to 60, causing ‘immense stress’; (4) D stated that
allocation would increase once Ag2 signed. 24 Sept, C signed. 27 Sept, C’s
ticket allocation restored to 300.
▪ Held: Ag2 voidable for duress [262]: accrued commission rights under Ag1
were clear; whole purpose of Ag2 was to induce forfeiture of those rights; C
was ‘successful, honest and reliable agent with a substantial period of loyal
service’; C given no adequate notice period to adjust its business and even
denied usual ticket allocations during the notice period; C had no practical
alternative but to submit; C protested at the time at the unfairness of Ag2.
▪ CA: upheld appeal; no duress. Much of J’s reasoning relevant to coercive
impact of D’s conduct, whereas question was whether threat legitimate.
Crucially, D genuinely believed it was compelling C to relinquish non-existent
claims and, therefore, acting in good faith. Irrelevant whether D’s belief
reasonable. [105] Why, and on what basis, could D not exercise a private law
right lawfully and in good faith? [106]
▪ CA rejected concept of ‘basic minimum standards of acceptable behaviour’
as yardstick for determining whether lawful acts could constitute duress.
[101]-[104]

o Al Nehayan v Kent [2018] EWHC 333 (Comm), [2018] 1 CLC 216 at [187]-[188] per
Leggatt LJ (at first instance):

‘[I]t is appropriate to take account of the legitimacy of the demand and to judge
the propriety of the defendant’s conduct by reference not simply to what is
lawful but to basic minimum standards of acceptable behaviour. To the
complaint that this makes the law uncertain, I would give two replies. First, as
the authorities have emphasised, the standard of unconscionability is a high one
and it is only in cases where the demand made and means used to reinforce it
are completely indefensible that the courts will intervene. Second, no apology is
needed for intervening in such cases, as the enforcement of basic norms of
commerce and of fair and honest dealing is an essential function of a system of
commercial law.
[A] demand coupled with a threat to commit a lawful act will be regarded as
illegitimate if (a) the defendant has no reasonable grounds for making the

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demand and (b) the threat would not be considered by reasonable and honest
people to be a proper means of reinforcing the demand.’

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2. CAUSATION
● Generally, proof that ‘but for’ the threat C would not have concluded the contract at all or
only on different terms: Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep 620. This
aligns with non-fraudulent misrepresentation.

● However, if threat to the person, same approach as fraudulent misrepresentation, ie suffices

that the threat is actively present in C’s mind when deciding to contract, even if C would still
have contracted on the same terms without any threat being made. Moreover, the fact that
a threat to the person is likely to induce a threatened party to contract raises a factual
inference that C was induced: Barton v Armstrong [1976] AC 104 at 118.

3. SUFFICIENT COERCIVE POWER

● The law has to strike a balance between coercion that should elicit relief and conduct that,
while perhaps unpleasant or ruthless, must be viewed as part of life, especially in a
commercial context. If C capitulated to a threat that should be regarded as part of life, the
law will not grant relief. The threat must, therefore, have been of such potency as to force a
reasonable person in C’s position to agree.

● What do we mean by ‘coerced’ or ‘forced’? Early cases of economic duress employed

language denoting a denial of consent. But this is wrong. That would deny the existence of
an agreement, which would prevent a contract from coming into existence. That is incorrect
in terms of legal principle: a contract tainted by duress is voidable, not void. It also does not
correspond to real life: duress does not deny the possibility of choice. What it may do is
deny C any realistic alternative.

o Universe Tankships of Monrovia v International Transport Workers Federation (The

Universe Sentinel) [1983] AC 366 at 400 per Lord Scarman:

‘There must be pressure, the practical effect of which is compulsion or the

absence of choice. Compulsion is variously described in the authorities as
coercion or the vitiation of consent. The classic case of duress is, however, not
the lack of will to submit but the victim’s intentional submission arising from the
realisation that there is no practical choice open to him.’

● Indicative factors of a sufficiently coercive effect (Pao On v Lau Yiu Long [1980] AC 614 at
635):

o Did C protest at the time?

o Did C have an alternative, such as an adequate legal remedy?
o Did C have any independent legal advice?
o Did C take any steps to rescind once the pressure was removed?

● In the context of a threat to break a contract, there is always the alternative of suing for
breach. But how devastating to C’s business will D’s non-performance be? How long will
legal proceedings take? Will any damages award be enforceable? Will money repair any
commercial damage suffered by C’s business if as a result of D’s breach, C is forced to default
on various transactions with other parties?

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● Three case law examples

o Pao On v Lau Yiu Long [1980] AC 614 at 635 Lord Scarman stated as follows (C is the
first defendant):

‘In the present case there is unanimity amongst the judges below that there
was no coercion of the first defendant's will. In the Court of Appeal the trial
judge's finding … that the first defendant considered the matter thoroughly,
chose to avoid litigation, and formed the opinion that the risk in giving the
guarantee was more apparent than real was upheld. In short, there was
commercial pressure, but no coercion.’

In other words, a threat was made, and but for the threat C would not have agreed
(on the fact to give a guarantee), but C was not in fact forced into agreeing. Faced
with the threat, C voluntarily chose to agree because it did not consider that the
guarantee would prove problematic. C could have resisted the threat but chose the
easier path. C voluntarily acquiesced; the threat lacked genuine coercive power.

o B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419: C
(note that in this case C is the party that makes the threat, while D is the coerced
party) contracted to erect exhibition stands for D for exhibition beginning 23 April;
C’s workers demanded additional £9000 and rejected C’s offer of £4500; C informed
D could not perform contract unless D paid the other £4500 in addition to the
contract price; D responded ‘You have got me over a barrel.’ D paid the workers,
contract performed, and D then deducted £4500 from the contract price. C sued for
that £4500. CA: D entitled to recover the £4500 as it had because extracted by C’s
duress. Had D not paid, stands not erected in time, resulting in ‘grave damage to
their reputation’ and exposing them to significant liability to the exhibitors who had
leased space from them and intended to use the stands in the exhibition. No other
source of labour available, therefore over a barrel and no alternative but to pay (at
426 per Griffiths LJ).

o Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833: D (small
importer) had contract to sell and deliver to large retailer and contracted with C
(carrier) to deliver goods to branches of retailer; mid-November, C requested
variation of price terms; D refused; C then sent vehicle to collect load of goods with
ultimatum that either D agreed to the variation or the vehicle would depart empty;
C knew D’s contract with retailer commercially vital to D; D reasonably believed no
alternative carrier could be found (J: ‘difficult, if not impossible’) and that to break
contract with retailer would be ruinous, and therefore agreed; C delivered D’s goods
until end December; 2 Feb, D paid C £10,000 on account; 2 March, D claimed duress;
C sued to recover money payable in accordance with the contract variation. Held:
Variation not binding. D ‘over a barrel’; economic duress proved.

UNDUE INFLUENCE

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● Equity’s concern: most cases are concerned with ‘unacceptable forms of persuasion’ (Royal
Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at [7] per Lord Nicholls) within
relationships of special trust and confidence.

o ‘Courts of Equity have never set aside gifts on the ground of the folly, imprudence,
or want of foresight on the part of donors … It would obviously be to encourage
folly, recklessness, extravagance and vice if persons could get back property which
they foolishly made away with, whether by giving it to charitable institutions or by
bestowing it on less worthy objects. On the other hand, to protect people from
being forced, tricked or misled in any way by others into parting with their property
is one of the most legitimate objects of all laws; and the equitable doctrine of undue
influence has grown out of and been developed by the necessity of grappling with
insidious forms of spiritual tyranny and with the infinite varieties of fraud.’ (Allcard v
Skinner (1887) 36 ChD 145 at 183-4 per Lindley LJ)

● Broad spectrum of illegitimate behaviour from overt bullying or abuse to surreptitious and
unfair taking advantage of a relationship of special trust and confidence.

● Some overlap between the equitable doctrine of undue influence and the common law
doctrine of duress (Etridge at [8]).

● A successful plea of undue influence requires proof of

o An unacceptable form of persuasion

o Causation between the unacceptable persuasion and entry into the contract

1. UNACCEPTABLE PERSUASION
● Wide range of forms of unacceptable persuasion, all characterised by denial of ability to
consider the proposed transaction with an independent mind and in an informed manner.

● Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923: wife (W) gave
guarantees and charge on her house to bank to secure loans to family business (E); E
insolvent owing bank nearly £900K; bank sought to enforce guarantees and charge; W
claimed obtained by H’s UI.

Mrs Aboody born into the Iraqi Jewish community; girls did not work, business reserved to
men; aged 17 she entered an arranged marriage with Mr Aboody, an Indian man who ran a
business in Egypt; 3 years later, came to England; family home always in W’s sole name; W
nominally co-director and secretary of E; but no active role, no remuneration; could not use
a cheque book; H gave her money as she needed; she signed documents placed before her
by H without question, trusting that it was for the good of the business and indirectly for her
good, and without any understanding of what she was signing; marriage happy until
‘disastrous and disgraceful collapse’ of E (950).

The guarantees covered increasingly large overdrafts for E; H knew W would sign documents
he presented to her; H offered W no choice; W no opportunity to exercise independent and
informed judgement; no discussion of risk; had H misstated the risks, misrepresentation;
that said nothing did not absolve H of claim for UI; H ‘deliberately acted so as to conceal

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matters from her in a way which prevented her from giving proper detached consideration
to her independent interests in transactions which involved substantial risks to her.’ (970 per
Slade LJ)

Bank required W to receive legal advice before granting charge; H told W only that needed
to sign a charge so that bank would make available to E temporary increased funding for 6
months; at bank, W taken into private room by solicitor (S); attempted to explain very
onerous document that staked all her property should E fail; H burst into room shouting at S;
argument between H and S; H rejected a couple of suggestions S had made for reducing W’s
liability; W distressed and in tears; S shaken and finally said ‘All right. Let her sign’; on S’s
note of the meeting, S wrote ‘Husband is a bully. Under pressure and she wants peace.’
(952)

● Allcard v Skinner (1887) 36 ChD 145: The Sisters of the Poor was a voluntary association of
ladies who shared a convent and devoted themselves to charitable work under the direction
of S, the lady superior. The Reverend Nihill was co-founder of the Sisterhood with S, its
spiritual director and confessor, and author of its rules. The rules stated that the voice of the
Superior should be regarded as the voice of God and commanded obedience to the Superior
as to God. The rule of poverty required the divesting of all property in favour of relatives,
friends, the poor, or the sisterhood, but the attached form of gift was in favour of the
sisterhood. Moreover, no sister was to communicate with any external person about
matters within the Convent, nor seek advice from any external person without the Superior’s
permission. N was also spiritual director and confessor to A, and introduced A to S. A
became a member of the sisterhood in 1868, graduating through various levels of
membership. In 1870 A inherited considerable property. Later the same year she became a
postulant in the sisterhood, shortly afterwards made a will leaving all her property to S, and
over the next five years made various gifts to S including two cheques and three transfers of
shares. Three years later A left the sisterhood, revoking the will immediately. She later
sought recovery of the money and shares. CA: gifts voidable for UI.

‘She had vowed poverty and obedience, and she was not at liberty to consult externs
without the leave of her superior. She was not a person who treated her vows lightly;
she was deeply religious and felt bound by her promise, by her vows, and by the rules of
the sisterhood. She was absolutely in the power of the lady superior and Mr Nihill. A gift
made by her under these circumstances to the lady superior cannot in my opinion be
retained by the donee. The equitable title of the donee is imperfect by reason of the
influence inevitably resulting from her position, and which influence experience has
taught the Courts to regard as undue. Whatever doubt I might have had on this point if
there had been no rule against consulting externs, that rule in my judgment turns the
scale against the Defendant.’ (Lindley LJ at 184)

‘[T]here was in fact no unfair or undue influence brought to bear upon the Plaintiff
other than such as inevitably resulted from the training she had received, the promise
she had made, the vows she had taken, and the rules to which she had submitted
herself. But her gifts were in fact made under a pressure which, whilst it lasted, the
Plaintiff could not resist …’ (Lindley LJ at 185-6)

‘[I]t is plain that equity will not allow a person who exercises or enjoys a dominant
religious influence over another to benefit directly or indirectly by the gifts which the
donor makes under or in consequence of such influence, unless it is shewn that the
donor, at the time of making the gift, was allowed full and free opportunity for counsel

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and advice outside—the means of considering his or her worldly position and exercising
an independent will about it. This is not a limitation placed on the action of the donor; it
is a fetter placed upon the conscience of the recipient of the gift, and one which arises
out of public policy and fair play.’ (Bowen LJ at 190)

2. CAUSATION
● The causation requirement is merely that the undue influence induced the susceptible party
into the contract. There is no requirement of proof that, absent the undue influence, that
party would have decided differently. Undue influence therefore aligns with fraudulent
misrepresentation and duress to the person.

● CIBC Mortgages v Pitt [1994] 1 AC 200 at 209 per Lord Browne-Wilkinson

‘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.’

● Indeed undue influence is often accompanied by fraudulent misrepresentation or involves

deliberately dishonest withholding of information, so the same causation rule is appropriate:
UCB Corporate Services v Williams [2002] EWCA Civ 555, [2003] 1 P & CR 12 at [87].

● That is true, but is it appropriate to assimilate a case such as Allcard v Skinner to fraud? The
statement in Pitt refers to actual undue influence.

3. METHODS OF PROOF
● Proof

o Standard of proof: balance of probabilities, more likely than not

o Direct evidence: testimony from witnesses, or other evidence eg documentary, that
bears directly on the matter to be proved
o Indirect/circumstantial evidence: proof of circumstances that do not bear directly on
the matter to be proved but taken in combination render that matter more likely
than not

▪ If, given (A) + (B), it is more likely than not that (C) was present, proof of (A)
and (B) will suffice for the court then to find (C) proved even though there is
no direct evidence of (C).

● Undue influence can be proved by direct evidence but more often it is proved by indirect
evidence. Confusingly, UI proved by direct evidence became known as actual undue
influence (AUI), while UI proved by indirect evidence became known as presumed undue
influence (PUI). This terminology can in turn lead one to believe that there are two different
doctrines, but that is not correct. References to AUI or PUI refer only to the method of proof,
not to what is being proved.

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4. PRESUMED UNDUE INFLUENCE

(a) How It Works

● (A) + (B) = (C)

o (A) is a relationship of special trust and confidence. In general, the law considers that
parties who have achieved majority are capable of bringing independence of mind
and objectivity of judgement to the process of contractual negotiation, and are
responsible for doing so. In consequence, any ensuing consent to a transaction can
be assumed to constitute an exercise of personal autonomy. A relationship of special
trust of confidence is a relationship involving such a degree of trust, confidence and
dependence on the part of one party (the susceptible party) that in dealing with the
other party (the dominant party) the normal assumption of independence of mind
and objectivity of judgement cannot be maintained.
o (B) is a transaction displaying a degree of substantive imbalance in favour of the
dominant party that is not explicable on normal grounds and, therefore, calls for an
explanation.
o (C) is the exercise of undue influence by the dominant party inducing the susceptible
party into the transaction in question.

● Given a relationship of trust and confidence and a transaction that calls for an explanation, it
is more likely than not, in the absence of evidence to the contrary, that the transaction was
procured by some improper means of persuasion. See Etridge at [8], [156].

o ‘In an appropriate case, the presumption may carry the complainant home. But it
makes no sense to find, on the one hand, that there was no undue influence, but, on
the other hand, that the presumption applies … A finding of actual undue influence
and a finding that there is a presumption of undue influence are not alternatives to
one another. The presumption is, I repeat, an evidential presumption. If it applies,
and the evidence is not sufficient to rebut it, an allegation of undue influence
succeeds.’ (Etridge at [219] per Lord Scott.)

(b) Relationship Of Special Trust And Confidence

● Lloyd’s Bank Ltd v Bundy [1975] QB 326 at 341: Sir Eric Sachs, while disclaiming any attempt
at formal definition, identified characteristics of relationships found by the courts to satisfy
this requirement. Typically, there will be reliance by one party on the other’s advice or
guidance, the confidant will be aware of this reliance, and there will be the possibility of the
confidant benefiting from the transaction. In addition, and crucially, there is the element of
‘confidentiality’, ie ‘some quality beyond that inherent in the confidence that can well exist
between trustworthy persons who in business affairs deal with each other at arm’s length. It
is one of the features of this element that once it exists, influence naturally grows out of it’.
Confidentiality expresses the idea that the susceptible party tends to rely on the advice of
the confidant to the exclusion of other views and also depends upon such advice rather than
making their own decisions.

● Key ideas: lowering of one’s guard; unthinking acceptance of suggestions made by the other;
listening to the other’s views to the exclusion of independent advice.

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● Some relationships by their nature are considered by law to be relationships of special trust
and confidence. No evidence need be adduced to establish this and no evidence can be
adduced to contradict this. (Etridge at [18])

o Parent and child who is a minor

o Guardian and ward
o Spiritual adviser and devotee
o Solicitor and client
o Doctor and patient

It is said that these relationships are ‘irrebuttably presumed’ to be of special trust and
confidence. But the language of presumption is again unhelpful: an irrebuttable presumption
is simply a conclusive rule of law.

Once such a relationship exists, the presumption of a relationship of trust and confidence
will continue even after the formal cessation of the relationship in the absence of evidence
that the influence has genuinely ceased.

● Other relationships are not automatically considered to be of special trust and confidence,
but evidence may be adduced to demonstrate that the particular relationship is of that
nature.

o Husband and wife

o Elderly person and younger relative
o Banker and customer
o Employer and employee
o Music publishing company and young, inexperienced composer

(c) Transaction That Calls For An Explanation

● A gift ‘so large as not to be reasonably accounted for on the ground of friendship,
relationship, charity, or other similar motives on which ordinary men act’: Allcard v Skinner
(1887) 36 ChD 145 at 185 per Lindley LJ. The case concerned substantial gifts of property to a
religious order by a member. The rules of the order required all property to be given to
relatives, the poor or the order, although the form of transfer in the schedule to the rules
was in favour of the order. In such a case, ‘a distinction might well be made between gifts of
capital and gifts of income, and between gifts of moderate amount and gifts of large sums,
which a person unfettered by vows and oppressive rules would not be likely to wish to
make.’ (At 185.)

● Many cases concern a wife who provides a guarantee of finance provided to her husband’s
business secured by a charge on her share of the matrimonial home. Does such a transaction
call for an explanation?

‘Ordinarily, the fortunes of husband and wife are bound up together. If the husband's
business is the source of the family income, the wife has a lively interest in doing what
she can to support the business. A wife's affection and self-interest run hand-in-hand in
inclining her to join with her husband in charging the matrimonial home, usually a
jointly-owned asset, to obtain the financial facilities needed by the business. The
finance may be needed to start a new business, or expand a promising business, or
rescue an ailing business.’ (Etridge at [28] per Lord Nicholls)

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Does not ‘in the ordinary course’ call for an explanation ([30], but the facts may change
that: [31])

‘Wives frequently enter into such transactions. There are good and sufficient reasons
why they are willing to do so, despite the risks involved for them and their families.
They may be enthusiastic. They may not. They may be less optimistic than their
husbands about the prospects of the husbands' businesses. They may be anxious,
perhaps exceedingly so. But this is a far cry from saying that such transactions as a class
are to be regarded as prima facie evidence of the exercise of undue influence by
husbands.’ [30]

● Two postscripts regarding wives, warning against an overly formulaic approach:

o Given appropriate facts, there is no rule that presumed UI cannot arise as between
husband and wife.

‘Although there is no presumption, the court will nevertheless note, as a

matter of fact, the opportunities for abuse which flow from a wife's
confidence in her husband. The court will take this into account with all the
other evidence in the case. Where there is evidence that a husband has
taken unfair advantage of his influence over his wife, or her confidence in
him’ UI is not hard to prove. [19] Such a transaction may of itself afford
some evidence that the particular transaction was of the requisite level of
blind trust, or that the transaction was otherwise improperly procured (ie
how else does a wife come to enter into such an unusual and improvident
transaction with her husband?).

o Undue influence has to be applied realistically in the context of the marital (or
indeed any settled) relationship: Etridge at [32]-[33].

‘Undue influence has a connotation of impropriety. In the eye of the law,

undue influence means that influence has been misused. Statements or
conduct by a husband which do not pass beyond the bounds of what may be
expected of a reasonable husband in the circumstances should not, without
more, be castigated as undue influence. Similarly, when a husband is
forecasting the future of his business, and expressing his hopes or fears, a
degree of hyperbole may be only natural. Courts should not too readily treat
such exaggerations as misstatements.
Inaccurate explanations of a proposed transaction are a different
matter. So are cases where a husband, in whom a wife has reposed trust and
confidence for the management of their financial affairs, prefers his
interests to hers and makes a choice for both of them on that footing. Such a
husband abuses the influence he has. He fails to discharge the obligation of
candour and fairness he owes a wife who is looking to him to make the
major financial decisions.’

(d) A Rebuttable Presumption; Rebutting The Presumption

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● The right sort of relationship + the right sort of transaction = ‘rebuttable presumption’ of UI,
ie UI is proved unless the dominant party adduces evidence to refute the logical inference
that otherwise follows from proof of the two elements. (Etridge at [14])

● Refuting the inference: undue influence denies that the consent to enter the contract was a
genuine exercise of personal autonomy. Refuting the inference of undue influence requires,
therefore, evidence that the consent was in truth not just informed but genuinely
independent.

o Royal Bank of Scotland v Etridge (No 2) [1998] 4 All ER 705 at 714: CA emphasised
the need to demonstrate not only that the susceptible party understood the nature
and consequences of the proposed transaction but also that the decision to enter
the impugned transaction was the product of a mind free from the influence of the
dominant party. Likewise HL at [20].

o Evidence often relates to IP having had benefit of appropriate independent advice.

▪ Inche Noriah v Shaik Allie Bin Omar [1924] AC 127 at 135 per Lord Hailsham
LC:

‘It is necessary for the donee to prove that the gift was the free exercise
of independent will. The most obvious way to prove this is by
establishing that the gift was made after the nature and effect of the
transaction had been fully explained to the donor by some independent
and qualified person so completely as to satisfy the Court that the
donor was acting independently of any influence from the donee and
with the full appreciation of what he was doing ...’

▪ Bullock v Lloyd’s Bank Ltd [1955] Ch 317: one month after attaining majority,
daughter persuaded by her father to settle her inheritance under her
mother’s will so as to exchange an absolute entitlement to the capital for a
life interest in a trust fund. Vaisey J: settlement set aside.

‘Such a settlement as this can, in my judgment, only be justified after

prolonged consideration, being made, as it was, by a young girl only just
of age, and can only stand if executed under the advice of a competent
adviser capable of surveying the whole field with an absolutely
independent outlook, and who explains to the intending settlor, first,
that she could do exactly as she pleased, and, secondly, that the scheme
put before her was not one to be accepted or rejected out of hand but
to be discussed, point by point, with a full understanding of the various
alternative possibilities.’ (At 326)

▪ Where a professional adviser considers that the transaction is one that a

person free from influence ought sensibly to avoid, the adviser’s duty to the
client dictates that the client should be advised against the transaction.
Should the client decline to follow that advice, the adviser should refuse to
act further and inform all other interested parties of that refusal: Royal Bank
of Scotland v Etridge (No 2) [1998] 4 All ER 705 at 715.

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▪ Nevertheless, an election not to follow prudent, independent advice is not

irreconcilable with refuting an inference of UI. Circumstances that sustain an
inference of UI do not render the susceptible party incapable of concluding
the relevant transaction, no matter how improvident. Provided the decision
is established as the product of genuine consent, the court will hold the
susceptible party to that decision. The fundamental question is the state of
mind of the susceptible party, not whether independent advice was
followed.

UNCONSCIONABLE BARGAINS
● Equity’s concern: the unacceptable exploitation by GP of a weakness of IP.

● Some weaknesses are addressed not through vitiating factors but through the law of
capacity, where relief is granted by reference to either the incapacitating factor alone (age
of 17 or younger) or the incapacitating factor plus the other party’s knowledge of that factor
at the conclusion of the contract (mental incapacity).

● Blomley v Ryan (1956) 99 CLR 362 at 415 per Kitto J:

‘It applies whenever one party to a transaction is at a special disadvantage in dealing

with the other party because of illness, ignorance, inexperience, impaired faculties,
financial need or other circumstances affecting his ability to conserve his own interests,
and the other party unconscientiously takes advantage of the opportunity thus placed
in his hands.’

● What needs to be proved:

o A special susceptibility of IP
o Unconscientious exploitation of that susceptibility by GP.

1. SPECIAL SUSCEPTIBILITY
● Blomley v Ryan (1956) 99 CLR 362 at 405 per Fullagar J:

‘The circumstances adversely affecting a party, which may induce a court of equity
either to refuse its aid or to set a transaction aside, are of great variety and can hardly
be satisfactorily classified. Among them are poverty or need or any kind, sickness, age,
sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of
assistance or explanation where assistance or explanation is necessary. The common
characteristic seems to be that they have the effect of placing one party at a serious
disadvantage vis-à-vis the other.’

● Expectant heirs (nineteenth century cases involving young heir to significant estate, short of
money, susceptible to moneylenders)

● ‘Poor and ignorant’ (nineteenth century terminology)

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o Cresswell v Potter (1968) [1978] 1 WLR 255n: update terminology to reflect changing
social conditions; poor = ‘member of the lower income group’, destitution not
required; ‘ignorant’ = ‘less highly educated’; wife conveyed interest in the
matrimonial home to her husband; wife was a Post Office telephonist of meagre
earnings, little savings and, although alert and skilful in her job, was nevertheless
ignorant in the field of property transactions and conveyancing documentation.

● Intoxication

● Emotional infatuation

● Lacking in advice where advice necessary

o Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447: elderly migrant
couple granted mortgage they believed was limited in amount and designed to
enable their son’s business to overcome a temporary cash flow problem; limited
understanding of written English and no relevant business knowledge; in fact,
mortgage unlimited in amount and the business in a dire financial condition.

2. UNCONSCIENTIOUS EXPLOITATION
● GP must (1) know of the susceptibility, and (2) exploit that susceptibility in a morally
reprehensible manner, so that GP’s conduct ‘shocks the conscience of the court’.

● Where GP knows of the susceptibility, that the transaction is manifestly imbalanced in

favour of GP may establish the requisite exploitation, such that an unconscionable bargain is
then proved in the absence of evidence to the contrary. The relevant rebuttal evidence is
often evidence of independent advice, such advice either negating either the susceptibility in
relation to the transaction or unconscientious exploitation in that IP’s decision to conclude
was a genuine exercise of personal autonomy.

o It is important, again, not to elevate the protective doctrine of unconscionable

bargain into an autonomy-denying incapacity.

● Some cases go further and state that substantive imbalance in the transaction is in fact a
requirement of the doctrine, without disputing that substantive imbalance may also
evidence the fact of exploitation of the known susceptibility.

o Alec Lobb (Garages) Ltd v Total Oil Great Britain Ltd [1983] 1 WLR 87 at 94-5, Peter
Millett QC summarised the cases in this area as follows:

‘[I]f the cases are examined, it will be seen that three elements have almost
invariably been present before the court has interfered. First, one party has
been at a serious disadvantage to the other, whether through poverty, or
ignorance, or lack of advice, or otherwise, so that circumstances existed of
which unfair advantage could be taken: see, for example, Blomley v Ryan
(1954) 99 CLR 362, where, to the knowledge of one party, the other was by
reason reason of his intoxication in no condition to negotiate intelligently;
secondly, this weakness of the one party has been exploited by the other in
some morally culpable manner: see, for example, Clark v Malpas (1862) 4 De

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GF & J 401, where a poor and illiterate man was induced to enter into a
transaction of an unusual nature, without proper independent advice, and in
great haste; and thirdly, the resulting transaction has been, not merely hard or
improvident, but overreaching and oppressive. Where there has been a sale at
an undervalue, the under-value has almost always been substantial, so that it
calls for an explanation, and is in itself indicative of the presence of some
fraud, undue influence, or other such feature. In short, there must, in my
judgment, be some impropriety, both in the conduct of the stronger party and
in the terms of the transaction itself (though the former may often be inferred
from the latter in the absence of an innocent explanation) — which in the
traditional phrase “shocks the conscience of the court,” and makes it against
equity and good conscience of the stronger party to retain the benefit of a
transaction he has unfairly obtained.’

● The technically correct status of substantive imbalance remains uncertain.

● Cresswell v Potter (1968) [1978] 1 WLR 255n: wife (W) conveyed her interest in the
matrimonial home to her husband in return merely for relief from liability under the
mortgage; W no knowledge of property transactions and conveyancing documentation;
independent advice available if sought, but W not counselled of need for such advice and
not obtained; conveyance at a considerable undervalue; then for husband to demonstrate
the transaction was fair, just and reasonable; could not do so; conveyance rescinded.

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