La1106 – Exam Notes

Lecture 10

Abuse of power

Definition: A contract entered into because one party has abused his/her power over the other, can be set aside because it would be unfair for the party to enjoy the benefit of the contract in these circumstances.

• 
  A party abusing power should not enjoy benefits of employing abuse
  
• 
  If terms of contract are unfair but the advantaged party has done nothing wrong, the court will not terminate the contract
  

Substantive unfairness

• 
  Terms of the contract are unfair but the contract was negotiated through a proper process
  

Procedural unfairness

• 
  The process by which the contract was negotiated was unfair
  
• 
  Often leads to unfair terms for the pressured party
  
• 
  If terms are unfair, innocent party must provide evidence of procedural unfairness
  

Duress

• 
  Duress is illegitimate pressure exerted by one party to induce another party to enter into a contract against his/her will.
  
• 
  As a result, the contract can be rescinded
  
• 
  If a pressured party promises to do something but there is no genuine consent, there is no promise
  
• 
  Three categories
  
  • 
    Duress of person
    
  • 
    Duress of goods
    
  • 
    Economic duress
    

Duress of person

• 
  Threats to life, injury or deprivation of liberty
  
  • 
    Barton v Armstrong [1976] AC 104.
    
    • 
      Threats were not necessarily the only reason Barton entered into the contract, but they were a contributing reason
      
    • 
      The fact that threat was a factor, even though it was not the only factor, it was enough for the court to find duress
      
  • 
    Does not extend to tarnishing reputation
    
  • 
    Must be real, credible threats such as death, bodily harm, imprisonment, etc.
    
  • 
    Must be calculated to cause fear
    
  • 
    Must actually cause fear
    
• 
  Threats by a third party (agency).
  
• 
  Threats about a third party
  

Duress of goods

• 
  Threats of destruction, damage, or seizure
  
  • 
    Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1992) 22 NSWLR 298.
    
    • 
      Threats do not have to be outright stated
      
  • 
    Pets and other animals are considered property under the law
    

Economic duress

• 
  Pressure to harm another’s economic interests.
  
  • 
    North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] WLR 419.
    
    • 
      There was duress
      
    • 
      There was a delay in taking the matter to court, and so it was found that there was an implied affirmation of the contract
      
• 
  Usually when parties are already entered into a contract and one party will need further payment to continue with the work
  

Elements of duress

• 
  Universe Tankships of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 400. (Lord Scarman)
  
• 
  Illegitimate pressure
  
  • 
    Nature of pressure
    
    • 
      Are the threats unlawful?
      
    • 
      Something more than hard bargaining
      
    • 
      Would an ordinary person have succumbed to that pressure?
      
  • 
    Nature of demand
    
  • 
    Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40, 46
    
    • 
      The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate. Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct.
      
  • 
    Smith v William Charlick Ltd (1924) 34 CLR 38
    
    • 
      Not legitimate pressure
      
    • 
      Smith chose to make the payment
      
    • 
      It was a commercial decision
      
    • 
      He made the decision with the full knowledge of the facts, he knew he wasn’t legally obliged to pay, the defendant wasn’t legally obliged to sell it to him
      
    • 
      Commercial pressure, not duress
      
• 
  Impaired consent
  
  • 
    The victim’s will is overborne and they are unable to give full consent
    
  • 
    Consider:
    
    • 
      Protests
      
    • 
      Available alternatives
      
    • 
      Independent alternatives
      
    • 
      Independent advice
      
    • 
      Delay in reporting
      
    • 
      Reasonable person’s response to pressure
      
  • 
    How seriously must the victim’s will be overborne?
    
    • 
      Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40, 45.
      
      • 
        ‘A person who is the subject of duress knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action.
        
  • 
    Pressure doesn’t need to be the only reason
    
    • 
      Barton v Armstrong [1976] AC 104
      

General law remedies

• 
  Rescission
  
  • 
    Bars to rescission will apply
    
• 
  Restitution
  
• 
  Refusal to order specific performance
  

Statutory provisions

• 
  Competition and Consumer Act 2010 (Cth) – ACL Schedule 2
  
• 
  Harassment may not amount to undue harassment
  
• 
  Undue harassment
  
  • 
    Persistent disturbance or torment
    
  • 
    Intended to intimidate or demoralise
    
  • 
    Personally abusive behaviour and language
    
  • 
    Directing conduct towards uninvolved third parties
    
  • 
    Actions designed to humiliate
    

Statutory remedies

• 
  ACL ss 236-243
  

Undue Influence

Undue influence occurs where a party in a dominant position abuses his/her influence over a weaker party to induce the latter to enter into a contract which is beneficial to the stronger party.

• 
  Weaker party’s will is overborne
  
• 
  The pressure isn’t always as extreme or obvious as in the case of duress
  
• 
  May then be considered more subtle exploitation
  
• 
  May amount to undue influence even if the contract is not particularly disadvantageous to the weaker party
  
• 
  More focused on the abuse of power of stronger party
  
• 
  If court finds that there was undue influence then the contract can be set aside
  
• 
  Applies to gifts as well as contracts
  

Class 1 – Actual undue influence

• 
  Plaintiff must prove that the stronger party exercised undue influence
  
  • 
    Establish nature and extent of influence
    
• 
  Stronger party has onus to rebut the presumption that the transaction was entered into as a result of influence
  
• 
  Not often argued as difficult to establish
  

Class 2A – Presumed relationships of influence

• 
  The stronger party is deemed to have influence over the weaker one, and the weaker one is deemed to repose trust and confidence in the stronger one if the parties are in one of the following relationships:
  
  • 
    Doctor and patient
    
  • 
    Solicitor and client
    
  • 
    Parent and child
    
  • 
    Guardian and ward
    
  • 
    Religious leader and follower
    
• 
  Stronger party has onus to rebut the presumption
  
  • 
    Lancashire Loans Ltd v Black [1934] 1 KB 380
    
    • 
      Advise doesn’t mean independent, or fully informed independent advice
      
• 
  Presumption that there is undue influence unless demonstrated otherwise if the contract is called into question
  

Class 2B – Relationship of influence in fact

• 
  No pre-established class of influence
  
• 
  Possible to establish on that particular relationship that it is one of trust and confidence
  
• 
  The onus of establishing this relationship is on the weaker party
  
• 
  The influence isn’t automatically presumed
  
• 
  Once the relationship has been established, the presumption applies
  
• 
  The stronger party has the onus to rebut the presumption
  
  • 
    Johnson v Buttress (1936) 56 CLR 113
    
    • 
      Could not prove that undue influence occurred, but could not rebut the presumption
      

Rebuttal

• 
  The weaker party entered by their own free will
  
• 
  The defendant has proved that the weaker party has make a full and informed decision to enter into the contract
  
• 
  Independent advice should be independent from that stronger party
  
• 
  Bester v Perpetual Trustees Co Ltd [1970] 3 NSWR 30
  
  • 
    Solicitor who could not dispense legally independent advice sent her to another solicitor. The second solicitor asked her if she has any questions and she did not.
    
  • 
    The presumption could not be rebutted.
    
  • 
    While she had been sent to an independent solicitor, it could not be considered contextual advice. Advice must be fully-informed and address all alternatives, all material facts that are relevant to the transaction. This was not the case
    

• 
  Inche Noriah v Shaik Allie Omar [1929] AC 127
  
  • 
    Advice given was independent, but not fully informing.
    
  • 
    Advice she received was inadequate, so she could not exercise her own free will.
    
• 
  Westmelton (Vic) Pty Ltd v Archer and Schulman [1982] VR 305
  
  • 
    Court upheld the contract
    
  • 
    It did not matter that the defendant did not offer independent legal advice as the proposition was made to directors of a board who had ample knowledge and expertise. Defendant was not present for the proceedings in which they decided, and his advice was not relied upon.
    

Remedy

• 
  Rescission
  
• 
  Bars
  
  • 
    Undue delay
    
    • 
      Allcard v Skinner (1887) 36 Ch D 145
      
      • 
        Implied affirmation of the gift
        
  • 
    Third party rights
    
  • 
    Impossibility