“Travellers along the other road would recognise that, for the historical reasons identified by Dixon J., equity has in the past treated married women differently and more tenderly than other third parties who provide security for the debts of others. They would notice that Avon Finance v. Bridqer had added to the protected class a case in which vulnerable elderly parents
had agreed to provide security for the debts of their adult son. And they would, I think, conclude that, if a protected class is to continue to be recognised, the class ought, logically, to include all cases in which the relationship between the surety and the debtor is one in which influence by the debtor over the surety and reliance by the surety on the debtor are natural and probable features of the relationship. In cases falling within this protected class, security given by the surety would, in certain circumstances, be unenforceable notwithstanding that the creditor might have had no knowledge of and not have been responsible for the vitiating feature of the transaction.”
Duress and Undue Influence
There are two important cases at the foot of this section where judgments have been extracted to give you an opportunity to read more deeply.
Barclays Bank v O'Brien  AC 180
A security obtained by misrepresentation or undue influence may not be enforced – the creditor should take pains to make sure that no unfair advantage was gained.
The Etridge case
Royal Bank of Scotland v Etridge (No . 2)  UKHL 44;  AC 773
Adam Opel Gmbh and Renault SA v Mitras Automotive (UK) L:td  EWHC 3205 QB
Read this case to get a feel for the subject.
David Donaldson QC sitting as a Deputy High Court judge
"The general principles of the law relating to economic duress have been elaborated over the last forty years in a number of decided cases, and were not in issue before me. It was common ground that they are accurately summarised by Dyson J in DSND Subsea Ltd v Petroleum Geo Services ASA,  BLR 530 at para. 131 and repeated in his later decision in Carillion Construction Ltd v Felix (UK) Ltd,  BLR 1 as follows:
"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: see Universal Tanking of Monrovia v. ITWF  AC 336, 400 B–E, and The Evia Luck  2AC 152, 165 G.
In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he confirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining."
At common law if a party enters into a contract under duress the contract may be set aside on ground of duress unless it has been affirmed expressly or impliedly after the duress has been withdrawn.
Duress may take several and various forms and, in particular, may take the form of economic duress, but whatever form it may take it must amount to a coercion of the will – such that there was no true consent.
The court will consider a range of factors in determining whether a duress was present and, in particular will wish to see whether the person coerced protested, whether he had an alternative course of action available and whether he sought and took independent advice.
Shivas v Bank of New Zealand  2 NZLR 327
The classical conception of contract at common law had as its first premise the belief that private agreements should be enforced in accordance with their terms. The premise of course was subject to important qualifications. Promises procured by fraud, duress or undue influence were not generally enforced by the courts; and the same was true with certain exceptions of promises made by infants and incompetents. Again, agreements that had as their object illegal ends were not usually enforced, as for example, in cases of bribes of public officials or contracts to kill third persons. Yet even after these exceptions were taken into account, there was still one ground on which the initial premise could not be challenged: the terms of private agreements could not be set aside because the court found them to be harsh, unconscionable or unjust. The reasonableness of the terms of a private agreement was the business of the parties to that agreement. True, there were numerous cases in which the language of the contract stood in need of judicial interpretation, but once that task was done there was no place for a court to impose upon the parties its own views about their rights and duties. ‘Public policy' was an ‘unruly horse', to be mounted only in exceptional circumstances and with care.
This general regime of freedom of contract can be defended from two points of view. One defence is utilitarian. So long as the tort law protects the interests of strangers to the agreement, its enforcement will tend to maximise the welfare of the parties to it, and therefore the good of society as a whole. The alternative defence is on libertarian grounds. One of the first functions of the law is to guarantee individuals a sphere of influence in which they will be able to operate, without having to justify themselves to the state or to third parties: if one individual is entitled to do within the confines of the tort law what he pleases with what he owns, then two individuals who operate within those same constraints should have the same right with respect to their mutual affairs against the rest of the world.
Whatever its merits, however, it is fair to say that this traditional view of the law of contract has been in general retreat in recent years. That decline is reflected in part in the cool reception given to doctrines of laissez-faire, its economic counterpart, since the late nineteenth century, or at least since the New Deal. the total ‘hands-off' policy with respect to economic matters is regarded as incorrect in most political discussions almost as a matter of course and the same view is taken, moreover, towards a subtle form of laissez-faire that views all government interference in economic matters as an evil until shown to be good. Instead, the opposite point of view is increasingly urged: market solutions – those which presuppose a regime of freedom of contract – are sure to be inadequate, and the only question worth debating concerns the appropriate form of public intervention.
That attitude has, moreover, worked its way (as these things usually happen) into the fabric of the legal system, for today, more than ever, courts are willing to set aside the provisions of private agreements.
One of the major conceptual tools used by courts in their assault upon private agreements has been the doctrine of unconscionability. That doctrine has a place in contract law, but it is not the one usually assigned it by its advocates. The doctrine should not, in my view, allow courts to act as roving commissions to set aside those agreements whose substantive terms they find objectionable.
‘Unconscionability: A critical reappraisal'
Epstein (1975) 18 J Law & Econ 293. 293-294
The agreement may be the result of some improper and excessive pressure exerted by one party over the other. The problem is dealt with by the common law doctrine of duress and the equitable doctrine of undue influence. These will be discussed in turn.
15.1.1 Definition and scope
Duress is a common law concept which, if established, renders the contract voidable.
The scope of duress at common law was originally very narrow and confined to actual or threatened unlawful physical violence or constraint of the other party.
Thus in an Australian case:
Barton v Armstrong  2 All ER 465
A threatened to have B killed if he did not buy A's shares in a company of which B was the managing director. The majority of the Privy Council held that the agreement was vitiated by duress.
Latter v Bradell (1880) 50 LJCP 166
Consent was not vitiated where no physical violence was threatened or inflicted – a housemaid had protested at being required to take a medical examination.
15.1.2 Juridical basis of duress
Originally the courts refused to recognise “duress of goods”, i.e. a threat to damage a person's property as constituting duress.
However, it is now recognised that the doctrine extends to goods: in The Siboen ) 1 Lloyd's Rep 293, Kerr J said, obiter, that a person coerced into a contract by the threat of having his house burnt down or a picture slashed could plead duress.
For conduct to amount to duress the threat must be illegitimate because the threat is wrongful or that what is threatened is a legal wrong – or because it is contrary to public policy.
See The Olib  2 Lloyd's Rep 108
The basis of duress is an unlawful threat amounting to “coercion of the will”.
15.1.3 Pao On v Lau Yiu Long
Pao On v Lau Yiu Long  AC 614;  3 All ER 65
P threatened to break a contract unless they were given an indemnity to cover the loss arising as a result of entering into the contract. There was no duress or coercion of the will. The guarantee was not vitiated by duress. HELD: Lord Scarman said that in determining whether there was coercion of the will such that there was no consent, it is material whether the person alleged to have been coerced (i) did or did not protest, (ii) whether at the time he did or did not have an alternative course open to him such as an adequate legal remedy, (iii) whether he was independently advised, (iv) whether after entering the contract he took steps to avoid it. These are all matters relevant in considering whether the plaintiff acted voluntarily or not.
Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. Their Lordships agree with the observation of Kerr J. in The "Siboen" and the "Sibotre"  1 Lloyd's Rep. 293 at p. 336 that in a contractual situation commercial pressure is not enough. There must be present some factor " which could in law be regarded as a coercion of his will so as to vitiate his consent": loc. cit. This conception is in line with what was said in this Board's decision in Barton v. Armstrong  A.C. 104 at p. 121 by Lord Wilberforce and Lord Simon of Glaisdale— observations with which the majority judgment appears to be hi agreement. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; 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; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v. Homer  3 K.B. 106, relevant in determining whether he acted voluntarily or not.
In the present case there is unanimity amongst the judges below that there was no coercion of Lau's will. In the Court of Appeal the trial judge's finding (already quoted) that Lau 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. Even if this Board was disposed, which it is not, to take a different view, it would not substitute its opinion for that of the judges below on this question of fact.
It is, therefore, unnecessary for the Board to embark upon an inquiry into the question whether English law recognises a category of duress known as " economic duress ". But, since the question has been fully argued in this appeal, their Lordships will indicate very briefly the view which they have formed. At common law money paid under economic compulsion could be recovered in an action for money had and received: Astley v. Reynolds (1731) 2 Str. 915. The compulsion had to be such that the party was deprived of " his freedom of exercising his will" (at p. 916). It is doubtful, however, whether at common law any duress other than duress to the person sufficed to render a contract voidable: see I Blackstone's Commentaries 12th ed. pp. 130-131 and Skeate v. Beale (1841) 11 Ad. and E. 983. American law (Williston, op. cit.) now recognises that a contract may be avoided on the ground of economic duress. The commercial pressure alleged to constitute such duress must, however, 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: Williston, op. cit. paragraph 1603. American judges pay great attention to such evidential matters as the effectiveness of the alternative remedy available, the fact or absence of protest, the availability of independent advice, the benefit received, and the speed with which the victim has sought to avoid the contract. Recently two English judges have recognised that commercial pressure may constitute duress the pressure of which can render a contract voidable: Kerr J. in The Siboen (supra) and Mocatta J. in North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd.  3 All E.R. 1170. Both stressed that the pressure must be such that the victim's consent to the contract was not a voluntary act on his part. In their Lordships' view, there is nothing contrary to principle in recognising economic duress as a factor which may render a contract voidable, provided always that the basis of such recognition is that it must amount to a coercion of will, which vitiates consent. It must be shown that the payment made or the contract entered into was not a voluntary act.
15.1.4 Economic Duress
There are a number of recent cases in which the courts have recognised a doctrine of “economic duress”.
This may occur where parties are already in an existing contractual relationship and one party takes advantage of the plight of the other to renegotiate the contract on terms advantageous to himself.
North Ocean Shipping Co Ltd v Hyundai Construction Ltd (The Atlantic Baron)  QB 705
A contract was made to build an oil tanker for an agreed price. The dollar was devalued and the shipbuilders refused to complete unless the buyer promised to pay a further ten per cent. The buyer agreed and made the payment as the ship was urgently needed to fulfil a charter. At this point it will be noticed that the facts resemble Stilk v Myrick (see under “Consideration”) however in this case the judge (Mocatta J) found a technical consideration in the fact that the shipyard had increased a letter of credit. Nevertheless it was held that the payment could in principle be recovered on the ground of duress, although the buyers had lost their right to rescind. They had paid the money and made no further protest until several months after taking delivery of the ship – this was held to constitute an affirmation. In effect the buyers had complained too late.
The parties need not, of course, already be in an existing contractual relationship for economic duress to arise. In Universe Tankships of Monrovia v ITTF (The Universe Sentinel)  1 AC 366, the plaintiff's ship was “blacked” by a trade union, and in order to secure its release from blacking, the plaintiffs paid a sum of money into the union's welfare fund. A majority of the House of Lords held that the agreement was vitiated by economic duress.
The Evia Luck  1 Lloyd's Rep 319
Threatened blacking of a ship in Sweden (in a contract governed by English Law) rendered a contract voidable for economic duress despite being legal in Sweden.
15.1.5 Commercial pressure/threats do not amount to duress merely because what is threatened is a legal wrong
Treitel gives the illustration of a party entering into a new contract after a threat to break an earlier contract.
D&C Builders v Rees  2 QB 617
A part payment was accepted in full settlement in circumstances where there was an economic duress.
Pau On v Lau Yiu Long makes it clear that it will not necessarily be the case that any threat to break a contract will amount to a duress.
15.1.6 The dividing line
The dividing line between economic duress and what has been called “hard and fair bargaining” or mere commercial pressure will always be difficult to draw and will turn on detailed findings of fact by the court – see, for example, Atlas Express Ltd v Kafco (Importers and Distributors) Ltd  QB 833;  3 WLR 389.
Finally, it should be noted that (as with misrepresentation) duress need not be the only or main reason for the plaintiff entering the contract in order for the contract to be vitiated; Barton v Armstrong  2 All ER 465.
15.2 Undue Influence
The narrow scope of the common law doctrine of duress led to the development, in equity, of the doctrine of undue influence. The doctrine applies to certain situations where improper pressure (not amounting to duress at common law) was brought to bear on a party to enter a contract.
The effect of undue influence is to render the contract voidable.
15.2.2 The classes of case
There are two classes of case which fall within the doctrine; first, where there is no special relationship between the parties in which case undue influence must be proved, and secondly, where, because of the relationship between the parties, there is a ‘presumption' of undue influence.
15.2.3 No special relationship
These cases are sometimes called cases of Class 1 undue influence. Where there is no special relationship between the parties, the plaintiff must establish that the defendant exerted dominating influence over the plaintiff which he used to extract an advantageous bargain. The modern law of duress overlaps with this class of case.
Williams v Bayley (1866) LR 1 HL 200
A young man forged his father's signature on some promissory notes and presented them to a bank, who discovered the forgery. At a meeting between the bank, the father and the son, the bank threatened to prosecute the son unless some satisfactory arrangement could be arrived at, and the possible penalty of transportation for life was referred to. As a result, the father entered into an agreement to mortgage his property to pay for the notes. The House of Lords set aside the agreement on the grounds of undue influence – the father could not be said to have entered the agreement voluntarily. Note that this is not a case of duress because the threat here is not in itself unlawful, i.e. to report a person for a criminal offence.
It would seem that in this type of case, the plaintiff must establish actual coercion or that the defendant exercised such domination or control that the plaintiff's independence of decision was substantially undermined. Many of the cases under this heading involve gifts, not contracts, although the principles are the same.
15.2.4 Where there is a special relationship
A transaction may be set aside on the ground that a presumption of undue influence arises from the nature of the relationship between the parties.
Sometimes called class 2A undue influence, the presumption applies to the following relationships – parent and child; guardian and ward; solicitor and client; trustee and beneficiary; religious adviser and disciple; principal and agent. It will be noticed that in all these relationships trust or confidence is reposed by one party in another to such a degree that the former becomes defendant on the latter. (In spite of this, or perhaps because of it, it seems that the presumption does not apply between a husband and wife!)
However there is a category sometimes called class 2B undue influence, where it has to be proved on the facts that a relationship of undue influence existed. The list of such special or “fiduciary” (based on good faith) relationships is not closed. Thus even where the relationship does not fall into one of recognised classes above, it is possible to establish that the presumption arises from the particular facts. Thus “... in any case where one person turns to another for advice, or assistance, and the court thinks that the relationship of the parties, for example, their relative ages, or experience, or blood relationship, is such as to require confidence and good faith, the duty not to abuse that confidence may be imposed” (Atiyah).
In Lloyd's Bank v Bundy  QB 326, the Court of Appeal applied these principles to a bank and one of its customers. An elderly farmer gave the bank a guarantee in respect of his son's overdraft and mortgaged the farmhouse to the bank as security. It was clear that the farmer had placed himself entirely in the hands of the assistant bank manager and had been given no opportunity to seek independent advice. On the particular facts of the case, the transaction was set aside.
National Westminster Bank v Morgan  AC 686
The House of Lords made it clear that the presumption of undue influence does not arise from the mere relationship of banker and customer.
Barclays Bank v O'Brien  AC 180
A security obtained by misrepresentation or undue influence may not be enforced – the creditor should take pains to make sure that no unfair advantage was gained.
The orthodox view is that the presumption may be rebutted by showing that there was no undue influence. However, the cases show that a transaction falling into this category may be set aside even though the conduct of the defendant falls well short of “domination” or “undue influence”. Thus in Goldsworthy v Brickell  1 All ER 853 the plaintiff was an eighty-five year old farmer, who owned a valuable farm, and he came to trust and depend on the defendant, a neighbouring farmer, for help and advice. There was no personal domination as the plaintiff was fit and active with a strong personality. Nevertheless it was held that there was a presumption of undue influence in the relationship between them. An agreement whereby the plaintiff let his farm to the defendant on very favourable terms was set aside.
15.2.5 Rebutting the presumption
What, then is the effect of establishing that a presumption of undue influence arises? The position is that unless the presumption is rebutted, the transaction is liable to be set aside.
The presumption of undue influence can be rebutted if it can be proved that the transaction was entered into with free will.
It was established in Goldsworthy v Brickell that if, despite the suspicious circumstances, the transaction was a truly spontaneous act of free will, this may rebut the presumption. It must be proved that the ‘weaker' party fully understood and intended the transaction that was in fact entered into.
The burden of proving that the necessary relationship exists the burden of proving that it does exist is on the party seeking to set the transaction aside.
Lloyd's Bank v Bundy  QB 326
If the claimant received competent advice from an independent third party adviser then this may be sufficient to rebut the presumption. But the mere existence of independent advice may not be enough; in Inche Noriah v Sheik Allie Bin Omar (1929) AC 127 an aged widow who gave away almost the whole of her property to her nephew had consulted a solicitor but the solicitor was not fully aware of the circumstances, nor did he advise her that she could equally well have benefited her nephew by will.
15.2.6 The Etridge case
Royal Bank of Scotland v Etridge (No . 2)  UKHL 44;  AC 773
The House of Lords heard eight mortgage cases of which seven were typical: a husband in business had borrowed money from the bank, and the bank had taken a mortgage on his house, which involved the wife signing away her rights. When the husband's business failed the bank tried to repossess the house, and the wife (with the husband probably agreeing) argued that her husband had exercised undue influence in persuading her to sign. If they could persuade the court to set aside the transaction between bank and wife, the couple might be able to keep their home.
In several cases following O'Brien, a wife (who after all had wanted and ‘benefited' from the bank loan to the husband) succeeded in setting aside a mortgage transaction. The banks felt the situation was unfair, and was an obstacle to lending. The House of Lords looked again at the question of how much banks should do to ensure they were not ‘caught out' by this type of case.
The relationship between husband and wife is not one where there is an automatic and irrebutable presumption of undue influence (class 2A), but is one where it is sometimes possible to prove in particular cases that the couple had the type of relationship where there was a rebuttable presumption (class 2B).
Some dicta in the case cast doubt on the distinction between class 2A and 2B, although the leading speech by Lord Nicholls seems to recognize it. In any event, the case is really about class 2B situations.
From the point of view principle the important point is encapsulated in the following quotation from Lord Nicholls: “Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence.” So – a three stage test: 1. prove trust and confidence in relation to financial affairs; 2. prove the transaction was one which calls for explanation – that there was something unusual about it which should have place the bank on enquiry; 3. since an explanation is called for, can a satisfactory explanation of the transaction be given?
The case goes on to give practical advice about the kind of advice the wife would have needed to ensure that they were not acting under undue influence, and on this score clarifies and in effect replaces the guidelines given in O'Brien. In particular their Lordships thought that the solicitor should check the wife is happy to take advice from him or her, and if so, it is usually sufficient for the solicitor to warn the wife of the risks. They also stated that it usually an unnecessary expense for the wife to have a separate solicitor. They rejected the suggestion that the solicitor is the bank's agent. And they gave advice on ensuring that communication between bank and wife and her solicitor was effective.
Their Lordships suggested that it was hard decide in which cases the bank was put on enquiry, and that in any case where one person was in effect guaranteeing the debts of another, the same precautions should be applied.
15.2.7 Remedy for undue influence is Rescission: bars to rescission
The remedy for a plaintiff who has entered into a contract tainted by undue influence is rescission of the contract. The remedy may be lost in two ways:
If, after the undue influence has ceased, the influenced party expressly or impliedly affirms the transaction, the right to rescind will be lost. It seems that a private, secret mental reservation not to affirm will not suffice. The most significant factor will be the lapse of time after the termination of the influence. In Allcard v Skinner (1887) 36 Ch D 145, the plaintiff, under the influence of the defendant spiritual adviser, gave a large sum of money to the defendant. Six years after leaving the religious order in question the plaintiff sought to recover the money but it was held that her claim was barred by delay.
(ii) Third party rights
If third party rights have intervened, for example by a resale of the property which is the subject-matter of the contract, rescission will not be available. Of course, if the third party is actually aware of the undue influence then the transaction which he has entered into will be likewise tainted and will also be voidable; Bridgeman v Green (1757) Wilm 58.
15.3 Inequality of Bargaining Power
There is no doubt that the cases just discussed on undue influence are part of a wider principle of fairness in contract bargaining. A similar type of case is the “unconscionable bargain”.
Fry v Lane (1888) 40 Ch D 312
It was held that where a purchase is made from a poor and ignorant person at a considerable undervalue, the vendor having had no independent advice, the court has an equitable jurisdiction to set the contract aside. I
Cresswell v Potter  1 WLR 225
The doctrine was applied to a post office telephonist, who, being a member of the ‘lower income group' and ‘less highly educated' was held to be the modern equivalent of poor and ignorant!
Lloyd's Bank v Bundy  QB 326
Lord Denning M R had sought to establish a single doctrine whereby all the instances where the courts intervene to set aside unconscionable transactions (including duress and undue influence) are based on a single unifying principle, namely, “inequality of bargaining power”.
However, in National Westminster Bank v Morgan  AC 686 the House of Lords refused to accept such a wide principle. Lord Scarman said, “... there is no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence.”
Legislation has gone some way to prevent abuse of unequal bargaining power. On the other hand the English courts have been slow to increase the scope for redressing ‘unfairness' at common law. In this respect many civilian law jurisdictions, and many United States jurisdictions offer far greater protection to the weaker party to a bargain. To a lesser extent this is also true in Commonwealth jurisdictions, which have developed the remedial constructive trust, a concept not recognized in English law.
TWO CASE STUDIES
Barclays Bank v O'Brien  AC 180
A security obtained by misrepresentation or undue influence may not be enforced – the creditor should take pains to make sure that no unfair advantage was gained.
Lord Justice Scott
The present law
The post Avon Finance v. Bridger cases are not easy to reconcile with one another. They were all, bar Coldunell v. Gallon and Bank of Baroda v. Shah, cases of wives becoming sureties or giving security for their husband's debts. In pings North Trust v. Bell and Barclays Bank v. Kennedy the creditor was held disentitled to enforce the security. The vitiating feature was undue influence or misrepresentation on the part of the debtor unknown to the creditor. In neither case was there any explicit finding that the debtor was acting as agent for the creditor. In both cases a finding of "agency" would, to my mind, have been highly artificial. In both cases the creditor had left it to the debtor husband to deal with the surety, his wife, and had done nothing to satisfy itself that she understood what she was doing or to protect her from abuse by the debtor of the influence and reliance that would be likely to be present. The two cases are, in my opinion, in line with the earlier authorities. So too is Avon Finance v. Bridger, save that it extended a principle previously confined to the husband/wife cases to a case of parents giving security for the debts of their son.
Coldunell v. Gallon is somewhat of a halfway house. In expressing the view that the son's acts alone would not, without the creditor's knowledge or authority, prejudice the enforceability of the security, Oliver L.J. was expressing the general principle applicable to cases in which the relationship between the third party surety and the debtor is a matter of irrelevance to the creditor. But in a later remark Oliver L.J. said that the law should not "require [the lender] to do more than fairly point out to the guarantor the desirability of obtaining independent advice". This requirement is not present in the law of suretyship generally. It may be, therefore, that Oliver L.J. was recognising that there are classes of sureties for whom special protection should be given, that the case fell within the class, but that, on the facts, the creditor had done enough to prevent any equitable intervention in aid of the surety.
Midland Bank plc v. Perry, Bank of Baroda v. Shah and Bank of Credits Commerce International v. Aboody were cases in which, in effect, the same rules were applied as would have been applicable regardless of any special relationship between surety and debtor. In Bank of Baroda v. Shah there was no relationship between sureties and debtor, at least none known to the creditor, that would have justified any special protection. In Bank of Credit & Commerce International v. Aboody, the point was, strictly, immaterial because the court had, on other grounds, found against the surety. But Perry is, in my opinion, inconsistent with the pre Avon Finance v. Bridger line of authorities and, also, with Barclays Bank v. Kennedy. It does not recognise wives who provide security for their husband's debts as requiring from courts of equity any different approach from that applicable to sureties generally. Absent notice or agency whereby a creditor may be affected by the debtor husband's improprieties towards his wife, the surety, the creditor is not concerned with what has passed between debtor and surety and need not concern itself with whether or not the surety understands the transaction, notwithstanding the relationship between the surety and the debtor and the creditor's knowledge of it.
Midland Bank v. Shepherd, too, does not treat wives who become sureties for their husband's debts any differently from other sureties. But neither had Howes v. Bishop or Talbot v. von Boris done so. None of these cases, however, involved any charge over property.
These authorities seem to me to leave the developing law, if not at the crossroads, at least at the junction of two diverging roads. One road would treat the special protection previously provided by equity for married women who provide security for their husband's debts as now of only historical interest. The analysis provided by Slade L.J. in Bank of Credit & Commerce International v. Aboody would be comprehensive. Third party security taken by creditors would be impeachable on account of misrepresentation or undue influence by the debtor only if the creditor had knowledge of the relevant facts or if the debtor had been acting as the agent of the creditor. A true agency would be necessary, not a spurious finding of agency in order to enable apparent justice to be done in hard cases. The creditor would not be concerned with the question whether or not the surety had an adequate understanding of the transaction. The surety would have to look after himself or herself, as most sureties have always had to do. The foundations of this road would have been laid by Coldunell v. Gallon, Midland Bank plc v. Perry, Bank of Baroda v. Shah and Bank of Credit & Commerce International v. Aboody.
Travellers along the other road would recognise that, for the historical reasons identified by Dixon J., equity has in the past treated married women differently and more tenderly than other third parties who provide security for the debts of others. They would notice that Avon Finance v. Bridqer had added to the protected class a case in which vulnerable elderly parents had agreed to provide security for the debts of their adult son. And they would, I think, conclude that, if a protected class is to continue to be recognised, the class ought, logically, to include all cases in which the relationship between the surety and the debtor is one in which influence by the debtor over the surety and reliance by the surety on the debtor are natural and probable features of the relationship. In cases falling within this protected class, security given by the surety would, in certain circumstances, be unenforceable notwithstanding that the creditor might have had no knowledge of and not have been responsible for the vitiating feature of the transaction. Turnbull v. Duval, Chaplin v. Brammall, Avon Finance v.. Bridqer, Kings North Trust Ltd. v. Bell, and Barclays Bank v. Kennedy all, in my opinion, provide support for this road.
In cases falling within this protracted class, equity would hold the security given by the surety to be unenforceable by the creditor if:
(i) the relationship between the debtor and the surety and the consequent likelihood of influence and reliance was known to the creditor; and
(ii) the surety's consent to the transaction was procured by undue influence or material misrepresentation on the part of the debtor or the surety lacked an adequate understanding of the nature and effect of the transaction; and
(iii) the creditor, whether by leaving it to the debtor to deal with the surety or otherwise, had failed to take reasonable steps to try and ensure that the surety entered into the transaction with an adequate understanding of the nature and effect of the transaction and that the surety's consent to the transaction was a true and informed one.
These requirements emerge, in my opinion, from the authorities to which I have referred.
The choice between the two roads cannot, in my opinion, be made simply by reference to binding authority. Binding authority can be found to justify either. The choice should, I think, be a matter of policy. Ought the law to treat married women who provide security for their husband's debts, and others in an analogous position, as requiring special protection? The position of married women today, both generally and vis-a-vis their husbands, is very different from what it was when the equitable principles underlying Turnbull v. Duvall and Chaplin v. Brammall were being formulated. It is arguable that married women no longer need the protection afforded to them by cases like these. Many women, it is true, do not. But the tendency in households for business decisions to be left to the husband and for the wife, whether or not she is a joint owner of the matrimonial home and whether or not she has a separate job, to have the main domestic responsibilities still persists. And in the culturally and ethnically mixed community in which we live, the degree of emancipation of women is uneven. The likelihood of influence by a husband over his wife and of reliance by a wife on her husband to make the business decisions for the family was the justification in the first place for the tenderness of equity towards married women who gave their property as security for their husband's debts. In my opinion, that justification is still present. I, for my part, would take the second of the two roads. I would treat the old authorities pre Avon Finance v. Bridger as still good law.
There is an additional reason for doing so. None of the modern cases has, in terms, overruled these authorities. None has explicitly stated that married women who provide security for their husband's debts are in no different position from other sureties. It is unsatisfactory that a long and established line of authority should be treated as overruled sub silentio.
Each case within the protected class must, in the end, depend on its own facts. But I would regard a clear written recommendation to the surety to take independent advice before signing the security document as advisable in most cases. I would regard it as inadvisable for the security document to be sent to the surety for signature unless accompanied by a recommendation to that effect. I would regard it as particularly inappropriate for the creditor simply to entrust the security document to the debtor with a view to the debtor obtaining the surety's signature. If the surety is invited to sign the security document in the creditor's offices, the creditor should, before the document is signed, explain its nature and effect to the surety. The background to all of this is knowledge on the part of the creditor that security is being taken from the surety for the benefit of the debtor and that the surety is a person who is likely to be influenced by and to have some degree of reliance on the debtor. In these circumstances the creditor should be seeking to ensure that unfair advantage is not taken of the surety. If, however, a creditor has taken reasonable steps, such as advising the surety to take independent advice, or, if the surety declines to do so, offering a fair explanation of the security document before the surety signs it, I can see no reason why equity should intervene.
It goes without saying that if the debtor has employed undue influence or misrepresentation in order to persuade the surety to enter into the transaction and the creditor has knowledge that this has happened, the security will be unenforceable. It will be unenforceable also if the facts justify a finding that the debtor has been appointed the creditor's agent. The debtor's misfeasance will then be the creditor's misfeasance. But this, I think, will, in the class of case I am considering, be very rare. Banks, building societies and finance houses do not appoint their debtors as their agents for the purpose of procuring additional security. They may, and often do, inform their debtors that loan facilities will be available if certain security can be provided. They may, and often do, leave it to the debtors to see if they can procure the additional security. But, in my opinion, that is no basis for an inference of agency.
Cases like Howes v. Bishop, Talbot v. von Boris, and Midland Bank v. Shepherd, in which wives became contractually bound in support of their husband's debts but did not provide any security over their property, stand a little aloof from the principles I have been discussing. Cases like Turnbull v. Duval, Bank of Montreal v. Stuart, Kings North Trust v. Bell and Barclays Bank v. Kennedy all relate to charges given by wives over their own property. The present case, too, is such a case. The historical reasons underlying the emergence of these principles, as explained by Dixon J., may explain why cases, in which there had been no disposition of property by the surety wife but merely the acceptance by her of a contractual obligation to pay her husband's debts, did not attract the same approach as the cases in which security over property had been given. Chaplin v. Brammall is, however, an exception. It is not necessary for us in the present case to decide whether this distinction is a legitimate one and I do not think we should assume to do so. Promissory notes are bills of exchange to which special rules are applicable. Contractual liability on a joint account on which an overdraft is to be allowed need not attract the same attention as the grant of a charge over property. I do not think we should decide, in the present case, more than we need. In any event, Howes v. Bishop, Talbot v. von Boris and Midland Bank v. Shepherd are binding on us and, if the cases in which security over property has been given are set to one side, there are no counter authorities which weaken their authority, save, perhaps, Chaplin v. Brammall.
There is one final comment I would make. In a case of the class I have been considering, the creditor will often, I think, find itself in a position of having to explain the security transaction to the proposed surety if an unimpeachable security is to be obtained. The creditor should not, in my opinion, be taken in so doing to have assumed a duty of care. If the surety is a customer or if the creditor assumes the role of advisor, it may be that the creditor will be found to have owed a contractual or tortious duty of care to the surety. Midland Bank plc v. Perry is an example. But if there is no more than that the creditor, in an attempt to satisfy itself that the surety properly understands the proposed transaction and that the transaction will not subsequently be impeachable, offers an explanation of the transaction and of the security document, I do not think that the creditor should be taken to have assumed a tortious duty of care. If the explanation was inadequate, the security might not be enforceable but it would not follow that liability in damages would attach. As I have already observed, equity ought not to place creditors in the dilemma of having to choose between, on the one hand, risking the security being unenforceable, and, on the other hand, undertaking a duty of care.
The Etridge case
Royal Bank of Scotland v Etridge (No . 2)  UKHL 44;  AC 773
Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage. An example from the 19th century, when much of this law developed, is a case where an impoverished father prevailed upon his inexperienced children to charge their reversionary interests under their parents' marriage settlement with payment of his mortgage debts: see Bainbrigge v Browne (1881) 18 Ch D 188.
In cases of this latter nature the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired. In Allcard v Skinner (1887) 36 Ch D 145, a case well known to every law student, Lindley LJ, at p 181, described this class of cases as those in which it was the duty of one party to advise the other or to manage his property for him. In Zamet v Hyman  1 WLR 1442, 1444-1445 Lord Evershed MR referred to relationships where one party owed the other an obligation of candour and protection.
The law has long recognised the need to prevent abuse of influence in these 'relationship' cases despite the absence of evidence of overt acts of persuasive conduct. The types of relationship, such as parent and child, in which this principle falls to be applied cannot be listed exhaustively. Relationships are infinitely various. Sir Guenter Treitel QC has rightly noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type: see Treitel, The Law of Contract, 10th ed (1999), pp 380-381. For example, the relation of banker and customer will not normally meet this criterion, but exceptionally it may: see National Westminster Bank Plc v Morgan  AC 686, 707-709.
Even this test is not comprehensive. The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.
In CIBC Mortgages Plc v Pitt  1 AC 200 your Lordships' House decided that in cases of undue influence disadvantage is not a necessary ingredient of the cause of action. It is not essential that the transaction should be disadvantageous to the pressurised or influenced person, either in financial terms or in any other way. However, in the nature of things, questions of undue influence will not usually arise, and the exercise of undue influence is unlikely to occur, where the transaction is innocuous. The issue is likely to arise only when, in some respect, the transaction was disadvantageous either from the outset or as matters turned out.
Burden of proof and presumptions
Whether a transaction was brought about by the exercise of undue influence is a question of fact. Here, as elsewhere, the general principle is that he who asserts a wrong has been committed must prove it. The burden of proving an allegation of undue influence rests upon the person who claims to have been wronged. This is the general rule. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case.
Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn.
The case of Bainbrigge v Browne, 18 Ch D 188, already mentioned, provides a good illustration of this commonplace type of forensic exercise. Fry J held, at p 196, that there was no direct evidence upon which he could rely as proving undue pressure by the father. But there existed circumstances 'from which the court will infer pressure and undue influence.' None of the children were entirely emancipated from their father's control. None seemed conversant with business. These circumstances were such as to cast the burden of proof upon the father. He had made no attempt to discharge that burden. He did not appear in court at all. So the children's claim succeeded. Again, more recently, in National Westminster Bank Plc v Morgan  AC 686, 707, Lord Scarman noted that a relationship of banker and customer may become one in which a banker acquires a dominating influence. If he does, and a manifestly disadvantageous transaction is proved, 'there would then be room' for a court to presume that it resulted from the exercise of undue influence.
Generations of equity lawyers have conventionally described this situation as one in which a presumption of undue influence arises. This use of the term 'presumption' is descriptive of a shift in the evidential onus on a question of fact. When a plaintiff succeeds by this route he does so because he has succeeded in establishing a case of undue influence. The court has drawn appropriate inferences of fact upon a balanced consideration of the whole of the evidence at the end of a trial in which the burden of proof rested upon the plaintiff. The use, in the course of the trial, of the forensic tool of a shift in the evidential burden of proof should not be permitted to obscure the overall position. These cases are the equitable counterpart of common law cases where the principle of res ipsa loquitur is invoked. There is a rebuttable evidential presumption of undue influence.
The availability of this forensic tool in cases founded on abuse of influence arising from the parties' relationship has led to this type of case sometimes being labelled 'presumed undue influence'. This is by way of contrast with cases involving actual pressure or the like, which are labelled 'actual undue influence': see Bank of Credit and Commerce International SA v Aboody  I QB 923, 953, and Royal Bank of Scotland Plc v Etridge (No 2)  4 All ER 705, 711-712, paras 5-7. This usage can be a little confusing. In many cases where a plaintiff has claimed that the defendant abused the influence he acquired in a relationship of trust and confidence the plaintiff has succeeded by recourse to the rebuttable evidential presumption. But this need not be so. Such a plaintiff may succeed even where this presumption is not available to him; for instance, where the impugned transaction was not one which called for an explanation.
The evidential presumption discussed above is to be distinguished sharply from a different form of presumption which arises in some cases. The law has adopted a sternly protective attitude towards certain types of relationship in which one party acquires influence over another who is vulnerable and dependent and where, moreover, substantial gifts by the influenced or vulnerable person are not normally to be expected. Examples of relationships within this special class are parent and child, guardian and ward, trustee and beneficiary, solicitor and client, and medical adviser and patient. In these cases the law presumes, irrebuttably, that one party had influence over the other. The complainant need not prove he actually reposed trust and confidence in the other party. It is sufficient for him to prove the existence of the type of relationship.
It is now well established that husband and wife is not one of the relationships to which this latter principle applies. In Yerkey v Jones (1939) 63 CLR 649, 675 Dixon J explained the reason. The Court of Chancery was not blind to the opportunities of obtaining and unfairly using influence over a wife which a husband often possesses. But there is nothing unusual or strange in a wife, from motives of affection or for other reasons, conferring substantial financial benefits on her husband. 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, 'it is not difficult for the wife to establish her title to relief': see In re Lloyds Bank Ltd, Bomze v Bomze  1 Ch 289, at p 302, per Maugham J.
Proof that the complainant received advice from a third party before entering into the impugned transaction is one of the matters a court takes into account when weighing all the evidence. The weight, or importance, to be attached to such advice depends on all the circumstances. In the normal course, advice from a solicitor or other outside adviser can be expected to bring home to a complainant a proper understanding of what he or she is about to do. But a person may understand fully the implications of a proposed transaction, for instance, a substantial gift, and yet still be acting under the undue influence of another. Proof of outside advice does not, of itself, necessarily show that the subsequent completion of the transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue influence, is a question of fact to be decided having regard to all the evidence in the case.
As already noted, there are two prerequisites to the evidential shift in the burden of proof from the complainant to the other party. First, that the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over the complainant. Second, that the transaction is not readily explicable by the relationship of the parties.
Lindley LJ summarised this second prerequisite in the leading authority of Allcard v Skinner, 36 Ch D 145, where the donor parted with almost all her property. Lindley LJ pointed out that where a gift of a small amount is made to a person standing in a confidential relationship to the donor, some proof of the exercise of the influence of the donee must be given. The mere existence of the influence is not enough. He continued, at p 185:
'But if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift.'
In Bank of Montreal v Stuart  AC 120, 137 Lord Macnaghten used the phrase 'immoderate and irrational' to describe this concept.
The need for this second prerequisite has recently been questioned: see Nourse LJ in Barclays Bank Plc v Coleman  QB, 20, 30-32, one of the cases under appeal before your Lordships' House. Mr Sher QC invited your Lordships to depart from the decision of the House on this point in National Westminster Bank Plc v Morgan  AC 686.
My Lords, this is not an invitation I would accept. The second prerequisite, as expressed by Lindley LJ, is good sense. It is a necessary limitation upon the width of the first prerequisite. It would be absurd for the law to presume that every gift by a child to a parent, or every transaction between a client and his solicitor or between a patient and his doctor, was brought about by undue influence unless the contrary is affirmatively proved. Such a presumption would be too far-reaching. The law would out of touch with everyday life if the presumption were to apply to every Christmas or birthday gift by a child to a parent, or to an agreement whereby a client or patient agrees to be responsible for the reasonable fees of his legal or medical adviser. The law would be rightly open to ridicule, for transactions such as these are unexceptionable. They do not suggest that something may be amiss. So something more is needed before the law reverses the burden of proof, something which calls for an explanation. When that something more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption will be regarded as rebutted.
This was the approach adopted by Lord Scarman in National Westminster Bank Plc v Morgan  AC 686, 703-707. He cited Lindley LJ's observations in Allcard v Skinner, 36 Ch D 145, 185, which I have set out above. He noted that whatever the legal character of the transaction, it must constitute a disadvantage sufficiently serious to require evidence to rebut the presumption that in the circumstances of the parties' relationship, it was procured by the exercise of undue influence. Lord Scarman concluded, at p 704:
'The Court of Appeal erred in law in holding that the presumption of undue influence can arise from the evidence of the relationship of the parties without also evidence that the transaction itself was wrongful in that it constituted an advantage taken of the person subjected to the influence which, failing proof to the contrary, was explicable only on the basis that undue influence had been exercised to procure it.' (Emphasis added)
Lord Scarman attached the label 'manifest disadvantage' to this second ingredient necessary to raise the presumption. This label has been causing difficulty. It may be apt enough when applied to straightforward transactions such as a substantial gift or a sale at an undervalue. But experience has now shown that this expression can give rise to misunderstanding. The label is being understood and applied in a way which does not accord with the meaning intended by Lord Scarman, its originator.
The problem has arisen in the context of wives guaranteeing payment of their husband's business debts. In recent years judge after judge has grappled with the baffling question whether a wife's guarantee of her husband's bank overdraft, together with a charge on her share of the matrimonial home, was a transaction manifestly to her disadvantage.
In a narrow sense, such a transaction plainly ('manifestly') is disadvantageous to the wife. She undertakes a serious financial obligation, and in return she personally receives nothing. But that would be to take an unrealistically blinkered view of such a transaction. Unlike the relationship of solicitor and client or medical adviser and patient, in the case of husband and wife there are inherent reasons why such a transaction may well be for her benefit. 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.
Which, then, is the correct approach to adopt in deciding whether a transaction is disadvantageous to the wife: the narrow approach, or the wider approach? The answer is neither. The answer lies in discarding a label which gives rise to this sort of ambiguity. The better approach is to adhere more directly to the test outlined by Lindley LJ in Allcard v Skinner, 36 Ch D 145, and adopted by Lord Scarman in National Westminster Bank Plc v Morgan  AC 686, in the passages I have cited.
I return to husband and wife cases. I do not think that, in the ordinary course, a guarantee of the character I have mentioned is to be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband. 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.
I have emphasised the phrase 'in the ordinary course'. There will be cases where a wife's signature of a guarantee or a charge of her share in the matrimonial home does call for explanation. Nothing I have said above is directed at such a case.
A cautionary note
I add a cautionary note, prompted by some of the first instance judgments in the cases currently being considered by the House. It concerns the general approach to be adopted by a court when considering whether a wife's guarantee of her husband's bank overdraft was procured by her husband's undue influence. 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.
Questions on Duress and Undue Influence
1. What is the scope of duress?
2. What are the ingredients of economic duress and what factual indicators are likely to be used by the court in deciding whether it has occurred?
3. When will the presumption of undue influence arise?
4. How may the presumption of undue influence be rebutted?
5. Are there any advantages in having a general doctrine of inequality of bargaining power, as favoured by Lord Denning in Lloyd's Bank v Bundy?
6. Janet sells her house to her solicitor at a fair market price. Could she have the transaction set aside?
7. Bodger agrees to build, at a fixed price, a pleasure boat for Funtours Ltd and deliver it in six months time. Funtours Ltd are to use it for hire on the River Trant.
After three months there is a steep escalation in the cost of the materials required to build the boat and Bodger says that he will only deliver on the agreed date if the price is increased by ten per cent and paid in advance. Funtours Ltd protest at this threatened breach of contract as they have already obtained a number of bookings for the boat.
At a meeting between Bodger and Funtours Ltd, Funtours eventually agree, under protest, that the price will be raised by ten per cent and they pay the full contract price. Two months after the boat is delivered Funtours regret this and sue to recover the additional ten percent.
Consider how far, if at all, your answer would differ if, at the meeting between Bodger and Funtours to renegotiate the contract, Bodger placed a pistol on the table and said, “... this city is not as safe as you think between the hours of sunset and sunrise.