Cyprus Contract Law | Improper Pressure

Improper pressure, Undue influence, and Duress

In contract law the formation of a contract requires that there is an offer, acceptance of that offer, and to close the contractual intent there must be the presence of consideration. This can be a very minimal amount, but it must be present.

The reason why consideration is such an important factor is based on the notion of freedom of contract which is where parties give their complete consent to be legally bound.

This idea of freedom of contract is fundamental and any improper pressure of duress being applied to any individual that is party to a contract will not be accepted by the courts. It is difficult to classify what improper pressure and duress implies as the relationship between the parties needs to be investigated.

So how does a court decide whether the parties intended for what they bargained for?

In deciding these factors, the court also combines the doctrines of undue influence and economic duress.

Undue influence covers various kinds of personal relationships, fiduciary in nature, where trust is present and where there is a possibility of abuse by the dominant party means that the weaker party needs to be protected. An example of which would be where a husband persuades his wife to guarantee his company’s overdraft with a bank.

There are two ways that a contract can be avoided for undue influence: (a) affirmative proof of undue influence, or (b) presumption of undue influence which is not rebutted.

With Affirmative proof of Undue Influence the courts of England have defined it as “…some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating and generally, though not always, some personal advantage gained” (Lindley LJ)

With this in mind, to find affirmative proof, (a) evidence of victimization and some personal gain by dominant party needs to be there, (b) a lack of independent advice given to, or voluntary action by, the weaker party.

With Presumption of undue influence, this presumption usually is brought forward where there is a ‘special’ relationship between the parties…usually fiduciary in nature. Basically where the weaker party vests confidence and trust in the dominant party and gives the dominant party decision making powers over the weaker party and therefore as a result, enhances the position of the dominant party.

In this situation the following questions need to be expressed:

  1. What is the relationship between the parties and is there a position of actual or potential dominance?
  2. Does the relationship between the parties fit one of the recognized categories where a presumption arises?
  3. If not, do the facts justify the existence of such a special relationship?

E.g. (i) has the dominant party taken on the role of advisor or has he encouraged the weaker party to place trust and confidence in the advice, (ii) will the dominant party gain some form of personal advantage from the weaker party’s reliance? (iii) Is the transaction not readily explicable by the relationship of the parties?” This point here must always be answered affirmatively.

Another doctrine when looking at improper pressure is that of Duress. Here there are two forms that can be take, physical and economic. Physical is quite simple and requires there to be recognized violence or threat of violence. Either way, this would usually go under affirmative proof as mentioned above.

Economic duress comes from the theory of inequality of bargaining power. It has been said by the courts:

“In life many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law, for this pressure must be one of a kind which the law does not regard as legitimate.”

Therefore economic duress required proof of illegitimate pressure by the dominant party which would result in the weaker party coercing.

The remedies that follow for proven undue influence and duress is the rescission of the contract. This will be refused if the claimant has already affirmed the contract or waited too long before seeking remedy; where parties cant be restored to their previous positions; third parties have acquired rights in the contract or subject matter therein.