Pao On v. Lau Yiu Long [1980] A.C. 614, [1979] 3 All E. R. 65 (P.C.)

1. Pao On v. Lau Yiu Long • [1980] A.C. 614, [1979] 3 All E. R. 65 (P.C.) • General rule: Duress, whatever form it takes, is a coercion of will so as to vitiate consent. • In a contractual situation, mere 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” • Test for Duress: It is material to enquire • 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, the coerced party had 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.

2. Commercial pressure may constitute economic duress • “Willinston on Contracts” test for duress (US law, but confirmed in two UK cases): • Duress must be such that the victim entered the contract against his will; • The victim must have had no alternative course open to him; • The victim must have been confronted with coercive acts by the party exerting the pressure • There is nothing contrary to the principle in recognizing 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

3. Gordon v. Roebuck (1992) 9 O.R. (3d) 1 McKinlay, J.A., introduced the concept of justifiable economic duress: I am of the view that coercion was exerted on the appellant’s agent to execute the December 29, 1980 agreement which amounted to economic duress in law (McKinlay J.A. used the PaoOn four-step test) However, I am also of the view that the pressure exerted was justified on the facts of this case on the basis only that there was some evidence from which the trail judge could conclude that the appellant had not shown that Mr. Roebuck was not entitled to the funds demanded by him on closing the transaction.

4. Geffen v. Goodman Estate (1991) 81 D.L.R. (4th) 211 Wilson J. (Reference to Prof. Ogilvie): Undue influence is meant to protect the integrity of the weak, or the momentarily weak, from entering into disadvantageous transactions, however measured. What is the nature of the relationship that must exist in order to give rise to a presumption of undue influence?...When one speaks of “influence” one is really referring to the ability of one person to dominate the will of another, whether through manipulation, coercion or outright but subtle abuse of power … To dominate the will of another simply means to exercise a persuasive influence over him. The ability to exercise such influence may arise from a relationship of trust or confidence, but it may arise from other relationships as well. What then must a plaintiff establish in order to trigger a presumption of undue influence? – It is enough to establish the presence of a dominant relationship.

5. Geffen v. Goodman Estate (continued) • Once the plaintiff has established that the circumstances are such as to trigger the presumption of undue inflence, the onus moves to the defendant to rebut it: • The plaintiff must be shown to have entered into the transaction as a result of his own “full, free and informed thought”. • Substantively, this may entail a showing that no actual influence was deployed in the particular transaction, that the plaintiff had independent advice etc. • The magnitude of the disadvantage or benefit is cogent evidence going to the issue of whether undue influence was exercised.

6. Morrison v. Coast Finance Ltd. (1965) 54 W.W.R. 257 (B.C.C.A.) A plea of undue influence attacks the sufficiency of consent: a plea that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against a weaker On an unconscionability claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker party, which left him in the power of the stronger party, and proof of substantial unfairness of the bargain obtained by the stronger party. Proof of these circumstances creates a presumption of fraud which the stronger party must rebut by proving that the bargain was fair, just and reasonable

7. Lloyd’s Bank v. Bundy • [1975] Q.B. 326 • Lord Denning: • There are cases in which the courts will set aside a contract, or a transfer of property, when the parties have not met on equal terms – when one is so strong in bargaining powerand the other so weak—that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall • Denning lists categories of cases where there has been inequality of bargaining power: • Duress of goods • Unconscionable transactions • Undue influence • Undue pressure • Salvage agreements

8. Lloyd’s Bank v. Bundy (continued) The general principles: “The English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures, brought to bear on him by or for the benefit of the other”

9. Harry v. Kreutziger (1978) 9 B.C.L.R. 166 (B.C.C.A.) McIntyre J. A. (refers to Morrison v. Coast Finance Ltd.): Where a claim is made that a bargain is unconscionable, the plaintiff must show that there was an inequality in position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. When this has been shown a presumption of fraud is raised, and the stronger must show, in order to preserve his bargain, that it was fair and reasonable Lambert J.A. (Limits the application of Lloyd’s Bank): Lord Denning’s statement of the general principle was clearly not intended as a touchstone… but rather as a demonstration that the categories of grounds for rescission are interrelated and based on a common foundation, so that cases of one of the five types may provide guidance on other of the types Questions as to whether use of power was unconscionable, an advantage was unfair or very unfair, a consideration was grossly inadequate or bargaining power was grievously impaired … are really aspects of one single question… whether the transaction seen as a whole is sufficiently divergent from community standards of commercial morality that it should be rescinded