Contract Law

Vitiating Factors

Abuse of Power

Economic Duress

An important area of abuse of power is economic duress. Economic duress typically arises where one party threatens to breach a contract unless the other party enters a varied or new contract with terms more favourable to the first party. It also can arise where there is very strong economic pressure to enter a contract. Ordinary economic needs frequently lead to contracts being formed, but vitiation does not arise even if such a contract turns out to be unfair. Real abuse of power leading to strong pressure is required for vitiation to be argued successfully.

 

An example of abuse of power is found in Universe Tankships of Monrovia v International Transport Workers Federation. A union black banned a ship so that it would not be tugged from a sea port, until the owners agreed to pay money to its welfare fund. To avoid being stranded the owners acquiesced, but they sued the union afterward. The court had to determine whether this was a valid contract. It was payment for a service, but there was economic duress which made it unfair and inequitable.

 

Undue Influence

A presumption exists that contracts formed in relationships of strong influence were not freely agreed to. This is especially where something of substantial value is transferred. Examples include a personal carer and an intellectually handicapped person, or a professional and a client totally reliant on their expertise. The presumption can be rebutted with evidence of the dependent party’s exercise of free will.

These relationships include:

  • solicitor and client,

  • doctor and patient,

  • parent/guardian and child,

  • fiancé and fiancée.

 

Mistake

Mutual mistakes occur when two parties are in error as to contractual terms. Where the mistake is mutual and so bad that effectively there is no agreement, then there is no contract. It is only likely for this law to be of value if one party finds that in spite of their mistake they profit from the contract and the other loses.

 

Unilateral mistakes DO NOT vitiate a contract. If one party has an intention or understanding that the other does not share, even if there is a failure of communication, the contract must go ahead.

 

[1] Universe Tankships of Monrovia v International Transport Workers Federation [1983] 1 AC 366.