Law of Contract

Duress

Duress

Courts are reluctant to enforce contracts that have been

formed as a result of unfair pressure or coercion, since

that would go against the principle of freedom of

Contract.

A contract that has been found to have been formed as

a result of duress would be held “voidable”, and the

party pressured can set aside the contract if he wishes.

DuressCourts have developed rules through common law and

equity to prevent parties from applying illegitimate

pressure upon each other to form a contract.

The following are some types of duress :

1. Duress to persons

2. Duress to goods

3. Economic duress *

DuressWhat conditions need to be proved to show duress:

1. Pressure was exerted on contracting party

2. Pressure was illegitimate

3. Pressure induced claimant to enter into contract

4. Claimant had no real choice but to enter the contract

5. Claimant protested at the time or shortly after the contract was made.

Duress to personsDuress to person can be as a result of actual violence or

threat of violence to the claimant or members of his

family.

Barton v Armstrong (1976) Australian caseFacts : Armstrong a former chairman of a company

threatened to kill Barton, its MD., if Barton did not agree

to buy Armstrong’s shares on terms, that were

apparently favourable to Armstrong.

Baron bought shares but evidence showed that he in

fact did so because it looked like a good business

arrangement to Baron. Threat was not the only reason.

Held : P/C held contract voidable. Duress need not be sole reason for contract. As long as duress contributed or was one of the factors influencing the contract.

Duress to goodsDuress to goods may occur where one person threatens

to destroy or take the goods of another unless a

contract is entered into.

Duress of goods was recognised in the case of :

The Siboen and The Sibotre (1976)

J Kerr, said obiter,

“a person coerced into a contract by the threat of having

his house burned down or a picture slashed could plead

duress.”

Economic duressEconomic duress occurs when one party uses its

superior economic power to force the weaker party into

an agreement.

The problem with this area is drawing the line between

what is unacceptable commercial pressure (economic

duress) and normal acceptable commercial pressure.

Alec Lobb Ltd v Total Oil (1983)

Economic duressThe leading case in economic duress is :

Pao On v Lau Yiu Long (1980) P/C

Facts : The plaintiffs threatened to break a contract to

buy shares in a company, unless the defendants, who

were shareholders, guaranteed them against losses due

to the fluctuation of shares.

The defendants agreed as they had no choice, because

breach of contract would lead to loss of confidence by

shareholders over company.

Held : There was no compulsion of will, merely

economic pressure that was within normal business

standards. Thus no economic duress present.

Economic duressPao On v Lau Yiu Long :

As per Lord Scarman,

Was there coercion or compulsion of will?

Following tests to be applied :

1. Did the person allegedly coerced, protest at that time?

2. Did this person have an alternative course of action?

3. Was the person independently advised?

4. Did the person take steps to avoid the contract once they had entered into it?

Pressure exerted must be illegal

What is illegitimate pressure?

DSDN Subsea Ltd v Petroleum Geo-services ASA

(2000)As per Dyson J :

In determining illegitimate pressure the courts takes into account

the following :

1. Has there been actual or threatened breach of contract

2. Had the person exerting the pressure acted in good or bad faith.

3. Whether victim had any realistic practical alternative

4. Whether victim protested at that time

5. Whether he affirmed or sought to rely on contract

Claimant protest/avoid contract?Did the Claimant Protest at the time ?Did claimant take steps to avoid contract once entered?

North Ocean Shipping Co v Hyundai Construction(The Atlantic Baron) (1979)

Facts : The contract concerned the building of a ship and varying the costs of building. The price was fixed at the beginning but the sellers decided to raise the price by 10% due to a drop in the exchange rate of the dollar. They were unhappy but agreed to the increase as they did not want to break the contract as they had a separate ship charter contract, which they were in the process of completing.

Held : Court agreed there was economic duress..butThe buyers could do nothing as they had not taken steps to avoid the contract (the terms that were varied) as soon as possible. (eight months after ship was delivered they attempted to claim back the extra payment).

Claimant had no practical alternative

Universe Tankships of Monrovia v InternationalWorkers Federation (The universe Sentinel) HLFacts : Case, Concerns an industrial dispute, between the ITWF union and Universe Tankships. ITWF agreed to call off a strike only if, the company made a payment into the union welfare fund. The strike affected the handling of a ship belonging to the plaintiffs. The payment was made unwillingly and the stike was lifted.The plaintiff shipowners sued to recover the monies that they claimed was paid as a result of duress.

Held : Lord Diplock, said that there would be duress, where a party has no choice, but to comply. Compulsion of the willalone is not enough, there must not also be a practical alternative.

Pressure exerted must be illegal

Atlas Express Ltd v Kafco Ltd (1989)Facts : A small basketware company had secured a valuable

contract to supply its products to Woolworths. They then contracted

with a national firm of carriers to transport their products. After the

contract, the carriers insisted on raising the charges, threatening to

stop deliveries.

Kafco had no choice but to agree. This was during the Christmas

peak period.

Held : The agreement to pay more was not binding as it was

obtained through duress, which was illegal here, and not merely

normal economic duress. There was also no alternative solution as

they were given no time to take other alternatives.

Pressure exerted must be illegal

CTN cash and carry v Gallaher (1994)Facts : The defendants were cigarette suppliers who had a monopoly on the supply. They demanded that the plaintiff’s pay for one particular order that had been stolen before it was delivered. The plaintiff’s refused to and the defendant’s threatened to stop their credit facilities with them. They refused at first but agreed later as they did not want to lose the credit arrangement.

Held : The defendants did not threaten to breach their contract, only to alter its terms, which was not unlawful. In addition they did not act in bad faith, they thought they were entitled to withdraw credit terms. There was no duress.