Duress



Duress

It is of fundamental importance that parties to a contract enter into the agreement voluntarily rather than as a result of pressure (duress) or manipulation (undue influence).

It is an essential characteristic of contract law that the parties enter into an agreement voluntarily. As such, a party who has been coerced into entering into a contract may be able to avoid the obligations of the contract by reliance upon duress, although much depends on the sort of pressure that has been applied to the claimant.

The common law always accepted that some forms of coercion in the making of contracts resulted in the victim of the coercion being afforded a remedy, in that the contract would be set aside and any money paid could be recovered. However, the forms of coercion recognized as having such an effect were very limited. There was no doubt that duress to the person had such an effect, whether it took the form of threatened or actual violence (Barton V. Armstrong 1976 1 AC 104), or a threat of imprisonment (Williams V bayley 1886) LR 1 HL 200), although the latter rule arose only after the intervention of equity. As such, the doctrine was of little significance, since the number of cases of duress to the person has always been small.

It has also been settled that a threat to seize another’s property or to damage it (duress to property), will justify a claim of duress and result in the ensuing contract being set aside (See Lord Goff in Dimskal Shipping Co. SA V. International Transport Workers’ Federation, The Evia Luck 1991 4 All ER 871 P. 878).

Threats to property

For many years, the courts refused to accept that threats to damage or remove property would amount to duress. It is likely that this was because the pressure involved does not seem sufficient to amount to compulsion to enter into a contractual arrangement. For example, in Skeate V. Beale (1840) 11 Ad & EL 983, the claimant only paid the amount demanded as the defendant threatened to seize goods if payment was not forthcoming. Irrespective of this, the court refused to accept that this was sufficient to amount to duress. This approach has been rejected and the courts now recognise that threats directed at property may amount to duress. This principle was stated by Kerr J in occidental worldwide investment corporation V. Skibs A/S Avanti (The siboen and Sibotre).

Economic Duress

The idea that mere economic duress (threats to a person’s financial or business interests) might be a ground upon which a contract could be set aside was first canvassed by Kerr J in occidental worldwide investment corporation V Skibs A/A Avanti, The Siboen and the Sibotre (1976). The typical situation raising the possibility of a claim of economic duress is where one party threatens breach of contract unless the contract is renegotiated, and the other agrees rather than face disastrous consequences as a result of breach. The area is fraught with difficulty, however, since companies who deal with each other on a regular basis will often agree quite voluntarily to renegotiate a contract, and such agreements are the essence of the level of cooperation necessary in the business world. It would be unfortunate if they were treated by the economic duress doctrine.

Historically, the only sort of pressure that the courts were prepared to recognize as amounting to duress involved personal violence or threats of personal violence.

Key Case: Barton Armstrong (1975) 2 ALL ER 465 Concerning: duress and threats of violence.¹

It is clear that once actual or threatened violence has been established, the claimant will be able to avoid the contract unless the defendant succeeds in the onerous task of establishing that these threats played no part whatsoever on the claimants decision to enter into contract. Therefore, as long as threats of violence are a reason that the claimant entered into the contract; duress will be established even though threats of violence were not the only reason.

Establishing Economic Duress

In Pao On V. Lau Yiu Long (1980) AC 614, the privy council approved the doctrine of economic duress and attempted to identify its essential ingredients.

Lord Scarman identified two essential conditions for the operation of the doctrine:

1. ‘coercion of the will that vitiates consent’ and;
2. the pressure or threat must be illegitimate

In DSND Subsea ltd V. Petroleum Geo services ASA (2000) BLR 530, Dyson J identified the ingredients of actionable duress, as they have subsequently developed:

[T]here must be pressure, (a) whose practical effect is that there is compulsion on, or 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.

Economic duress led to recission of a contract in Universe Tankships of Monrovia V ITWF (1983) where a union had ‘blacked’ a tanker, and refused to let it leave port until certain monies had been paid. The HOL considered that this amounted to economic duress and ordered return of the money.

Compulsion or coercion of the will

In Paul On V Lau Yiu Long (1980) Lord Scarman listed the following indications of complusion or coercion of the will

• did the party coerced have an alternative course open to him?
• Did the party coerced protest?;
• did the party coerced have independent advice?;
• did the party coerced take steps to avoid the contract?

Illegitimate pressure

There must be some element of illegitimacy in the pressure exerted, for example, a threatened breach of contract. The illegitimacy will normally arise from the fact that what is threatened is unlawful. In CTN Cash and carry V. Gallaher (1994), However, the COA accepted, obiter, that an outrageous but technically lawful threat could amount to duress. This possibility has not so far been developed in any later cases.

Economic duress is often pleaded together with lack of consideration in cases where a breach of contract is threatened by the promisor, unless he receives additional payment.

The courts have had to decide what sort of threats will fall within economic duress. It is generally accepted that threats of lawful action will amount to illegitimate pressure but there are situations in which threats of lawful action may amount to duress if they leave the innocent party no reasonable alternative other than to acquiesce to the other party’s demands.

Threats of unlawful action: Atlas Express lrd V. Kafco 1989 1 All ER 641

Kafco was a small company that made basket ware and had secured a contract to supply Woolworth. It engaged the claimant to transport the goods, but due to a miscalculation of the costs involved, the claimant increased the price of delivery after the contract had commenced and threatened to cease delivery in breach of contract if the new price was not accepted by the defendant. As failure to supply goods to it’s major client in the pre-Christmas period would lead to a loss of customer, the defendant felt compelled to accept the higher price but later refused to pay, claiming duress. It was held that this did amount to economic duress as the threat t breach the contract was illegitimate pressure and, due to the time frame involved, the defendant would have been unable to find an alternative means of ensuring that it’s goods reached the customer.

Threats of lawful action: CTN cash & Carry V. Gallagher 1994 4 All ER 714

The defendant supplied leading brands of cigarettes. A consignment of cigarettes ordered by the claimant went astray and the defendant agreed to re-deliver but the goods were stolen prior to delivery. A replacement consignment of cigarettes was delivered to the claimants but the defendant demanded payment for these and stolen cigarettes. The claimants were told that their credit facilities would be withdrawn if they did not agree to pay for the stolen cigarettes so they agreed but subsequently claimed that the agreement was obtained by duress. The court held that threats of lawful action (to withdraw credit facilities) could amount to illegitimate pressure but that it did not do so in this situation. It was noted that it would require extreme circumstances before “lawful act duress’ would be recognised in a commercial contract.

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1The claimant was the managing director of a company of which the defendant was the former chairman. The defendant threatened to kill claimant if he did not purchase shares from the defendant. The claimant purchased the shares but sought a declaration that the transaction was void for duress, There was evidence to suggest that the claimant had been partly influenced by the threats and partly motivated by business considerations as the purchase of the shares was a good move for him and the company.

Legal Principle: The court held that the contract was voidable because the threats of personal violence were a factor in the claimant’s decision to purchase the shares even though he may have entered into the contract even without threats being made. In cases involving threats of violence, the onus was on the defendant to establish that these threats made no contribution to the claimant’s decision to enter into a contract.