#16122 - Duress - Contract Law

Illegitimate pressure by D
- Threats of illegal conduct is usually illegitimate
- Threats of lawful conduct are generally legitimate unless immoral or unconscionable when coupled with an illegitimate demand (the more unfair the demand, the more likely illegitimate)
That induced C to enter the contract (degree of causation required varies with type of duress)
C had no practicable alternative but to submit to the demand (economic duress only)

1/ Pressure

Threat to do violence or to detain the other party or someone in a close relationship, to induce their consent illegitimate pressure (Barton v Armstrong).

Chitty suggests that even threatening to do it to a strange would be enough if C genuinely believed that submission was the only way to prevent the stranger from being injured.

2/ Causation

Needs only to be a cause of decision to contract, not necessarily the predominant or overwhelming or but-for cause – to enforce the contract, D must show that it had no effect whatsoever on C.

*Barton v Armstrong [1976] AC 104

Facts: C claimed that he was induced to buy out D’s interest in a company on generous terms by D’s threat to murder C’s family. Trial judge denied relief because C’s main reason to buy out D was to ensure survival of the company.
Held (PC): allowing the appeal, that C could succeed if D’s threat were merely a reason for the decision, even if he might have done so without the threat.

C must show that the threat was a significant cause (Dimskal Shipping).

Dimskal Shipping Co SA v International Transport Workers’ Federation, The Evia Luck [1991] 3 WLR 875, 883

Most significant application = contract modification (threat to break existing contract unless the other party agreed to pay more or accept less for original performance). Originally, consideration meant that this agreement was never enforceable, but Williams v Roffey Brothers… economic duress is left to control the limits of renegotiations.

1/ Causative requirement

Courts take a causation-led approach because pressure will almost by default be illegitimate in that breaching a contract is otherwise unlawful, so that if any such renegotiations are to be upheld, the causation requirement must be more stringent:

Huyton v Peter Cremer [1999] 1 Lloyd’s Rep 620, 635-639

Lord Mance: economic duress is less serious than duress to the person or property, justifying a higher causative requirement.
- The basic test is but-for causation (either without the threat the contract would not have been made at all or on different terms).
- C must also show that he had no practicable alternative but to submit, though this is “not an inflexible third essential ingredient”

*Pao On v Lau Yiu [1980] AC 614

Lord Scarman: in deciding causation court asks whether the victim (i) protested, (ii) had a practicable alternative like an adequate legal remedy, (iii) was independently advised, and (iv) acted promptly to avoid the renegotiation.

2/ Examples

*Atlas Express Ltd v Kafco [1989] QB 833

Facts: a carrier company mistakenly under-quoted by half the price, and refused to make the delivery unless D agreed to double payment. D agreed because it was unlikely to be able to find alternative carriers at such short notice and if no delivery was made D would have lost its lucrative contract on which the viability of his business depended economic duress succeeded.

*Pao On v Lau Yiu [1980] AC 614

Facts: C refused to proceed with a contract unless D replaced by buy-back agreement with a guarantee by way of indemnity. D agreed in order to avoid delay and loss of public confidence that legal action would attract at a critical time in restructuring, and believed that the risk entailed in the modification was more apparent than real. When the share prices fell, D refused to (i) buy back the shares (alleging that the agreement was ended by the modification) nor (ii) indemnify C (alleging that the modification was voidable for duress).
Held: no duress, only legitimate commercial pressure (thus upholding agreement to indemnify)

A lawful act may be illegitimate though it must be at least immoral or unconscionable (Alf Vaughan).

Are legitimate:

Threats not to contract
Refusal to waive existing contractual obligations
A party’s exercise of a right for legitimate purposes
Threats to sue to enforce an honest, even if mistaken, claim, particularly in a commercial context:

*CTN Cash and Carry v Gallaher [1994] 4 All ER 714

Facts: D delivered C’s orders to the wrong warehouse, and the goods were subsequently stolen before the mistake was rectified. D demanded payment from C, honestly but mistakenly believing they were entitled to do so, and threatened to withdraw C’s future credit facility if C didn’t pay.
Held (CoA): no duress because D had acted in good faith and was entitled to vary the terms of future contracts with C. Stressed that lawful act duress would not be lightly found in arms-length commercial dealings where certainty is paramount.

Is illegitimate:

Akai Holdings Ltd (Liquidators) v Ting [2010] UKPC 21

Facts: D (former chairman of C) failed to assist the liquidators in their investigation of C’s affairs, resorting to a “long process of evasion”, forgeries, provision of false evidence to defeat the liquidator’s proposed scheme. D agreed to withdraw his opposition to the scheme in exchange for the liquidators agreeing not to pursue any claims against him arising out of or in connection with the company.
Held (PC): economic duress can include unconscionable though lawful action for improper motive, that D’s opposition was not in good faith but unconscionable and for an improper motive, and that the liquidators had no reasonable or practical alternative but to make the deal.

*The Universe Sentinel [1983] 1 AC 366

Lord Scarman: blackmail¹ may often involve threats to do what is lawful (ex. report criminal conduct). So in many cases what one has to justify is not the threat but the demand.

*Consumer Protection from Unfair Trading Regulations 2008 reg. 7 (aggressive commercial practices)

Part 4A (Consumer Protection (Amendment) Regulations 2014 reg.3) (right to redress in aggressive commercial practices)

Concerns the exploitation of a relationship of influence to obtain an undue advantage. It is about D’s reprehensible conduct in inducing C’s agreement to the transaction (Royal Bank of Scotland v Etridge (no. 2)).

Allcard v Skinner (1887) 36 Ch 145

Facts: a young novice nun took a vow of poverty, chastity and obedience, and gave all of her worldly possessions to the Mother Superior. She left the convent and sought the return of her gifts.
Held: presumed undue influence (though the Mother Superior was acquitted of any active exploitation in that she didn’t act selfishly and for her own interests), because objectively, the parties’ relationship and the resulting improvidence of the transaction to the novice, was such that the Mother Superior failed to do all that she should have to protect the novice’s interests.

1/ Traditional categories

Class I – Actual undue influence
Class II – Presumed undue influence (creating a rebuttable presumption)
- Class II.A – Specified relationships where the influence is automatically presumed
- Class II.B – relationships outside Class IIA where the influence must be proved

2/ Restatement in Etridge

HL said that not too much should be made of the distinction between traditional categories, which didn...

#16122 - Duress - Contract Law

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