#14985 - Duress - Contract Law

Duress involves pressure created by an explicit or implicit threat to do something wrongful. Rescission of a contract for duress will be barred where the party seeking rescission cannot offer.

In Halpern v Halpern [2007], CA held that rescission for duress was no different in principle from rescission for other vitiating factors, such as misrepresentation.

In contrast with misrepresentation, there is at present no independent remedy of damages for duress (though sometimes the conduct amounting to duress will give rise to separate tortious liability), so if rescission is barred the victim is without a remedy.

As a vitiating factor in contract: where A enters into a contract with B as a result of B’s duress, or (more commonly) agrees to vary an existing contract:

• A might plead duress as a defence when B attempts to enforce the new contract or variation; or

• A might perform the contract or variation, but then seek to set aside / rescind the contract as against B.

Threats of violence are the most obvious example of duress.

There are two controversial issues regarding duress to the person, namely, what the relevant test of causation is and whether the resulting transaction is void or voidable.

The PC considered both issues in Barton v Armstrong [1976]. A made death threats against B to persuade B to buy out A’s shareholding in the company, but B wished to do this anyway because he thought that this was commercially desirable. So B executed a deed purchasing A’s shares, but later regretted the transaction and sought to undo the transaction. A argued that B would have executed the deed even if there had been no threats; his threats were not a ‘but for’ cause and thus there should be no relief.

The PC disagreed. The threats don’t need to be a ‘but for’ cause of A entering into the contract, as long as they contributed to A’s decision. This relaxation of the test of causation is analogous to the position for fraudulent misrepresentation. In less serious forms of wrongdoing, such as economic duress, a strict test of factual causation applies.

• Ie held so long duress CONTRIBUTED sufficient, no need BUT FOR (majority)

PC in Barton also decided that the deed executed by B was void, not merely voidable. (ie duress to the person renders the contract void)

Some commentators have criticised this as being inconsistent with other forms of duress (particularly economic duress) which render transactions voidable only, but this criticism may be over-generalisation. It is perfectly understandable that the more serious forms of duress should have a greater vitiating effect on transaction and it seems right in principle that if you hand over your goods at gunpoint, the legal effect should be the same as if the goods had been stolen from you.

A wrongful threat to detain or the detaining of another party’s property that leaves the party no alternative but to agree to a transaction (Maskell v Horner [1915])

Pao On v Lau Yiu Long [1980] (Confirming The Atlantic Baron) -> economic duress makes contract voidable

Dyson J in DSND Subsea v ASA [2000] laid down the ingredients of economic duress: there must be pressure (a) whose practical effect is that there is compulsion on, or a 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.

This was no problem prior to Williams v Roffey Bros [1991] – since there was no consideration. But became a problem after the case since practical benefit of the completion can be consideration

Can have economic duress for renegotiations?

• Yes

• Eg Atlas Express Ltd v Kafco (1989) (basket weaving, got mixed up prices with big company, said wouldn’t deliver basket unless double rates) -> renegotiation viewed as economic duress

• Cf The Sibeon and Sibotre (1976) (renegotiation, D told C that feared going bankrupted if did not lower rates, C thought would lose out if D went bankrupt and thus lowered rates) -> Kerr J decided that economic duress can invalid a contract or contractual variation – though failed on the facts as it was a “mere commercial pressure”

• No

• Burrows -> suggest that threats of breach of contracts during renegotions should not invalidate renegotiation even if result of significant pressure if (i) new agreement rectifies an imbalance or (ii) renegotiations stems from unfairness in contract

• Andrews criticism -> Wrong to threat coercing party as meritous simply because of good faith

• Andrews suggest that Bigwood is right, better view is threatened breach of contract necessarily illegitimate

Can be a threat to breach – eg B&S Contracts v Victor Green[1984] (threat to cancel the book exhibition unless paid extra seen as an illegitimate threat)

Can be a threat to induce breach – eg The Universal Sentinel [1983] (threats to continue to blacking of the ship by threatening to induce tugmen to break their contracts)

Can be a threat to use forgery and false evidence to block a scheme of arrangement proposed by the liquidators – Borelli v Ting [2010] PC

Must be a threat to do something independently wrongful, i.e. breach a contract. This is different from a threat to do something that the defendant is entitled to do, which as a general rule will NOT amount to an illegitimate threat (though see ‘lawful act duress’).

• Lord Diplock and Scarman stressed importance of illegitimacy of threat in The Universal Sentinel [1983] (threats to continue to blacking of the ship by threatening to induce tugmen to break their contracts)

• Whether a threat of breach of contract is an illegitimate threat?

• Yes illegitimate threat - Andrews says this is the better view

• No not illegitimate threat - DSND Subsea v ASA [2000] Dyson J suggest that a threat of a breach of contract is not necessarily illegitimate by saying need to take into account a range of factors in deciding if the threat is illegitimate eg good faith

• But Andrews says the conclusion that threat is illegitimate only can be drawn if relevant factors in the favour of C – therefore Dyson J should not be interpreted as rejecting proposition that breach of contract is not necessarily an illegitimate threat

• Cf R v AG for England and Wales [2003] PC – where threat to demote SAS official back to ordinary unit if didn’t sign confidentiality agreement not illegitimate threat since doesn’t affect his economic interest rather than reputation or self esteem

In DSND Subsea v ASA [2000], DSND and PGS had a contractual arrangement in connection with the development of an oilfield in the North Sea. Technical disputes arose and DSND informed PGS that it was ceasing its part of the work. PGS then reached agreement with DSND on the disputed issues. Dyson J dismissed PGS’s claim of economic duress, even though DSND had threatened to breach the contract. DSND had been ‘entirely justified’ in wanting to resolve the dispute. The threat was not, in the circumstances, illegitimate, since it was ‘reasonable behaviour by a contractor acting bona fide in a very difficult situation’. This suggests that a threat to breach a contract will only count as illegitimate where the party making the threat was in bad faith.

• Eg B&S Contracts v Victor Green[1984] -> threat to cancel the book exhibition unless paid extra seen as an illegitimate threat

• Cf Huyton SA v Peter Cremer Co [1999] -> not paying for consignment not considered an illegitimate threat since no continuing right to pay for the goods

Birks (1990) argues that bad faith should be a prerequisite to recovery, so that a threatened breach of contract made to exploit the other party’s difficult position would be illegitimate, whereas a threatened breach made with a view to solving financial or other difficulties of the threatening party would not.

On the other hand, O’Sullivan & Hilliard (2014) suggests that a threat to breach a contract should always count as an illegitimate threat, leaving the other requirements to filter out inappropriate pleas of duress, because this accords with English law’s strict approach to frustration of contracts.

The law should not bend over backwards to assist a threatener who is trying to escape the consequences of his own bad bargain.

Need bad faith for illegitimate threat?

• Yes (suggests so)

• Eg Atlas Express Ltd v Kafko [1989] -> basket weaving, got mixed up prices with big company, said wouldn’t deliver basket unless double rates, sent driver that won’t collect unless signed new contract – conduct suggest bad faith, thus illegitimate threat

• Eg DSND Subsea v ASA [2000] (North Sea oil dispute) -> Dyson J said no duress as “justified reasonable behaviour” acting “bona fide” in a contractual situation – suggest need bad faith for illegitimate threat

Relief will only be given for economic duress if the threat or pressure was the decisive reason why the victim agreed to act or acted as he did (‘but for’ test). – Mance J in Huyton SA v Peter Cremer Co [1999]

Factual causation will not be established if the victim was only persuaded to contract because of the combined effect of the illegitimate threat and other reasons.

Factors used to determine causation were identified by the PC in Pao On v Lau...