Chapter 5: Duress

Question 1

Defining Duress

Answer 1

Contracts are about two or more parties assuming obligations to each other, by consent. Duress,
however, involves one party coercing another party into a contract: consent is not present or not given freely in the same way. A contract or variation of a contract which has been entered into under duress is voidable, which means that the wronged party may be able to take action to have it set aside and to have the parties returned to the position they were in before the contract was entered into.

Question 2

Previously confined to a threat or act of violence

Answer 2

Historically, the doctrine of duress was confined to the threat of or the act of violence (duress to the person). Solicitors rarely encounter cases of this duress. However, the doctrine of duress has been extended to duress to goods and economic duress - threats to economic or business interests. This latter category is a developing and increasingly important area of commercial law

Question 3

1.1 Duress to the person

Answer 3

Duress can vitiate a contract when it amounts to actual or threatened violence. Duress to the
person is the least controversial and most long established category of duress.

Question 4

Key Case: Barton v Armstrong [1976] AC 104.

Answer 4

The Privy Council concluded in this case that once it is established that the physical threats contributed to the decision to enter into the contract, duress will be found, so long as the threats were one of the
reasons for contracting

Burden of proof on party: They further stated that the burden of proof was on the party who
exerted the pressure to show the threats and unlawful pressure contributed nothing to the victim’s
decision to contract. Consequently, it can be seen that the causation test for duress to the person
is not a difficult one to overcome – the duress need be only one factor influencing the wronged
party’s behaviour.

Question 5

1.2 Duress to goods (Occidental Worldwide Investment v Skibs A/S Avanti (The Sibeon & The Sibotre)) [1976] 1 Lloyds
Rep 293

Answer 5

A contract can also be avoided where there is a threat to seize the owner’s property or to damage
it.

Question 6

One Factor v Only Factor

Answer 6

To succeed in establishing duress to goods it seems likely that it must be shown that the agreement would not have been entered into if there had not been the duress. Unlike duress to the person, it is unlikely to be sufficient to show that duress will be one factor (but not a decisive
factor) influencing the wronged party’s behaviour.

Question 7

1.3 Economic duress

Answer 7

Economic duress is a doctrine which has developed more recently than duress to the person or duress to property. It poses particular difficulties, and it appears to be less well settled than the other two doctrines. A definition of duress which perhaps best reflects the current position was set out by Dyson J in DSND Subsea Ltd v Petroleum Geo Services ASA [2000] 7 WLUK 875.

Question 8

Key case: DSND Subsea v Petroleum Geo Services [2000] 7 WLUK 875

Answer 8

‘The ingredients of actionable duress are that 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’ [emphasis
added].

Question 9

Significant Cause

Answer 9

The courts have subsequently clarified that ‘significant cause’ means it must be shown that the
agreement would not have been entered into if there had not been the duress. Only Duress to the person has one factor

Question 10

1.4 Legal effect of duress = Voidable Contract

Answer 10

A person who enters a contract under duress has not done so under their own free will. This results
in the contract being ‘voidable’, which means whilst it remains in force unless some action is
taken, the party subject to duress may choose to avoid the contract after the duress has ceased.
The remedy is rescission. Rescission is not detailed in this chapter, but broadly involves attempting
to return the parties to the situation each was in prior to the contract being entered into

Question 11

Voidable & Recission

Answer 11

Voidable: A contract which is capable of being voided (annulled) but which remains in force
unless some action is taken to void it.

Rescission: A remedy which involves returning the parties to their pre-contractual position.

Question 12

Affirmation of Contract = No Remedy/ Recission

Answer 12

The remedy of rescission may be lost where the contract is affirmed, as affirmation operates as a
bar to rescission. The court might conclude that a contract is affirmed if, after the duress has ceased, the innocent party fails to challenge the contract in a timely way and/or acts in compliance with its terms.

Question 13

1.5 Summary

Answer 13

• When a contract has been entered into or varied under duress, it is voidable.
• There are three types of duress: duress to the person, duress to property, and economic
  duress.
• Actual or threatened violence would be duress to the person.
• A threat to seize or damage property would be duress to property.
• Economic duress results when one party has a lack of practical choice as to whether to enter/vary the contract, and this has been caused by illegitimate pressure.
• The proper remedy for duress is for the contract to be voided and for rescission to be awarded
  – returning the parties to the situation each was in prior to the contract being entered into.

Question 14

Characteristics of Economic duress/For Duress to be deemed actionable

Answer 14

1. Pressure
2. whose practical effect is
   that there is a compulsion on, or a lack of practical choice, for the victim
3. The ingredients of actionable duress are that there must be pressure
4. Which is a significant cause inducing the claimant to enter into the contract’ [emphasis
   added].

Question 15

2.1 Lack of practical choice/alternative

Answer 15

The pressure must result in a lack of practical choice for the victim. They have no practical
alternative but to acquiesce to the demand.

Question 16

Carillion Construction Ltd v Felix (UK) [2001] BLR 1

Answer 16

Carillion was the main contractor employed to carry out the construction of an office building. Carillion subcontracted the supply of the cladding to Felix. Felix’s work was delayed, and there was no certainty as to when it would be
completed. Although Felix’s liability to Carillion for this delay was potentially substantial, Felix was
in a strong position to renegotiate with Carillion.

Moreover,
Felix knew that it would be impossible for Carillion to find an alternative supplier in time to meet
the main contract completion date. Felix got Carillion to agree to pay substantially more money
to Felix in return for Felix delivering the cladding by the original deadline in the contract. Before
paying the money, Carillion wrote a letter protesting against Felix’s demand.

Question 17

Carillion Construction Ltd v Felix (UK) [2001] BLR 1 Judgement

Answer 17

The court accepted that Carillion had paid this sum under duress. If Carillion were to complete
the main project on time, and so avoid the heavy fees for late completion, they had no viable alternative but to agree to Felix’s demands.

Following the test set out in DSND Subsea Ltd v Petroleum Geo
Services, Mr Justice Dyson held that there was illegitimate pressure or a threat, the practical
effect of which was that Carillion had no practical choice but to enter into the agreement.

Question 18

Atlas Express v Kafco Ltd [1989] 1 All ER 641,

Answer 18

A manager of the claimant’s firm fixed the contract price at a rate of £1.10 per carton, based on an estimate that each load would consist of between 400 and 600 cartons. The first load fell significantly below his estimates, comprising only 200 cartons. The manager then refused to take any further loads unless the defendant agreed to renegotiate the contract price to a minimum of £440 per load.

The defendant, a small organisation, was heavily reliant on the contract with the store and unable to find another carrier, so reluctantly agreed to pay the
imposed minimum charge. At a later stage, the defendant refused to pay the minimum charge
and, when sued for the transport charges, lodged a claim of economic duress as a defence. It was held that, where a party has no alternative but to accept revised terms that were detrimental to
its interest, this amounted to economic duress

Question 19

B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419,

Answer 19

The plaintiff contracted to erect stands at Olympia for the defendant. A week before the exhibition, the plaintiff’s workmen went on strike, refusing to work until a pay demand was met. The plaintiff demanded an additional £4,500 to continue with the contract. The defendant paid the extra £4,500 to get the contract performed: the cancellation of the contract would have caused serious damage to the defendant’s economic interests

However, the defendant then deducted this figure from the contract price paid to the plaintiff. The plaintiff then claimed the balance. It was held by
the Court of Appeal that, since the cancellation of the contract would have caused serious damage to the defendant’s economic interests, they had no practical choice but to pay the sum demanded by the plaintiff. The plaintiff was therefore not entitled to the extra £4,500 which the defendant had paid under economic duress.

Question 20

Kolmar Group AG v Traxpo Enterprises PVT Ltd [2010] EWHC 113 (Comm)

Answer 20

The defendants had
an agreement to sell methanol to the claimants at a fixed price within a set timeframe. Knowing
that the claimants needed the methanol to satisfy an order for an important client who had an
urgent requirement for it, the defendants gave the claimants a ‘take it or leave it” ‘roposal for
delivery of less methanol at an increased price

The Court held that the claimants had no alternative but to accept the revised proposal. The defendants had made demands that they
knew would cause the claimants loss that were backed by coercive and unlawful threats that they
would not perform their obligations, and the claimants had complied with those demands as a
result of those threats

Question 21

2.2 Factors to determine illegitimate pressure

Answer 21

In determining whether there has been illegitimate pressure, the court takes into account a
range of factors. These include whether there has been an actual or threatened breach of
contract; whether the person allegedly exerting the pressure has acted in good or bad faith;
whether the victim protested at the time; and whether he affirmed and sought to rely on the
contract. These are all relevant factors.

Question 22

2.2.1 Illegitimate pressure – threatened breach of contract?

Gives rise to damages

Answer 22

A threat to breach a contract is an unlawful threat. This section does not cover what amounts to a
breach but, for our purposes at this stage, a breach of contract is a failure to comply with the
terms of the contract, and it will normally give rise to a right of the innocent party to claim
damages.

Question 23

2.2.2 Illegitimate pressure – was pressure applied in good or bad faith?

Answer 23

A threat to breach a contract is an unlawful threat. If this unlawful threat is made for illegitimate
ends, then this threat is made in bad faith and will almost inevitably lead to a finding of duress. In
both Carillion and Atlas, the party exerting the pressure was threatening to breach its contract.
This threat was made to extort money from the other contracting party that they were not entitled
to. There was no legitimate basis for the demand; it was a claim in bad faith amounting to duress

Question 24

DSND pressure exerted in good faith

Answer 24

Contrast this with DSND where the pressure was found to be exerted in good faith. In this case, DSND threatened to suspend its work under the contract until Petroleum Geo’s (PGS) provision of insurance and indemnities covering the safety of the deep-sea divers under the contract was clarified.

Question 25

Judgement on pressure with DSND

Answer 25

In the face of that threat, PGS entered into an agreement to make further payments and provide further reassurances to DSND. PGS later argued that this was entered into under duress. The court held that this was not illegitimate pressure, Mr Justice Dyson concluding that the pressure exerted by DSND was: ‘reasonable behaviour by a contractor acting bona fide in a very difficult situation’. In practice, the dividing line between legitimate commercial pressure exerted in good faith and unconscionable illegitimate pressure amounting to duress may be quite a fine one.

Question 26

2.2.3 Illegitimate pressure – did the victim protest?

Answer 26

The victim should demonstrate evidence of protest at the time the alleged duress was exerted. In Carillion, before paying the money Carillion wrote a letter protesting against Felix’s demand. Carillion’s registering of their dissatisfaction was material in their claim succeeding. This can be contrasted with North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd and Another (The Atlantic Baron) [1979] QB 705. Hyundai (shipbuilders) agreed to build a tanker for North Ocean (a shipping company), but refused to deliver the ship unless North Ocean agreed to pay 10% more than the contract price. The court readily concluded that this threat to breach a contract was illegitimate but ultimately North Ocean Shipping’s claim failed because they failed to protest at the threatened breach (in addition, as explained further below, it was not until some eight months later that they claimed the return of the extra 10%).

Question 27

The protest dilemma

Answer 27

The cases highlight the difficulty of the party in the position of the victim of economic duress. Very often they are caught between a rock and a hard place. If they protest too loudly during the performance of the contract, the threatened breach may materialise. If, however, they fail to protest, that failure may be taken as acquiescence in the changed circumstance.

Question 28

2.2.4 Illegitimate pressure – did the victim affirm?

Answer 28

One of the principal reasons the claimants in North Ocean Shipping Co were unable to get relief for the alleged duress was that they delayed in taking action to set aside the contract. It was not until some eight months later that the owners claimed the return of the extra 10 per cent. However, the arbitrators found that this fear was groundless. It was held that, although the agreement to pay the extra money might initially have been voidable for economic duress, the fact that the shipping company waited eight months before taking steps to avoid the contract meant they lost their right to have the new contract for the increased payments set aside. They had, in effect, affirmed a variation to the contract.

Question 29

Victim of duress taking immediate action

Answer 29

Unless the victim of duress takes immediate action once the pressure has ceased to operate, they may be taken to have affirmed the contract. The Atlantic Baron may be contrasted with B & S Contracts and Design Ltd v Victor Green Publications Ltd. Victor Green, acted sufficiently promptly by deducting the extra £4,500 paid under duress from B & S Contracts’ invoice, thereby avoiding the new agreement and satisfying the criterion that the victim takes steps to avoid the contract as soon as possible

Question 30

2.2.5 Significant cause

Answer 30

To succeed in establishing economic duress it must be shown that the agreement would not have been entered into if there had not been the duress. After reviewing the authorities, Mance J (as he then was) stated in the case of Huyton SA v Peter Cremer GmbH & Co [1999] 1 Lloyd’s Rep 620.

Question 31

Minimum basic test of subjective causation

Answer 31

The minimum basic test of subjective causation in economic duress ought, it appears to me, to be a ‘but for’ test. The illegitimate pressure must have been such as actually caused the making of the agreement, in the sense that it would not otherwise have been made either at all or, at least, in the terms in which it was made. In that sense, the pressure must have been decisive or clinching.

Question 32

Causation factor

Answer 32

This ‘causation’ aspect can be contrasted with the situation in relation to duress to the person, where duress will be established if the duress is one factor influencing the wronged party’s behaviour (it need not be a decisive factor).

Question 33

Determining economic duress in the Key case: Carillion Construction Ltd v Felix (UK) [2001] BLR 1

Answer 33

Summary: Carillion was the main contractor employed to carry out the construction of an office building. Carillion subcontracted the supply of the cladding to Felix. Felix indicated that it might not be able to complete its work on time unless the contract was varied to provide for increased payments to Felix. Carillion agreed to these new terms, but later argued successfully that the revised contract was voidable on the basis of duress.

Question 34

Lack of practical choice

Answer 34

Carillion needed this work to be completed on time to allow other work in the property to proceed. If all the work was not completed on time, Carillion would incur heavy fees for late completion in relation to its contractor with the building owner. It would be impossible for Carillion to find an alternative supplier or pursue legal action against Felix in time.

Question 35

Caused by pressure

Answer 35

Felix refused to complete the work on time unless Carillion agreed to the new terms.

Question 36

Pressure illegitimate?

Answer 36

Has there been a threatened breach of contract? --> The refusal to complete on time amounted to a threatened breach of contract (ie was unlawful). Was the pressure applied in good or bad faith? --> The threat was made in bad faith to extort money from Carillion. Did the victim protest? --> Before paying the money Carillion wrote a letter protesting against Felix’s demand. Did the victim affirm? --> Carillion did nothing that would amount to affirming the contract. But for the duress, the agreement would not have been entered into --> The new terms were much worse for Carillion, and Carillion would not have entered into them had there been no duress.

Question 37

2.4 Summary

Answer 37

* Economic duress results when one party has a lack of practical choice as to whether to enter / vary the contract, and this has been caused by illegitimate pressure. * When considering whether there has been illegitimate pressure, the court will consider: - Whether there has been an actual or threatened breach of contract. - Whether the party exerting pressure has done so in good or bad faith. - Whether the victim protested at the time of the duress. - Whether the victim affirmed the contract after the duress ceased. * To succeed in establishing economic duress it must be shown that the agreement would not have been entered into but for the duress

Question 38

3 Economic duress and consideration

Answer 38

The relationship between economic duress and consideration is most clearly illustrated in cases where an attempt has been made to vary a contract. In order to establish whether the variation (ie the promise to pay more) is binding, we need to return to first principles and answer this question: what makes a promise binding? If the variation is to be binding it must demonstrate all the characteristics of a valid contract – consideration, intention to create legal relations and agreement.

Question 39

Economic Duress & Consideration

Answer 39

If a party does no more than it was already bound to do, there is no consideration to make the variation binding (Stilk v Myrick (1809) 2 Camp 317). So, if X does no more than supply the computer package to the original specification, then it has offered no consideration to make Y’s promise to pay more binding. The variation lacks consideration so it is not enforceable

Question 40

Enforceable Variation

Answer 40

However, if X does something above and beyond its original contractual obligations, it may amount to good consideration, eg it adds to the computer package an anti-virus program which Y needs (Hartley v Ponsonby (1857) 7 E & B 872). In other words, the variation is supported by consideration and, provided there is also the necessary intention to create legal relations and agreement, the variation will be enforceable.

Question 41

Looking Imaginatively at the Doctrine of Consideration

Answer 41

Taking it a step further, in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the Court of Appeal demonstrated a clear willingness to look imaginatively at the doctrine of consideration, identifying practical benefit as good consideration to make Roffey’s promise to pay more binding. However, even where such practical benefit exists, the promise will not be enforceable where duress has been exercised to extract the promise to pay more.