Chapter 5: Duress Flashcards
Defining Duress
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.
Previously confined to a threat or act of violence
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
1.1 Duress to the person
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.
Key Case: Barton v Armstrong [1976] AC 104.
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.
1.2 Duress to goods (Occidental Worldwide Investment v Skibs A/S Avanti (The Sibeon & The Sibotre)) [1976] 1 Lloyds
Rep 293
A contract can also be avoided where there is a threat to seize the owner’s property or to damage
it.
One Factor v Only Factor
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.
1.3 Economic duress
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.
Key case: DSND Subsea v Petroleum Geo Services [2000] 7 WLUK 875
‘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].
Significant Cause
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
1.4 Legal effect of duress = Voidable Contract
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
Voidable & Recission
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.
Affirmation of Contract = No Remedy/ Recission
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.
1.5 Summary
- 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.
Characteristics of Economic duress/For Duress to be deemed actionable
- Pressure
- whose practical effect is
that there is a compulsion on, or a lack of practical choice, for the victim - The ingredients of actionable duress are that there must be pressure
- Which is a significant cause inducing the claimant to enter into the contract’ [emphasis
added].
2.1 Lack of practical choice/alternative
The pressure must result in a lack of practical choice for the victim. They have no practical
alternative but to acquiesce to the demand.
Carillion Construction Ltd v Felix (UK) [2001] BLR 1
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.
Carillion Construction Ltd v Felix (UK) [2001] BLR 1 Judgement
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.
Atlas Express v Kafco Ltd [1989] 1 All ER 641,
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
B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419,
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.
Kolmar Group AG v Traxpo Enterprises PVT Ltd [2010] EWHC 113 (Comm)
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
2.2 Factors to determine illegitimate pressure
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.
2.2.1 Illegitimate pressure – threatened breach of contract?
Gives rise to damages
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.
2.2.2 Illegitimate pressure – was pressure applied in good or bad faith?
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
DSND pressure exerted in good faith
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.
Judgement on pressure with DSND
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.
2.2.3 Illegitimate pressure – did the victim protest?
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%).
The protest dilemma
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.
2.2.4 Illegitimate pressure – did the victim affirm?
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.
Victim of duress taking immediate action
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
2.2.5 Significant cause
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.
Minimum basic test of subjective causation
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.
Causation factor
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).
Determining economic duress in the Key case: Carillion Construction Ltd v Felix (UK) [2001] BLR 1
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.
Lack of practical choice
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.
Caused by pressure
Felix refused to complete the work on time unless Carillion agreed to the new terms.
Pressure illegitimate?
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.
2.4 Summary
- 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
3 Economic duress and consideration
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.
Economic Duress & Consideration
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
Enforceable Variation
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.
Looking Imaginatively at the Doctrine of Consideration
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.
