Contract - 1.5 - Duress

Question 1

Contracts are about two or more parties assuming obligation to each other by….

Answer 1

Contracts are about two or more parties assuming obligation to each other by consent

Question 2

Duress

Answer 2

Duress involves one party coercing another party into a contract…

Meaning consent is not present or given freely

Question 3

Three types of duress

Answer 3

• Duress to the person
• Duress to property
• Economic Duress

Question 4

Duress to the person

Answer 4

Actual of threatened violence

Baron v Armstrong 1976

Question 5

Baron v Armstrong 1976

Answer 5

Est that physical threats contributed to the decision to enter into contract duress will be found.

Burden of proof was on the party exerting pressure to show threats contributed nothing to victims decision to contract.

Duress need only influence the wronged party’s behaviour

Question 6

Duress to goods

Answer 6

Threat to seize or owners property

Occidental Worldwide Investment v Skibs A/S Avanti

Must be shown that it is unlikely that agreement would not have been entered into if there had not been duress.

Question 7

Economic Duress

Answer 7

More recent doctrine = less well settled/

• lack of practical choice
• illegitimate pressure
• But for duress the agreement would not have been entered into

DSND Subsea v Petroleum Geo Services 2000

Question 8

DSND Subsea v Petroleum Geo Services

Answer 8

“Pressure whose practical effect is that there is compulsion or lack of practical choice for the victim, which is illegitimate and which is a significant cause inducing the claimant to enter the contract

Question 9

Legal effect of duress

Answer 9

Contract will be “voidable”

Remedy = Recission

Question 10

Voidable

Answer 10

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

Question 11

Rescission

Answer 11

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

Question 12

Affirmation

Answer 12

Affirmation operates as a bar to recission.

Court might conclude that a contract is affirmed if after duress has ceased innocent party fails to challenge contract in a timely manner; or acts in compliance with terms

Question 13

Economic duress:
Lack of practical choice

Answer 13

Pressure must result in a lack of practical choice for the victim

Carillion Construction Ltd v Felix (UK) 2001

Question 14

Carillion Construction Ltd v Felix (UK)

Answer 14

Carillon = contractor; Felix = subcontractor for cladding
Felix were in a strong position - trades were dependent, and no other supplier to meet time frame.
Asked for substantially more money to deliver cladding on time.
Carillion wrote a letter protesting.
Under duress

Question 15

Atlas Express v Kafco 1989

Answer 15

Claimant: road hauliers, deliver cartons of basket ware to store.

Fixed at £1.10 per basket based on 400/600 cartons.

First load was only 200 cartons. Refused to take any more without renegotiating for a minimum of £440.

Defendant was reliant, so agreed reluctantly to pay. They then later refused and sued. Held that the party had no alternatives but to accept revised terms.

Question 16

B&S Contracts and Design Ltd v Victor Green Publications Ltd
1984

Answer 16

Erect stands at Olympia for defendant.
Week before workers went on strike refusing to work unless a pay demand met (+£4500)
Later deducted from contract price paid.
As had no practical choice = economic duress

Question 17

Kolmar Group AG v Traxpo Enterprises PVT Ltd

Answer 17

Sell methanol for a fixed price within set timeframe.
Claimants needed methanol for an important client in urgent time.
Take it or leave it proposal for an increased price.

No alternative, complied with demands due to threats

Question 18

Illegitimate Pressure

Answer 18

Whether there has been:
- an actual or threatened breach of contract
- acted in bad faith;
- whether victim protested at the time;
- whether affirmed and sought to rely on the contract.

Question 19

Illegitimate pressure:
Threatened breach of contract

Answer 19

Threat to breach contract is unlawful
eg failure to comply -> right to cllaim damages

Carilliion and Atlas.

Question 20

Illegitimate Pressure:
Good or bad faith

Answer 20

Breach of contract for illegitimate ends = BAD FAITH (eg Carillion and Atlas)

DSND pressure was found to exerted in GOOD FAITH
- suspension of work undtil insurance and indemnities clarified.

Question 21

DSND v PGS
Faith

Answer 21

Dyson J held that the pressure exerted by DSND was “reasonable behavior by a contractor bona fide in a very difficult situation”

Question 22

The dividing line between …. exerted in good faith and …. amounting to duress may be a fine one

Answer 22

The dividing line between legitimate commercial pressure
exerted in good faith and unconscionable illegitimate pressure amounting to duress may be a fine one

Question 23

Illegitimate Pressure
Did the victim protest

Answer 23

Demonstrate evidence of protest at the time the alleged duress was exerted

Carillion - wrote a letter protesting
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd

Question 24

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd

Answer 24

Hyundai agreed to build a tanker for North Ocean but refused to deliver without 10% more payment than contract price.

Breach in contract was illegitimate

NOS failed to show they protested as was not until 8 months later that they requested the return

Difficulty of the party in the

Question 25

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd

Answer 25

Unable to take relief for the alleged duress as delayed taking action to set aside the contract.

Was not until some eight months later that the owners claimed the return of the 10%

Held that they had affirmed the contract

Question 26

Contracts and Design Ltd v Victor Green

Answer 26

Acted sufficiently promptly by deducting the extra £4500 under duress from B&S contracts invoice - avoiding a new agreement and satisfying the criterion.

Question 27

Significant cause

Answer 27

Must succeed int showing the agreement would not have been entered into if there had not been the duress

Mance J: “basic test of subjective causation in economic duress is the “but for” test”

Question 28

Carillion Construction Ltd v Felix (2001)
Lack of Practical Choice

Answer 28

Carillion needed this work to be completed to allow other work on the property to proceed.

If all work was not completed on time, Carillion would incur heavy fees.

Carillion couldn’t find an alternative action or pursue legal action in time.

Question 29

Carillion Construction Ltd v Felix (2001)
Caused by pressure

Answer 29

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

Question 30

Carillion Construction Ltd v Felix (2001)
Pressure illegitimate - threat?

Answer 30

The refusal to complete on time amounted to a threatened breach of contract ie was unlawful

Question 31

Carillion Construction Ltd v Felix (2001)
Pressure illegitimate - good or bad faith?

Answer 31

Bad faith - to extort money

Question 32

Carillion Construction Ltd v Felix (2001)
Pressure illegitimate - protest?

Answer 32

Letter protesting

Question 33

Carillion Construction Ltd v Felix (2001)
Pressure illegitimate - affirmation?

Answer 33

Carillion did nothing that would amount to affirming the contract

Question 34

Carillion Construction Ltd v Felix (2001)
Pressure illegitimate - “but for”?

Answer 34

Carillion would not have entered into the new terms had there been no durress.

Question 35

Economic Duress and Consideration

Answer 35

Court is increasingly likely to find “consideration” by way of practical benefit to support a variation.

More variations would appear to be binding, and the doctrine of economic duress is therefore increasingly important to seek relieg