Economic Duress

Question 1

1. Economic Duress, when a party enters into a contract as a result of financial threats, is a Vitiating Factor that makes a contract voidable…

Answer 1

Economic Duress, when a party enters into a contract as a result of financial threats, is a vitiating factor that makes a contract voidable.

It is pressure which goes beyond the usual rough and tumble of business dealings (Interfoto v Stiletto).

The Victim can Rescind (end) the contract if he chooses, known as ‘rescission’. Every case is decided on its particular circumstances, but certain factors must be present (Pao On v Lau Yiu Long).

Question 2

2. Firstly, there must be an…

Answer 2

Firstly, there must be an illegitimate threat, either to breach an existing contract (Atlas Express v Kafco) or to commit a tort (Universal Tankships v ITWF)

Question 3

3. Ordinary Commercial Pressure is not enough, for example…

Answer 3

Ordinary Commercial Pressure is not enough, for example a threat not to renew a contract in the future or threat to let a company go bankrupt or withdraw a credit facility (Cash and Carry v Gallagher). A legitimate threat made in bad faith (for example, an unethical threat) can in fact be the basis for a claim in duress (Progress Bulk Carriers v Tube City).

Question 4

4. The Case of Pao On v Lau Yiu Long established some more factors to consider when discussing whether pressure is illegitimate or just ordinary hard bargaining:

A…

B…

So, if a party seeks legal advice…

Answer 4

The Case of Pao On v Lau Yiu Long established some more factors to consider when discussing whether pressure is illegitimate or just ordinary hard bargaining:

A - Was he or she independently advised before taking the action?

B - After entering into the contract, did he or she take the steps to make the contract void?

So, if a party seeks legal advice before complying with a threat they may be seen as having taken a business decision and be unable to claim duress.

Question 5

5. However, if a party exerts pressure…

Answer 5

However, if a party exerts pressure they think they are legally entitled to exert, then there will be no claim for economic duress (Times Travel v Pakistan International Airlines Corporation). Also, if the claimants agree to negotiate, this is not an illegitimate threat (The Siboen and Sibotre).

• Here

Question 6

6. Secondly, the threat must leave no realistic…

Answer 6

Secondly, the threat must leave no realistic alternative but to comply with it. (Atlas Express v Kafco).

• Here

Question 7

7. Thirdy, the party must…

Answer 7

Thirdly, the party must protest at the time.

• Here

Question 8

8. Fourthly, the party must not hesitate…

Answer 8

Fourthly, the party must not hesitate to take legal action. The right to claim may be lost through lapse of time (The Atlantic Baron).

• Here