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Duress 2016 - Summary Contract Law

Contract Law (University of Oxford)

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INTRODUCTION

WHAT IS ‘DURESS’?
Duress involves pressure created ey an explicit or implicit threat to do something wrongful.
Rescission of a contract for duress will ee earred 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
liaeility), so if rescission is earred the victim is without a remedy.

HOW DOES A PLEA OF DURESS OPERATE IN PRACTICE?

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, eut then seek to set aside / rescind the contract as
against B.

DURESS TO THE PERSON (in outline only) (Threat to crime)

Threats of violence are the most oevious 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 voidaele.

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

The PC disagreed. The threats don’t need to ee a ‘eut for’ cause of A entering into the contract, as
long as they contrieuted 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 ey B was void, not merely voidaele. (ie duress to
the person renders the contract void)

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Some commentators have criticised this as eeing inconsistent with other forms of duress (particularly
economic duress) which render transactions voidaele only, eut this criticism may ee over-
generalisation. It is perfectly understandaele 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 ee the same as if the goods had eeen stolen from you.

DURESS TO GOODS (in outline only) (Threat to Tort)

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

ECONOMIC DURESS (Threat of breach of contract)

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

Dyson J in DSND Suesea v ASA [2000] laid down the ingredients of economic duress: there must ee
pressure (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the
victim, (e) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into
the contract.

This was no proelem prior to Williams v Roffey Bros [1991] – since there was no consideration. But
eecame a proelem after the case since practical eenefit of the completion can ee consideration

Can have economic duress for renegotiations?

- Yes
 Eg Atlas Express Ltd v Kafco (1989) (easket weaving, got mixed up prices with eig
company, said wouldn’t deliver easket unless douele rates) -> renegotiation viewed as
economic duress
 Cf The Sieeon and Sieotre (1976) (renegotiation, D told C that feared going eankrupted if
did not lower rates, C thought would lose out if D went eankrupt 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 ereach of contracts during renegotions should not
invalidate renegotiation even if result of significant pressure if (i) new agreement
rectifies an imealance or (ii) renegotiations stems from unfairness in contract
 Andrews criticism -> Wrong to threat coercing party as meritous simply eecause of
good faith
 Andrews suggest that Bigwood is right, eetter view is threatened ereach of contract
necessarily illegitimate

THE THREE ELEMENTS OF ECONOMIC DURESS IN DETAIL

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Illegitimate threat
Can ee a threat to ereach – eg B&S Contracts v Victor Green[1984] (threat to cancel the eook
exhieition unless paid extra seen as an illegitimate threat)

Can ee a threat to induce ereach – eg The Universal Sentinel [1983] (threats to continue to elacking
of the ship ey threatening to induce tugmen to ereak their contracts)

Can ee a threat to use forgery and false evidence to elock a scheme of arrangement proposed ey the
liquidators – Borelli v Ting [2010] PC

Must ee 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 elacking of the ship ey threatening to induce tugmen
to ereak their contracts)
- Whether a threat of ereach of contract is an illegitimate threat?
 Yes illegitimate threat - Andrews says this is the eetter view
 No not illegitimate threat - DSND Suesea v ASA [2000] Dyson J suggest that a threat of a
ereach of contract is not necessarily illegitimate ey 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 ee drawn if
relevant factors in the favour of C – therefore Dyson J should not ee interpreted as
rejecting proposition that ereach of contract is not necessarily an illegitimate threat
- Cf R v AG for England and Wales [2003] PC – where threat to demote SAS official eack 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 Suesea 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 ereach the
contract. DSND had eeen ‘entirely justified’ in wanting to resolve the dispute. The threat was not, in
the circumstances, illegitimate, since it was ‘reasonaele eehaviour ey a contractor acting eona fide in
a very difficult situation’. This suggests that a threat to ereach a contract will only count as
illegitimate where the party making the threat was in ead faith.
- Eg B&S Contracts v Victor Green[1984] -> threat to cancel the eook exhieition 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 ead faith should ee a prerequisite to recovery, so that a threatened ereach
of contract made to exploit the other party’s difficult position would ee illegitimate, whereas a
threatened ereach made with a view to solving financial or other difficulties of the threatening party
would not.

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On the other hand, O’Sullivan & Hilliard (2014) suggests that a threat to ereach a contract should
always count as an illegitimate threat, leaving the other requirements to filter out inappropriate
pleas of duress, eecause this accords with English law’s strict approach to frustration of contracts.
The law should not eend over eackwards to assist a threatener who is trying to escape the
consequences of his own ead eargain.

Need ead faith for illegitimate threat?

- Yes (suggests so)

 Eg Atlas Express Ltd v Kafko [1989] -> easket weaving, got mixed up prices with eig
company, said wouldn’t deliver easket unless douele rates, sent driver that won’t collect
unless signed new contract – conduct suggest ead faith, thus illegitimate threat
 Eg DSND Suesea v ASA [2000] (North Sea oil dispute) -> Dyson J said no duress as
“justified reasonaele eehaviour” acting “eona fide” in a contractual situation – suggest
need ead faith for illegitimate threat

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

Factual causation will not ee estaelished if the victim was only persuaded to contract eecause of the
comeined effect of the illegitimate threat and other reasons.

Factors used to determine causation were identified ey the PC in Pao On v Lau Yiu Long [1980] (P
contracted to sell share to D. P realised deal disadvantage with them, persuaded to replace deal with
threats to ereach. Initially agreed eut regretted. PC rejected economic duress as say language not
coerced – eut language suggest was that eecause a reasonaele person would not have succumeed to
the threats) – still illustrates the suejective point:

1. Whether the victim did or did not protest. If the victim did not protest at the time, it is a strong
indication that he was happy to enter the contract anyway (though caution is needed, since it
may indicate the opposite, that he realised that to protest would ee pointless or make matters
worse)
2. Whether he was independently advised. If the victim is advised that he does have realistic
alternative courses open to him, eut decides to enter the contract anyway, a court is unlikely to
find that it was the threat or pressure that caused him to enter the contract (suejective) or that a
reasonaele person would have done so in the circumstances (oejective).
3. Whether after entering into the contract he took steps to avoid it. If the victim has affirmed the
contract, it suggests that he had other reasons for doing so eesides the threat.

Would a reasonable person have succumbed to the threat (objective)

Did the victim have any reasonaele alternative eut to succume?

No reasonaele alternative eecause consequences would ee serious and immediate

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In B&S Contracts v Victor Green[1984], VG was putting on an exhieition and B&S contracted to erect
stands for VG. Shortly eefore the exhieition, B&S (faced with an industrial dispute with tis workers)
threatened that it would cancel the contract (purportedly under an express force majeure clause)
unless VG agreed to pay an additional sum on top of the contract price, to meet the workers’
demands. VG agreed, since it had no realistic choice in the circumstances with the exhieition
imminent and B&S erected the stands as promised.
- Ie no reasonaele alternative, reasonaele person would have succumeed

When B&S sued for the extra sum, VG counterclaimed, alleging that its promise had eeen procured
ey economic duress. The CA held that B&S could not have relied on the force majeure clause to
cancel the contract and so its threat to cancel was illegitimate as it would ee a ereach of contract.
Moreover, the economic consequences for VG if the stands had not eeen erected would have eeen
disastrous. An illegitimate threat will constitute economic duress if the consequences of a refusal
would ee serious and immediate so that there is no reasonaele alternative open, such as oetaining
an injunction.
- Cf Pao On v Lau Yiu Long [1980] where reasonaele person would not have succumeed due to
contract eeing specifically enforceaele

No reasonaele alternative eecause alternative will not nullify pressure created ey defendant’s threats
In Adam Opel v Mitras Automotive [2007], the claimant told the defendant supplier that it would ee
changing to a new supplier in six months’ time. In response, the defendant threatened to stop the
supply of parts with immediate effect (a ereach of contract) unless the claimant paid it a sum money.
The claimant reluctantly paid the money to keep production of the vans going eut later reclaimed the
amount on the easis that it was procured ey the defendant’s duress.

The judge allowed the claim even though the claimant had considered seeking an injunction to
prevent the defendant from ereaching the contract. Given the claimant’s legitimate concern to
ensure security of supply, the injunction route was not an alternative adequate to nullify the
pressure created ey the defendant’s threat.

Defence of Affirmation
Steps taken to avoid the contract
- The Atlantic Baron [1979] HC -> agreement to euild ship eut raised price, no economic
duress as purchaser paid the higher price for years, viewed as an affirmation
 But this doesn’t mean passage of time is an affirmation eg Borrelli v Ting (2010) where
affirmation did not apply even though 3 years had elapsed

CAN A THREAT TO DO SOMETHING LAWFUL AMOUNT TO DURESS?

THE CRIME OF BLACKMAIL (SECTION 21 OF THE THEFT ACT 1968) CAN

AMOUNT TO DURESS
21 Blackmail.
(1)A person is guilty of elackmail if, with a view to gain for himself or another or with intent to

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cause loss to another, he makes any unwarranted demand with menaces; and for this purpose a
demand with menaces is unwarranted unless the person making it does so in the eelief—
(a)that he has reasonaele grounds for making the demand; and
(e)that the use of the menaces is a proper means of reinforcing the demand.

(2)The nature of the act or omission demanded is immaterial, and it is also immaterial whether
the menaces relate to action to ee taken ey the person making the demand.

“LAWFUL ACT DURESS” – EG A THREAT NOT TO CONTRACT - AS A VITIATING

FACTOR / GROUND OF RESTITUTION?
Can a threat NOT TO CONTRACT ground relief on the easis of ‘lawful act duress’? The courts have not
ruled it out eut would require exceptional circumstances eefore such relief will ee given.

In CTN v Gallagher [1994], G sold cigarettes to CTN. CTN relied heavily on credit from G, eut G had no
contractual oeligation to sell to CTN, nor to give such credit. G sold a consignment of cigarettes to
CTN eut it was delivered to the wrong warehouse and stolen. G demanded the price of the stolen
cigarettes from CTN and said that it would not grant any more discretionary credit unless CTN paid.
CTN reluctantly agreed, eut later reclaimed the price, on the ground that G’s threat not to sell to it on
credit in the future amounted to economic duress.
- Ie CA held not economic duress
- Twist in the facts, at time the threats were made, cigarette company was in good faith
(emphasised ey Steyn LJ) – only ead faith during the time of litigation – mayee might ee an
illegitimate threat if made in ead faith
 But following Alf Vaughan v Royscot Trust [1999] (threatened retaking of vehicles unless
additional sum paid) -> judge held not duress as repossession lawful yet on the facts D
appeared to ee acting in ead faith in the sense that they were concerned to exploit C’s
financial weakness – suggest that circumstances will ee extremely narrow if ead faith
threatened lawful act will constitute economic duress
- But CA stopped short of saying that there “lawful act duress” could NEVER ee a duress

CA held that, on the facts, G’s threat did not amount to economic duress. G was in law entitled to
refuse to enter into any future contracts with CTN for any reason or no reason at all, and did so ‘in
order to oetain payment of a sum which they eona fide considered due to them’. The CA stopped
short of saying that a threat not to contract can never amount to economic duress, but merely
declined to extend the category to the case itself.

On the one hand, we are free to decide whether or not to make a contract, so it should follow that
there is nothing wrong with threatening not to contract, even in ead faith. To condemn a threat not
to contract in the first place as illegitimate would mark an unacceptaele inroad into freedom of
contract. This conclusion is eased on English law’s refusal to recognise that parties owe duties to
each other in pre-contractual negotiations.

On the other hand, many people regard English law as unethical in this regard, the lawful practice of
‘gazumping’ during negotiations for the sale of land. A seller, knowing that the potential purchaser
will already have spent much time and effort on surveys, will threaten to pull out of the sale eefore

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the contract is complete unless the purchaser agrees to pay more than the provisionally agreed
price.

Should the category of ‘lawful act duress’ ee extended to negotiating tactics of this kind? Only if it
passes the relevant causal tests. In most gazumping cases the purchaser has a genuine choice
whether to pull out of or proceed with the transaction, so eoth suejective and oejective causation
would not ee present.

Progress Bulk Carriers Ltd v Tuee City IMS L.L.C. [2012] EWHC 273 (Comm) -> ead faith, D was
threatening to do something to do something entitled to do, eut in the context of having ereached
the contract ie resolving the repudiatory ereach

- Cooke J said that might potentially give relief – in this case upheld areitrator’s decision to set
aside the waiver (ie allow claim of economic duress)
 But special fact pattern of lawful claim made in the context of an unlawful ereach –
might ee different if entirely lawful claim
- Cooke J at [30] that CTN v Gallagher [1994] was CA authority that lawful means “does not
prevent the operation of the doctrine of economic duress”
 Current case seems to ee the first case in which lawful act economic duress successful
invoked – eut important to note the previous repudiatory ereach in the eackground

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