1.1 Case notes on Coercion PDF

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1 Case Notes on [email protected] 15 of the Contracts Act 1950 provides:“Coercion” is the committing, or threatening to commit any act forbidden by the Penal Code, or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intent...

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1.1 Case Notes on Coercion [email protected] Section 15 of the Contracts Act 1950 provides: “Coercion” is the committing, or threatening to commit any act forbidden by the Penal Code, or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Explanation - It is immaterial whether the Penal Code is or is not in force in the place where the coercion is employed.” Unlawful detention of property: whether it amounts to coercion. Whether the refusal of the plaintiff to supply the bars at the price of RM1,180 amounted to an unlawful detention of property in order to get the first defendant to agree to the price of RM1,244. The court was unable to agree that the act can come within the meaning of section 15 because the plaintiff was exercising their legal right over their own property not to deliver because they maintained the first defendant did not agree to pay the price of RM1,244 and this came about because the first defendant did not agree there was a mutual mistake in stating the price in the said document. Teck Guan Trading Sdn Bhd v Hydrotek Engineering (S) Sdn Bhd & Others [1996] 4 MLJ 331 ▪ The plaintiff agreed to sell round bars to the first defendant. ▪ The payment was guaranteed by the second defendant and the third defendant. ▪ When the defendants failed to pay for the balance of payment, the plaintiff sent a notice of demand to the second and third defendants. ▪ As there was no reply from the defendants, the plaintiff commenced action claiming for RM332,966.84 being the balance payable for round bars sold and delivered.

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The plaintiff’s application for summary judgment and striking out of the defendants’ counterclaim was granted by the senior assistant registrar. The defendants appealed. The defendants disputed the price of the bars. The agreement which sets out the price of the bars at RM1,180 per metric ton, among others, is the document dated 27 July 1990. This document was drawn out as a result of the previous discussion on account of a confirmed order by the 1st defendant dated 25 July 1990, where the price was RM1,244. The plaintiff contended that there was an error in typing the price in the July 27 document. The 1st defendant, however, produced another letter, signed by the plaintiff, dated 26 July 1990 stating the price to be RM1,180. The plaintiff then maintained that the price was finally resolved amicably when 1st defendant, by their letter dated 18 September 1990, agreed to pay the price of RM1,244. According to the 1st defendant, he had paid a 15% deposit on July 28 for the various orders pursuant to the July 27 agreement, but the plaintiff refused to supply the bars unless he agreed to the price of RM1,244 . The 1st defendant initially resisted the demand but later, by the September 18 letter, agreed because, according to the defendants— o the plaintiff persistently refused to supply, o the defendants had committed themselves to producing and supplying concrete requiring the bar and o there was no time to look for other source of supply. The bars were delivered on September 19 as the delivery order was clearly acknowledged. The defendants alleged that on the facts of the case there was an inference of undue influence and/or coercion by reference to ‘economic blackmail’ within the meaning of section 14 of the Contracts Act 1950. The court held that the first defendant, when faced with the prospect of not getting supply of the bars, and in order to avoid that, agreed to the new price. It does not amount to coercion because the agreement to the price ©mohaimin ayus

2 was an exercise of free will. Ian Chin J said: “The increase in price resulted in the first defendant having to pay RM8,558.72 more … Could it then be argued that there was ‘coercion’ or ‘undue influence’? The definitions of ‘coercion’ and ‘undue influence’ are supplied, respectively, by ss 15 and 16 of the Act. … There are two ways of committing ‘coercion’ as defined by s 15, one of which is the threatening of an act forbidden by the Penal Code, while the other is the unlawful detention or the threatening of such to the prejudice of any person, with the intention of causing any person to enter into an agreement. [The counsel] did not submit whether any or which of the acts of the plaintiff can be considered as a threat to commit an act forbidden by the Penal Code and which section of the Penal Code as forbidding the threatened act. [The counsel] must say what offence the plaintiff had committed under the Penal Code before the court can decide whether such an offence had been committed (see Pollock & Mulla on Indian Contract and Specific Relief Acts (9th Ed) at p 133). Learned counsel had not done so. This was no surprise because the facts of this case do not reveal any offence under the Penal Code. The contention of coercion is rarely heard nowadays as pointed out by Visu Sinnadurai on Law of Contract (2nd Ed) at p 256, where he said: ‘The various definitions of ‘coercion’ under s 15 of the Contracts Act 1950 limit the wrong or threatened wrong to crimes under the Penal Code alone and not to include tortious wrongs. Acts which are offences other than under the Penal Code or which are merely a civil wrong will not amount to ‘coercion’ within the ambit of s 15. To a very large extent, this limited definition in the Contracts Act renders the scope of coercion obsolete.’

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On the second limb of section 15, i.e. whether there was “the unlawful detaining of or threatening to detain, any property, to the prejudice of any person whatever”, the learned judge said: “I assume that [the counsel] is arguing [the retention of property], but in any event that is the only possible way it can be argued, that the refusal of the plaintiff to supply the bars at the price of RM1,180 amounted to an unlawful detention of property in order to get the first defendant to agree to the price of RM1,244. I am unable to agree that such act can come within the meaning of s 15 because the plaintiff was exercising their legal right over their own property not to deliver because they maintained the first defendant did not agree to pay the price of RM1,244 and this came about because the first defendant did not agree there was a mutual mistake in stating the price in the said document. Support for my view can be found also in Pollock & Mulla, at p 135 where it is said: Unlawful detaining of property—A refusal on the part of a mortgagee to convey the equity of redemption except on certain terms is not an unlawful detaining or threatening to detain any property within the meaning of this section. Therefore, there is no question of coercion being committed by the plaintiff on the first defendant.”

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The learned counsel then submitted that the plaintiff had resorted to “economic blackmail” which constituted another category of coercion. To this Ian Chin J said: “… Learned counsel did not refer to any authorities. The existence of such a category under the English law, which has been variedly termed ‘commercial pressure’, ‘economic duress’ and ‘unfair use of a dominant bargaining position’, was commented on in Pao On v Lau Yiu Long [1980] AC 614 (PC) per Lord Scarman, at pp 635-636, in this way: ‘Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. Their Lordships agree with the observation of Kerr J in Occidental Worldwide Investment Corporation v Skibs A/S Avanti [1976] 1 Lloyd’s Rep 293 at p 336 that in a contractual situation commercial pressure is not enough. There must be present some factor ‘which could in law be regarded as a coercion of his will so as to vitiate his consent.’ …

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Ian Chin J observed that the first defendant was only subjected to commercial pressure, which did not amount to coercion. The learned judge said: “It was also the case here, that the first defendant was subjected to commercial pressure, which Mr Lim termed ‘economic blackmail’, when the first defendant, faced with the prospect of not getting supply of the bars and in order to avoid that, agreed to the new price. It does not amount to coercion because the agreement to the price was an exercise of free will.”

Criminal intimidation In Nuri Asia Sdn Bhd v Fosis Corporation Sdn Bhd [2006] 5 CLJ 307, Low Hop Bing J (as he then was) found that there was coercion, within the meaning of section 15 of the Contracts Act, exercised by the plaintiff in procuring the written guarantee from the second defendant by the use of criminal force, assault or criminal intimidation which are acts forbidden by the Penal Code.

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Nuri Asia Sdn Bhd v Fosis Corporation Sdn Bhd [2006] 5 CLJ 307 (HC) The plaintiff claimed the sum of RM1,182,970.20 against the first defendant (the principal debtor) and the second defendant (a guarantor) for the price of goods sold and delivered to the first defendant upon an oral guarantee given by the second defendant to the plaintiff on 17 October 2002. The guarantee was later reduced to writing in the form of a letter (“the written guarantee”) dated 4 April 2003. The second defendant denied that he was a guarantor and pleaded that he was acting under coercion and was forced by the plaintiff’s director and shareholder to sign the written guarantee, for which he had lodged two police reports, one on the date of the written guarantee and another on 13 April 2003. The plaintiff alleged that the written guarantee had been voluntarily signed by the second defendant and that the second defendant had falsely pleaded in his defence that he was forced to do so. The eye witness for the defendants (SD2) testified and gave an account of the circumstances in which the written agreement was executed by the second defendant. The learned High Court Judge specifically found that the second defendant had not given any oral guarantee. He, however, had merely acted as an introducer or a middleman. The learned judge further found that the written guarantee had been tainted with coercion as defined in section 15, as the circumstances surrounding the execution of the written guarantee clearly came within the scope of committing or threatening to commit acts forbidden by the Penal Code viz using criminal force, assault or criminal intimidation. As a result there was no free consent from the second defendant in executing the written guarantee. Low Hop Bing J said: [25] In my judgment, it is pertinent to point out that the written guarantee was executed by the second defendant in very unorthodox circumstances. SP1 and SD1 met in a restaurant in USJ Subang Jaya Selangor. SP1 had with him five men who were Tenaga Nasional subcontractors while the second defendant went there alone. SP1 had informed the five men of the content of the written guarantee. One of the five men went to the table where SP1 and the second defendant were having their discussion. [26] SD2 was the eye witness. She is an insurance agent who knew both SP1 and the second defendant. On the day in question, SD2 and the second defendant were having lunch in a restaurant in USJ Subang Jaya when at about 2.00pm, the second defendant received a telephone call. The second defendant informed SD2 that the caller was SP1 who wanted to meet him. After lunch, the second defendant accompanied by SD2 drove to another restaurant in USJ where the second defendant met SP1. On arrival there, the second defendant parked his car opposite the restaurant and walked to the restaurant to meet SP1. SD2 remained in the front passenger seat of the second defendant’s car. [27] Through the mirror in front of the seat, she saw SP1 with several other men in front of the restaurant. The second defendant was sandwiched by two of the five men there. Both SP1 and the second defendant had an altercation. SP1 sat on a chair in front of the restaurant while another man pushed the second defendant in order to sit next to SP1, while other men stood behind them. SD2 was stunned as she knew both SP1 and the second defendant had previously been good friends. SD2 then called the second defendant on his handphone but the call did not go through. The second defendant ©mohaimin ayus

4 remained seated and was surrounded by the men who were with SP1. [28] Subsequently, when the second defendant returned to his car, SD2 asked the second defendant what had happened. The second defendant told SD2 that he was intimidated, and assaulted by SP1’s men and was forced to sign the written guarantee by affixing his right thumbprint. SD2 observed that the second defendant was in fear and disorientated. [29] The second defendant then lodged the two police reports stating that he was under coercion when

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he signed the written guarantee. [30] The second defendant’s police reports contain all the material particulars pertaining to the incident in the restaurant and the circumstances surrounding the signing of the written guarantee. These police reports lodged contemporaneously with the execution of the written guarantee must be read in the light of the conflicting evidence of the parties. (See Tabarani Mohd Arsad & Anor v. Chan Tenn Yeu [1999] 3 CLJ 188 at p. 197 f-i per Abdul Malik Ishak J). I am of the view that they probably reflect the true position. [31] On the other hand, as in the alleged oral guarantee, it is significant to note that SP1’s police report exh. P3 made no mention of the written agreement whatsoever. [32] Again, the plaintiff’s failure in issuing any notice of demand against the second defendant speaks volumes against the plaintiff’s claim based on the written guarantee. [33] In my judgment, the issue of whether the written guarantee has been extracted by SP1 from the second defendant as a result of coercion must be tested under the relevant portion of s. 15 of the Contracts Act 1950 which merits reproduction as follows: 15. Coercion Coercion is the committing or threatening to commit any act forbidden by the Penal Code ... with the intention of causing any person to enter into an agreement. [34] In addition to the second defendant’s two police reports alluded to above, I accept the evidence of SD2. The circumstances surrounding the execution of the written guarantee clearly come within the scope of committing or threatening to commit acts forbidden by the Penal Code viz using criminal force or occasioning assault under ss. 349 to 352; or criminal intimidation under ss. 503 and 506, of the Penal Code. [35] It is therefore my specific finding that the written guarantee has been tainted with coercion as defined in s. 15 and so there was no free consent under s. 14 thereof, as a result of which the written guarantee was vitiated thereby.

In India, the case of Chikkam Ammiraju & Ors v Chikkam Seshamma AIR 1917 Madras 288, was decided under this limb. Although it was the husband who had threatened to commit suicide, an act prohibited under the Penal Code, which had coerced his wife and son to execute a deed to release their property to the husband’s brothers, the court held that there was coercion within the meaning of section 15 of the Indian Contract Act 1872, which is identical to our section 15 of the Contracts Act 1950.

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Chikkam Ammiraju & Ors v Chikkam Seshamma AIR 1917 Madras 288 The first and second plaintiffs, in this case, were mother and son, respectively. The defendants were the younger brothers of the first plaintiff’s husband. Both plaintiffs executed a deed to release their properties to the defendants. The plaintiffs alleged that the release-deed was executed under coercion, in that the first plaintiff’s husband (Swami) had threatened to commit suicide had the plaintiffs refused to execute it. The issue before the court was– • whether the deed was executed by the plaintiffs with their free consent, or • whether the deed was obtained from the plaintiffs through, inter alia, the exercise of coercion brought to bear upon them by the defendants and their father, through the first plaintiff’s husband who threatened to commit suicide unless the plaintiffs executed the deed. The lower court found that the first plaintiff’s husband (second defendant’s father) did threaten to commit suicide if the plaintiffs did not execute the release-deed. The deed was cancelled. On appeal, it was held that the threat to commit suicide by the husband amounted to coercion under section 15 of the Indian Contract Act 1872. ▪ Sadasiva Aiyar J said: “Coercion is defined (Contract Act S. 15) as “the committing, or threatening to commit any act forbidden by the Indian Penal Code, or the unlawful ©mohaimin ayus

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detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.” I think the words “any person whatever” have been advisedly used by the legislature to indicate that the act need not be to the prejudice of the person entering into the contract. I think also that the words “to the prejudice of any person whatever”, which are separated by a comma from the previous word “property”, relate both to the committing or threatening to commit an act forbidden by the Penal Code and to the unlawful detaining or threatening to detain property. It means the same thing whether, when a man kills himself, it called an act of suicide or a successfully accomplished attempt to commit suicide; and an attempt to commit suicide is punishable under the Penal Code, though the former cannot be punished under the Code as a dead man cannot be punished. Provided the threat of the forbidden act does have the intended effect of bringing about the consent to the agreement, it does not matter who made the threat or to whose prejudice it was made. … It is unnecessary to go into the question whether prejudice or injury to sentiments, feelings or supposed spiritual welfare is also contemplated in the definition of coercion in the Contract Act. … I agree with the lower Courts that the prejudice to Swami’s own life is sufficient to bring the threat within the definition of “coercion”, provided it was intended by the persons using the threat to bring about the agreement thereby.”

Murder threat

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Barton v Armstrong and Others [1976] AC 104 (PC) The plaintiff appellant and the defendant respondents were shareholders in a company. The plaintiff alleged that defendant including Armstrong, had coerced him into entering into an agreement and executing some deeds relating to the sale of certain companies by threatening to have him murdered. The plaintiff sought a declaration that the deeds were void. The trial judge found that on many occasions Armstrong had threatened the plaintiff with death. The plaintiff was justified in taking those threats seriously. However, the trial judge also found that there were compelling business reasons why the plaintiff executed the deed. In the result, the trial judge decided that the threats did not coerce him, because the primary and predominant reason why the plaintiff had entered into the agreement and executed the deeds was because of commercial necessity. It was decided that the threats did not in fact coerce him into executing the deeds. On appeal, the New South Wales Court of Appeal upheld the trial court decision and held that the plaintiff could not succeed unless he established that he would not have entered into the agreement and executed the deed if not for the threats. The trial judge found that the fear engendered by the threats was not such a reason because about 10 days before the documents were executed the appellant was in genuine fear that the respondent was planning to have him killed if the agreement was not signed. He was in a state of a very real mental torment and he believed that his fears would be at end once the documents were executed. The Privy Council was of the view that if the defendants’ threats were a reason for the plaintiff’s executing the deeds he was entitled to relief. It would be...