3. Duress - This is specifically made for exam purpose of contract law. It includes all PDF

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LAWS1042 Contract II Term 2, 2015-2016 DURESS KEY POINTS READING FISHER & GREENWOOD CHAPTER 277-290 HALL 14 March 2015 Faculty of Law, The Chinese University of Hong Kong -1- LAWS1042 Contract II Term 2, 2015-2016 DURESS NON –ECONOMIC DURESS Until 1970’s there was a very limited doct...

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LAWS1042 Contract II Term 2, 2015-2016

DURESS KEY POINTS READING FISHER & GREENWOOD CHAPTER 277-290 HALL 14.1

March 2015 Faculty of Law, The Chinese University of Hong Kong

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LAWS1042 Contract II Term 2, 2015-2016

DURESS NON –ECONOMIC DURESS Until 1970’s there was a very limited doctrine of duress –confined to actual/threatened violence to a contracting party or near relative. Barton v Armstrong Or threat to his property. The Sibeon and The Sibotre

ECONOMIC DURESS Then in 1970s a series of cases established the principle of economic duress whereby a contract - normally an agreement to vary an existing contract - can be held to be voidable because of the economic pressure asserted by the dominant party. This series of cases began with The Sibeon and The Sibotre

and continued with The Atlantic Baron Pao On v Lau Yiu Long B & S Contracts & Design v Victor Green The Universe Sentinel and Atlas Express v Kafco For a more recent text book case on duress see Opel v Mitras Automative 2007 These cases seek to draw a line between commercial pressure (no intervention by the courts) and economic duress (contract is voidable). However it is often difficult to predict when the line has been crossed. See March 2015 Faculty of Law, The Chinese University of Hong Kong

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LAWS1042 Contract II Term 2, 2015-2016

Zebra Industries v Wai Tong Paper Products Group [2015] HKEC 1807 par.78-87 for a very good summary of the law on economic duress. There are two hurdles to be overcome to establish duress. 1.

The pressure must be illegitimate for example an unlawful act such as a threat to break a contract. Cases show that if the pressure is a threat to do something lawful, court will normally hold that there can be no duress. CTN Cash and Carry v Gallaher R v Attorney General [2003] UKPC 22 See in HK Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439(HKCA) However in both English cases the court refused to rule out the possibility that on rare occasions the threat to commit a lawful act might be regarded as illegitimate pressure .Lord Hoffman in R v Attorney General saying “.. the fact that the threat is lawful does not necessarily make the pressure legitimate”. In HK in the Esquire case the view has been taken that the conduct must be unlawful or unconscionable (defined as where the weaker party is suffering from a special disadvantage of which the stronger party takes advantage). However to date there has been no decision in England or Hong Kong where the courts have actually found that an act which is not unlawful has amounted to duress and the current law on this point is well summed up by Cooke J in Progress Bulk Carriers v Tube City [2012]EWHC 273: This is Court of Appeal authority [CTN Cash and Carry] for the proposition that the exertion of pressure by “lawful means” does not prevent the operation of the doctrine of economic duress. Whilst the particular examples in earlier cases, to which reference is made in the passage quoted above, do not take the matter much further, Steyn LJ[in CTN Cash and Carry] refers to “the critical enquiry” as being “not whether the conduct is lawful but whether it is morally or socially unacceptable”. He said in terms that that was the enquiry in which the court was engaged, although the Court should not set its sights too high and it might be a relatively rare care in which “lawful act duress” could be established, particularly in a commercial context.

March 2015 Faculty of Law, The Chinese University of Hong Kong

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LAWS1042 Contract II Term 2, 2015-2016

Another problem is that it sometimes difficult to decide if a threat to break a contract has been made. There can be a very fine dividing line between an implied threat see B and S Contracts and Designs v Victor Green and no threat Williams v Roffey Bros See also the HK case Estinah v Golden Hand Indonesian Employment Agency [2001]4 HKC 607 2.

Must be compulsion of the will in that the victim had no practical alternative other than to agree. Compare HK case Tung Wing Steel Co Ltd v George Wimpey International Ltd HCA no 3285/1984 For a good example of a Hong Kong case where all the requirements to establish economic duress were satisfied see Zebra Industries v Wai Tong Paper Products Group (Mere fact the victim does not protest at the time of the threat is not very relevant as evidence of duress “the victims silence will not assist the bully” Scarman in the Universe Sentinel).

3.

Even if 1 and 2 are established the weaker party may lose the right to avoid the contract because of affirmation. This requires looking into his conduct after the contract was made. See The Atlantic Baron N.B. lack of protest after the contract is completed may be evidence of affirmation. Secondly the same rule as in misrepresentation applies and rescission will not be granted if it is impossible to return the parties to substantially their pre-contract position (restitutio in integrum). See Halpern v Halpern (Where rescission was not granted when documents were destroyed as part of the agreement.)

RELATIONSHIP BETWEEN ECONOMIC DURESS AND CONSIDERATION March 2015 Faculty of Law, The Chinese University of Hong Kong

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LAWS1042 Contract II Term 2, 2015-2016

N.B.

Williams v Roffey Bros establishes that problems concerning whether a re-negotiated contract will be enforced will be decided by applying the rules of economic duress and not by applying the approach taken in Stilk v Myrick and finding lack of consideration as economic duress is “a more refined control mechanism” per Donaldson J in Opel v Mitras Automative 2007 As mentioned above if duress is established it makes the new contract voidable. This means that if there is no affirmation the party subject to the duress can end the new agreement and be put in the position he would have been in if he had not been made the new contract. This will normally mean the original contract which has more favourable terms in it for him will be reverted to. For example if under the original contract X had to pay $10000 to Y and under the new contract X must pay $20000 if X proves economic duress then his obligation will now be to pay Y $10000.

SELF TESTING QUESTIONS 1.

A builder has agreed to build an extension to a hotel for $5000000. He is now insisting he will not complete the hotel unless the owner pays him an extra $500,000. If the owner pays the extra $500,000 and the work is completed on time how would the court deal with the problem if the hotel owner wishes to recover the $500,000?

2.

Where the defendant building contractors in Williams v Roffey Bros wrong in not pleading duress on the facts of that case? If they had would the court have found duress to exist?

March 2015 Faculty of Law, The Chinese University of Hong Kong

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