Duress Contract Law Lecture notes PDF

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Duress Contract Law Lecture 14 notes...

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Lecture 14 – Duress Introduction Duress is one of the vitiating factors. A threat that compels to do something the person didn’t want to. • In contract this is entering into a contract they didn’t want to enter into. • Strong pressure into doing entering into the contract. Universe Tankships Inc of Monrovia v International Transport Workers Federation (1983): “duress is...the victim’s intentional submission arising from the realisation that there is no practical choice open to him.” • • •

In the past, duress was only possible if there was harm to the person (duress to the person). The courts later included the threat of damaging/ impacting property (duress to the property/ goods). Now courts have started to consider economic duress too. o Lawful pressure, a pressure that is lawful BUT it is morally wrong, it is very complicated to find.

Duress makes contracts voidable (like misrepresentation), and not void (like mistake). Rescission is the available remedy, there is no independent remedy unlike other vitiating factors.

Illegitimate Pressure This is present in all cases of duress. R v Attorney General for England and Wales (2003) Generally speaking, [1] the threat of any form of unlawful action will be regarded as illegitimate. On the other hand, that fact that [2] the threat is lawful does not necessarily make the pressure legitimate.” Unlawful is not the same as illegitimate. • Illegitimate pressure can be unlawful OR lawful and yet because of the nature of threat, is illegitimate. o Maybe it is morally wrong, maybe there is bad faith. Easier to find illegitimate duress in duress to the person and property. Duress to the person: • Illegitimate pressure as criminal or tortious conduct. • Typically, physical violence. Duress to the goods/property: • Illegitimate pressure as criminal or tortious conduct. • Typically, physical violence, abscondment, seizure. Economic duress: (more complex, must distinguish illegitimate and unlawful). • Unlawful pressure (breach of contract, tort). • Lawful pressure (morally wrong demand, bad faith). Eg; threatening to go on strike is not illegal, threatening to call the police on someone is not illegal. • The illegitimacy comes from bad faith or morally wrong, not the legality.

Duress to the Person Threat or actual violence to the claimant (or relatives) to induce to consent to contract. Duke de Cadaval v Collins Barton v Armstrong (1973) • Established threshold and burden of proof. • Claimant was forced to buy at higher price Armstrong’s shares in the company under threat of murder. o The threat need only be ‘a’ reason behind the claimant’s decision to contract. o No need to demonstrate that threat/damage was the predominant factor. o Burden to rebut this assumption (that pressure has no impact at all on claimant) is on defendant. • Irrelevant that the party would have agreed even without the threat.

Duress to the Property/ Goods Threat or actual damage or taking of the claimant’s (or relatives) property or money to induce to consent to contract. • Astley v Reynolds (1731); Maskell v Corner (1915) • Crescendo Management v Westpac (1988) Astley v Reynolds (1731) - good was pawned. Defendant asked double price to redeem it – duress established. Skate v Beale (1871) – fraudulent detention goods NOT duress. This was rejected by… Dimskal Shipping Co SA v International Transport Workers Federation, The Evia Luck (1992) • Lord Goff definitely rejecting Skate v Beale. Detention of another person’s goods could be duress. • Threat must be a significant cause. However, courts usually assume it.

Threat to property must be a ‘significant’ cause rather than ‘a significant’ factor as in duress to the person. • It is a stricter threshold. • BUT courts often assume that it was a significant cause, they are lenient.

Economic Duress Until the 1970s, only duress to person/property was accepted. Recognised for the first time in two key cases: • Occidental Worldwide Investment Corp v Skibbs A/S Avanti (The Sibeon and The Sibotre) [1976) • and North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (The Atlantic Baron) [1979] Nature of the pressure becomes fundamental - Universal Tankships (1983) Does this mean that contracts can never be renegotiated? • Difficult for the courts to decide if it is economic duress or a business having market power. Distinguish when a party warns that performing the contract might be impossible During bankruptcies/overindebtedness, significant change of circumstances From threats when the performance is possible

Criteria for economic duress DSND Subsea Ltd v Petroleum Geo Services ASA (2000) Dyson J: ‘[T]here must be pressure, (a) whose practical effect is that there is compulsion on, or lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is significant cause inducing the claimant to enter into the contract.’ Three essential ingredients: 1. the pressure being illegitimate. 2. sufficient causal link between the pressure and the decision of the claimant to enter into contract. 3. lack of alternatives for the claimant. For stricter requirement for economic duress compared to the other two.

1) Illegitimate pressure Original focus of duress on the victim’s will being overborne – “overborne will theory”. Lord Scarman in Pao On v Lau Yiu Long (1980) “duress is a coercion of the will so as to vitiate consent”. • The illegitimacy of the pressure if to be found by what the victim has felt. • This was later criticised. Valid consent does not require freedom from pressure (in real life, we are sometimes forced by events to accepts deals that we do not like – interest rates, prices of goods etc). New theory focuses on ‘illegitimate pressure’ that presents the party with no practical alternative but to accept • Universe Tankships of Monrovia v International Transport Workers Federation (1983) o “duress is...the victim’s intentional submission arising from the realisation that there is no practical choice open to him.” Dimskal Shipping Co SA v International Transport Workers Federation, (The Evia Luck) [1992]

DSND Subsea Ltd v Petroleum Geo-Services ASA (2000) ‘In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.’ The nature of the demand • Was it commercially sensible to seek renegotiation? • Were the renegotiated terms fair and equitable • Was the original contract actually fair

2) Causal Link (rarely established) In Huyton v Cremer (1999), causal link in ED must be stronger as ED is less serious than DtP. Pressure must have been decisive to enter the contract (but for test)+ no practical alternative. Mance J in Huyton SA v. Peter Cremer GmbH & Co [1999] “The illegitimate pressure must have been such as actually caused the making of the agreement, in the sense that it would not otherwise have been made either at all or, at least, in terms in which it was made.

Yet, the jurisprudence is still ambivalent Atlas Express v Kafco (1989) - a carrier mistakenly reduced 1⁄2 price and refused to perform unless paid more • Duress was found. Atlantic Baron (1979), exchange rate went down, and claimant demanded an increase in price • Duress found. But, in other similar cases the causal link was not found. Pao On v Lau Yiu Long (1980) The Siboen and the Sibotre (1978) charterers of ship told owners that they would have declared bankruptcy unless charter price was reduced

3) No practical Alternative The key case here is B & S Contracts and Design Ltd v Victor Green Publications Ltd (1984)

In Huyton v Cremer (1999) and Universe Tankships v International Transport Workers (1983) it was affirmed that the victim must have not had another practical choice but to agree. Eg; if they are the only client or the only supplier, there is no alternative. Adam Opel v Mitras Automotive – no alternative supplier. Atlas Express v Kafco Ltd [1989] • K secured a large contract with W, goods to be distributed by A. Before entering into a contact with K, A quoted a price per carton of goods, based on a minimum load of 400 cartons. The first load was much less and A said that delivery could not take place unless K agreed to pay a higher price. • K had to meet delivery date and it would be difficult to find an alternative carrier. K agreed to new terms but later refused to pay. • Held that K not bound by the new terms as economic duress had vitiated the new agreement. K had no reasonable alternative but to agree to the new minimum price.

In US law, duress is defined as an improper threat that leaves no reasonable alternative (US Second Restatement of Contract §175(1)

Lawful Duress Sometimes the threat is not unlawful. Eg; the threat to report a crime. Lord Hoffman in R v Attorney General for England and Wales (2003) - the “SAS case” Said the other option was to be demoted so no choice. If he didn’t sign an NDA he would be demoted, did he sign it under duress? • The act is not unlawful, demoting or asking to sign an NDA. • duress can exist when the threat is lawful but used to support an “unreasonable demand”. ‘The legitimacy of the pressure must be examined from two aspects: first, the nature of the pressure and secondly, the nature of the demand which the pressure is applied to support ... Generally speaking, [1] the threat of any form of unlawful action will be regarded as illegitimate. On the other hand, that fact that [2] the threat is lawful does not necessarily make the pressure legitimate.”

Lord Atkin in Thorne v Motor Trade Association [1937] AC 797, 806: ‘The ordinary blackmailer normally threatens to do what he has a perfect right to do - namely, communicate some compromising conduct to a person whose knowledge is likely to affect the person threatened ... What he has to justify is not the threat, but the demand of money.’

CTN Cash & Carry Ltd v Gallagher Ltd [1994] – this is the most important case in this topic. “But it is a mistake for the law to set its sights too highly when the critical inquiry is not whether the conduct is lawful but whether it is morally or socially unacceptable.”

Very tough to establish as it is so similar to normal business renegotiation. Lawful threats/ pressure that is legitimate • Refusing to agree to a contract – Smith v Charlick (1923) •

Refuse to waive an existing obligation – Alf Vaughan v Royscot Trust– Defendant was in liquidation and demanded to recover its credit (cars), unless it was paid £82,000

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Exercise of a right for legitimate purposes – R v Her Majesty’s Attorney General – SAS soldier refuse to comply with a confidentiality agreement

Lawful threats/ pressure that is illegitimate • Blackmail • Relief – The Port Caledonia (1903), to salvage a boat in danger demanded ‘£1,000 or no rope’

Universal Tankships Inc of Monrovia v International Transport Workers Federation, The Universe Sentinel [1983] The ITWF (a union) instructed its members that a ship owned by the claimant should not be dealt with. The ship was therefore unable to leave port. The claimants then made a payment to the union’s welfare fund and the ship was then maintained/served/loaded etc and set sail. • The claimants tried to recover the money on the basis that it was paid under duress. • Held by the House of Lords that the money was recoverable. o The majority decision was based on the fact that the threatened industrial action was unlawful, therefore payment was recoverable. o The minority view was that the action was lawful, but a lawful threat could amount to duress if, as was the case here, the pressure being exerted is illegitimate.

Remedies The remedy for duress is RESCISSION – it is voidable. However, like for misrepresentation, rescission is not possible when: • The contract is affirmed. • A sufficient amount of time is passed. • Intervention of third-party rights. Moreover, the person claiming duress should be able to make restitution of any property transferred. Damages are NOT POSSIBLE for duress....