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Contract 1 Economic duress and undue influence
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Contract law week 4:Economic Duress and Undue influence
Void v Voidable:
- If a contract is void, parties will be treated as if they had never made a contract
- If the contract is voidable, affected party can rescind contract, subject to certain bars
- Bars to recission apply to all vitiating factors (we will look at them when we analyse
misrepresentation)
Economic duress and undue influence:
- A party may have entered contract under threat or undue pressure
- Two doctrines permit such a party to have a contract set aside (recission)
o Duress (common law)
Threat to the person
Property interests
Financial interests
o Undue influence (equity)
More subtle pressure
- Recission on ground of undue influence may be possible even where pressure came from the third
party
Elements of Economic Duress:
- Illegitimate threat or pressure
- Victim had no real practice choice but to agree
- Threat or pressure induced victim to contract
- Victim protested at time of contract or shortly thereafter
The development of Economic Duress:
- Duress to person (Barton v Armstrong) used to be the only form of duress that permitted recission;
duress to the person need only be a reason for entering the contract
- Doctrine was extended in the 18th century to cover also duress to property; Astley v Reynolds
- Economic duress emerges in 60s and 70s
- More difficult to draw the line between legitimate economic pressure and illegitimate economic
pressure that should entitle you to rescind
- Significant milestone was Lord Denning MR’s Judgement in D & C Builders v Rees (1965): no
promissory estoppel because of unfair pressure
- Idea that threat to financial interests may permit recission was first canvassed by Kerr LJ in The
Siboen and The Sibotre
The link to Economic duress and consideration:
- Economic duress often involves a threat to breach an existing contractual obligation unless a higher
(or lower) price is paid or another contract entered into
- In the past, some contract could be resisted on the ground of lack of consideration; e.g. Atlas
Express v Kafco (importers and Distributors) Ltd
- This is now more difficult as a result of Williams v Roffey Bros & Nichols (contractors) Ltd
Ingredients of economic duress:
Ingredients of actionable duress:
“there must be pressure, (a) whose practical effect is that there is compulsion on, or lack of practical choice
for, victim, (b) which is illegitimate, and (c) which is significant cause inducing the claimant to enter into the
contract.”
DSND Subsea Ltd v Petroleum Geo-Services ASA (Dyson J)
, Lack of practical choice:
- This element was previously formulated as requiring a ‘coercion of will’
- In Pao On v Lau Yiu Long, PC said that “there must be a coercion of will such that there was no true
consent”
- However, it has been long recognised that will is not really overborne; victim submits to pressure
for lack of practical alternative
- Indeed, a practical alternative (suing for breach of contract) was present in Pao On
Lack of practical choice:
Examples of lack of choice:
- B & S Contracts & Design Ltd v Victor Green Publications Ltd
o “…It appears from the authorities that it [ a threat to breach a contract] will only constitute
duress if the consequences of a refusal would be serious and immediate so that there is no
reasonable alternative open…” LJ Kerr
- Atlas Express v Kafco (importers and distributors) Ltd
- Carillion construction Ltd v Felix (UK) Ltd
o When work finished the court held here that there was duress
- Adam Opel GmbH v Mitras Automative (UK) Ltd
- Vantage Navigation Corporation v Suhail and Saud Bahwan Building Materials (The Alev) does the
alternative legal remedy meet the commercial needs of the party?
Pressure or threat?
- Duress requires pressure or threat
- Presence of pressure/threat is often clear and can sometimes lad to fine distinctions
- In Williams v Roffey Bros, promisor gave impetus for promise to pay more money
o What if promisee simply advises the promisor of difficulties in performing?
o Must be judged on the facts of the case
Threat is illegitimate:
- Threat of unlawful action (other than breach of contract) is always illegitimate
- Threat of breach of contract or of unlawful action may be legitimate or illegitimate
- Line between legitimate and illegitimate threat is sometimes difficult to draw
- “illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal
commercial bargaining”: Dyson J in DSND Subsea Ltd v Petroleum Geo-Services ASA
- Test: was it reasonable to link the demand and the threatened action?
o Universe tankships inc of Monrovia v International Transport Workers’ Federation
o Bad faith makes threat to break a contract more likely to be illegitimate
o Time pressure
Lawful Act Duress?
- Can the threat of lawful action ever amount to economic duress?
- CTN Cash and Carry Ltd v Gallaher Ltd
- Times Travel (UK) Ltd v Pakistan International Airlines Corp: “The doctrine of lawful act duress does
not extend to the use of lawful pressure to achieve a result to which the person exercising pressure
believes in good faith it is entitled, and that is so whether or not objectively speaking it has
reasonable grounds for that belief.’ Richards LJ
Causation:
- Illegitimate pressure must have induced the victim to enter into the contract
- Duress to the person: it is sufficient if the pressure was a reason for entering the contract
- Economic duress: illegitimate pressure must have been a significant cause
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