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Summary Contract Law Seminar 10
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Contract seminar 101) Advise ceri:
2) Where a contract is found to be frustrated, both parties are released from their obligations
under the contract and neither party may sue for breach.
The allocation of loss is decided by the Law Reform (Frustrated Contracts) Act 1943. This
provides:
s.1(2) All money payable under the contract ceases to be payable and any money already
paid may be recovered. Where expenses have been incurred this may be deducted from the
amounts payable or paid. This is at the discretion of the court and is subject to what is just
and equitable in the circumstances of the case. There is no provision allowing expenses to be
recovered which exceed the amounts paid or payable.
S. 1(3) - Where a valuable benefit has been conferred this must be paid for.
3) The doctrine of economic duress was first canvassed by Kerr J in The Sibeon and the Sibotre.
Whilst the contract was not held to be voidable for duress, Kerr J did state that where there
exists coercion of the will so as to vitiate consent, it should be possible to set the contract
aside. However, commercial pressure was not enough.
Occidental Worldwide Investment Corporation v Skibs (The Sibeon & The Sibotre) [1976] 1
Lloyds Rep 293
Following Kerr J's line of reasoning, economic duress was found to exist in The Atlantic
Baron, however, the claimant lost their right to rescind:
North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705
Pao on v Lau yiu Long [1979] 3 All ER 65
The Privy Council identified 4 factors to consider in assessing whether economic duress was
present.
Did the person claiming to be coerced protest?
Did that person have any other available course of action?
Were they independently advised?
After entering into the contract, did they take steps to avoid it?
The requirement of vitiation of consent was replaced in The Universe Sentinel with the
absence of choice:
The Universe Sentinel [1983] 1AC 366
Lord Scarman
"The classic case of duress is, however, not the lack of will to submit but the victim's
intentional submission arising from the realisation that there is no other practical choice
open to him."
Accordingly two elements of duress were identified:
1. Compulsion of the will - absence of choice
2. Illegitimacy of the pressure
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