DURESSContract B Topic 31

Defining DuressDuress refers to:

Illegitimate pressure exercised by actual or threatened conduct by or on behalf of one party upon the other party, which makes the latter submit to the formers demands.

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Duress: Legal Consequences(1) contract voidable;-- no overbearing/destruction of will-- at common law

(2) remedies following rescission: restitution;Damages in tort?

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Duress: Essential Elements

Illegitimate pressure

Illegitimate pressure vs normal commercial pressure

in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as illegitimate. Thus , out of the various means by which consent may be obtained advice, persuasion, influence, inducement, representation, commercial pressure the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion. (Barton v Armstrong [1976] AC 104 (PC) 121 (Lord Wilberforce and Lord Simon); Pao On v Lau Yiu Long [1980] AC 614)

Inducement

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Illegitimate Pressure

Onus of proof: the party seeking to rely upon duress Ascertaining illegitimacy Universe Tankships of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 401 (Lord Scarman): Nature of pressure/threatUnlawful actLawful act -- ANZ Banking Group v Karam [2005] NSWCA 344 (still duress?) Nature of demandBlackmail

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Three Categories of Duress

Duress to the person

Duress of goods

Economic duress*

Duress to the Person

Violence (or the threat thereof) to the person is normally illegitimate: (1) threat to kill unless a contract is signed (Barton v Armstrong [1976] AC 104 (PC));

(2) threat to kill a family member unless a contract is signed (Saxon v Saxon [1976] 4 WWR 300 (Canada));

(3) threat of unlawful imprisonment;

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Duress of Goods

Actual or threatened damage to or detention of goods

Obsolete view: Skeat v Beale (1841) 11 Ad & El 983; 113 ER 688 (distinction between payment and agreement to pay)

Threat to burn ones house down or slash a valuable picture of his unless he signs the contract (Occidental Worldwide Investment Corps v Skibs A/S Avanti (The Siboen and The Sibotre) [1976] 1 Lloyds Rep 293, 335 (Kerr J));

Duress to goods vs legitimate detention of goods (unpaid seller/repairer/carrier)

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Hawker Pacific v Helicopter CharterMaterial Facts: Having failed properly to fulfil a contract for the repainting of a helicopter owned by HC, HP asked HC to sign, prior to redelivery of the helicopter, a document containing a promise to pay the full fees without complaining.Issues(1) Did HP exert illegitimate pressure in procuring HCs signature?(2) Did HC subsequently affirmed the contract to pay?Holdings (Priestley JA):(1) circumstantial duress of goods;(2) no affirmation by way of either election or estoppel.*

Economic DuressDuress can be applied to the person or the property or any right of the person or, in some cases, of a person related to or in affinity with him (Smith v William Charlick Ltd (1924) 34 CLR 38, 56 (Isaacs J); Nixon v Furphy (1925) 25 SR (NSW) 151, 160 (Long Innes J)) Actual or threatened damage to pure economic interestsThreat to break an existing contract;Threat not to enter into a contract (ANZ Banking v Karam);Threat to take legal proceedings;

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Smith v William CharlickMaterial Facts: the plaintiff miller bought wheat from the Wheat Harvest Board, the only supplier in the country. The Board demanded extra payment for delivered past supply, threatening not to make any future supply unless the demand be met.Issue: is the plaintiff entitled to recover the extra payment on the ground of compulsion (duress)?Majoritys holding (Higgins J dissenting): no recovery as the Board had no legal duty to make future supply contracts with the plaintiff. *

Sundell v YannoulatosMaterial Facts: a contract for the sale of iron market is rising seller threatened not to deliver unless the buyer increased the price -- the buyer paid with protest the buyer sought to recover the extra amount paid.Issue: was the contract to pay more enforceable?Holdings: (1) no consideration (Williams v Roffey Bros; Musumeci v Winadell);(2) a compulsive threat to break the contract duress.*

North Ocean Shipping v Hyundai Construction (The Atlantic Baron)Material Factsa shipbuilding contract between N (the owner) and H (the yard);due to a devaluation of the contract currency (US dollar), H asked for an extra 3 million USD and threatened to discontinue the building work; it was essential to N to have the ship delivered on time because it had been chartered to a third party and late delivery would attract heavy penalties; so N paid under protest;In return H increased the amount of security for repayment in the event of default;N sought to recover the extra payment more than 8 months later. Issue: was N entitled to recover the extra payment on the ground of duress?Holdings: (1) the increase of security was good consideration for N promise to pay more;(2) Hs threat to break the contract constituted economic duress;(3) however, N had affirmed the contract to pay the extra sum and lost the right to rescind.*

Inducement: Onus of Proof

The party exerting duress to disprove inducement. a reason (not the reason, nor the predominant reason nor the clinching reason) (Barton v Armstrong [1976] AC 104 (PC), 121 (Lords Wilberforce and Simon));no defence to say that the party under duress would have entered into the contract, had the duress not been exerted (above 120 (Lord Cross of Chelsea));both points echoed by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Group (1988) 19 NSWLR 40, 46.

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Two Theories of InducementCompulsion/coercion/overbearing of will Compulsion of will: Universe Tankships of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 400 (Lord Scarman);Compulsion of will rejected by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40, 45: the will is deflected or impaired, not destroyed or overborne, otherwise the contract affected with duress would be void not voidable;Lack of a real alternativenot the lack of will to submit but the victims intentional submission arising from the realisation that there is no other practical choice open to him. (Lord Scarman, above).

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Inducement: Some Relevant Factors

Evidential factors:The fact or absence of protest;The availability of independent advice;The benefit received;The speed with which the victim has sought to rescind the contract;*

Crescendo Management v WestpacMaterial Facts: the defendant bank informed the plaintiff company and its two directors, Mr and Mrs Hilbrink, that the sum of some $27,700 in their account with the bank would not be released unless they executed guarantees of the debts owed by another company, of which Mr Hilbrink was also a director, to the bank. The couple executed the guarantees in the name of the plaintiff company. Issue: were the guarantee contracts voidable for duress?Holdings: (1) the refusal by the bank to hand over the clients money was unlawful and thus amounted to illegitimate pressure;(2) however, the guarantee contracts had actually been executed before the pressure was applied and, as a result, the pressure did not induce the execution of the contracts.

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Summary

The Innocent Party: Illegitimate Pressure?Duress to the PersonDuress of GoodsEconomic DuressThe Guilty Party: Inducement?Rescission & Legal BarsRestitutionDamagesyesyes*