Contract B Topic 3

DURESS

Defining Duress
2

Duress 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.

Duress: Legal Consequences

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(1) contract voidable;

-- no overbearing/destruction of will
-- at common law

(2) remedies following rescission:

restitution;
Damages in tort?

Duress: Essential Elements

4

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

Illegitimate Pressure
5

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/threat

Unlawful act
Lawful act -- ANZ Banking Group v Karam [2005] NSWCA 344
(still duress?)

Nature of demand

Blackmail

Three Categories of Duress

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Duress to the person

Duress of goods
Economic duress

Duress to the Person

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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;

Duress of Goods
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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)

Hawker Pacific v Helicopter Charter

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Material 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 Duress
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Duress 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

interests

Threat to break an existing contract;

Threat not to enter into a contract (ANZ Banking v Karam);
Threat to take legal proceedings;

Smith v William Charlick

11

Material 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 Yannoulatos
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Material 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)
13

Material Facts
a 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

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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.

Two Theories of Inducement

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Compulsion/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 alternative

not 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).

Inducement: Some Relevant Factors

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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
Westpac
17

Material 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.

Summary
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The Innocent
Party:
Illegitimate
Pressure?

Duress to the Person

Duress of Goods
Economic Duress

y
e
s

The Guilty
Party:
Inducement?

Rescission
& Legal
Bars
yes
Damages

Restitution