The Operation in the Law of Contract of the Doctrine of Economic Duress - Coursework Example

202757 Describe and evaluate the operation in the law of contract of the doctrine of economic duress. Introduction In order to be able to answer theabove it is necessary to define what is meant by economic duress and then examine the way that the courts have dealt with such claims in contract issues. This paper will cover cases where the courts have allowed the person claiming economic duress to succeed as well as when the courts have found that there has been no economic duress. What is economic duress? Economic duress has been defined as wrongful of unlawful conduct that creates fear of economic hardship which prevents the exercise of free will in engaging in a business transaction. When deciding whether the plaintiff has been subjected to economic duress the courts will consider whether the circumstances are part of the "rough and tumble of the pressures of normal commercial bargaining” as was decided by Dyson J in DSND Subsea Limited v Petroleum Geo-Services ASA1. It has been suggested that because the courts are not keen to get involved in contractual arguments with commercial parties that plaintiff’s would be best advised to pursue a claim for unjust enrichment. The application of the principle of economic duress. One of the first cases to consider the notion of economic duress was The Sibeon and The Sibotre2. In this case the courts recognised that commercial pressure could amount to economic duress in certain circumstances, but that commercial pressure alone was insufficient. Kerr J in this case felt that there must be some other factor within the contract which could be regarded as a coercion of his will so as to vitiate his consent. This was followed in 1979 by the case of North Ocean Shipping v Hyundai Construction (The Atlantic Baron)3 where the courts held that fear of economic hardship can by regarded as economic duress as such a fear could demonstrate coercion by forcing the party to perform rather then risk financial hardship. In Pao On v Lau Yiu Long4 Lord Scarman agreed with the judgment of Kerr in The Sibeon and The Sibotre stating that duress whatever form it takes is a coercion of the will so as to vitiate consent. Lord Wilberforce and Lord Simon of Glaisdale reinforced this notion in Barton v Armstrong5, stating that in determining whether there was a coercion of will such that there was no true consent, it is material to enquire whether the person alleged to have been coerced did or did not protest; whether at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. It was held in Pao On that there was no coercion of Lau’s will stating that there had been commercial pressure but the actions of Lau made it so that the court could not accept that there had been coercion. The court stated in this case that Lau had considered the matter thoroughly and had chosen not to bring litigation proceedings and that by doing this the court were unable to find that coercion had occurred. In the case of North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd6 Mocatta J stated that the pressure must be such that the victim’s consent to the contract was not a voluntary act on his part. The judge went onto say that such evidence of economic duress may render a contract voidable. In 1982 the case of Universe Tankships v ITWF (The Universe Sentinel7 the judge did not regard it as a requirement to show that the claimant’s will and consent had been overborne by pressure. Cases such as Atlas Express Ltd v Kafco (Importers and Distributors) Ltd8 and Vantage Navigation Corp v Bahwan Building Materials (The Alev9 demonstrates that for the court to be satisfied that economic duress has occurred the plaintiff only needs to show that there has been a suppression of their will or consent. This pressure must be improper in the eyes of the law (Dimskal Shipping Co v ITWF (The Evia Luck)10. In DSND Subsea Limited v Petroleum Geo-Services ASA [2000]) ("DSND") the court held that there was no economic duress. The law on economic duress was phrased in the following terms by Justice Dyson The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into the contract... 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 had acted in good or bad faith; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. These are all relevant factors. In making his decision Dyson J found that the suspension of the work by DSND was not equivalent to illegitimate pressure and also found that other reasonable alternatives were available to PGS. Dyson J considered that the meetings leading up to the signing of the contract should properly be regarded as typical of all commercial negotiations and stated that he did not believe that PGS believed at any time that they were signing the contract under duress. By contrast in Carillion Construction Limited v Felix (UK) Limited11 the judge did find economic duress to be averred. In this case the plaintiff’s had been contracted to build an office in London. The plaintiff’s subcontracted the work to the defendant’s but the plaintiff remained liable to the contracting party of the project was late in delivery. The defendant’s were behind in the work but still managed to force the plaintiff to sign an agreement in relation to the defendant’s final account by refusing to deliver the cladding as arranged. Dyson J in this case held that the threat to withhold delivery amounted to a threat to commit a breach and therefore should be properly recognised as constituting illegitimate pressure and economic duress. Dyson also commented that the defendant’s must have been aware that the delay would lead to the plaintiff incurring penalties for non completion of the contract and that the plaintiff would have inadequate time to find an alternative supplier. In DSND the court stated that as the contract is voidable rather than void the person claiming economic duress who wishes to rescind must do so within a reasonable time. If the plaintiff continues with the contract despite the illegitimate pressure the court could view the contract as affirmed and will disallow rescission of the contract. Remedies for economic duress In general terms the courts have tended to apply the principle that where the party is able to prove they have been coerced under economic duress into behaving in a certain way the courts have treated the contract as voidable. Under common law any money that has been paid under economic duress can be recovered (Astley v Reynolds12.) By making the contract voidable the plaintiff can have the contract set aside. Where the plaintiff has impliedly of expressly affirmed the contract it cannot be set aside. Rescission of the contract must be sought as soon as it is possible to do so after the original pressure has finished (North Ocean Shipping v Hyundai Construction (The Atlantic Baron)13. Duress in some ways is equivalent to intimidation as was recognised by Lord Denning MR in D&C Builders v Rees14) and Lord Scarman in Universe Tankships (1982). It could be argued that as duress is akin to intimidation that damages would be claimed in tort (Morgan v Fry15) Where the contract has been affirmed the authorities do not assist with regard as to whether damages can be recovered in tort. Chitty (para 501) suggests that damages should be recoverable because denying the party the right to claim damages would deprive the plaintiff of a remedy for an unlawful act. Void and voidable contracts A voidable contract can be annulled or set aside through rescission. Contracts are deemed to be voidable where there has been non disclosure of material fact, misrepresentation, mutual mistake, a material breach of the terms or lack of free will on the part of the contracting party including evidence of undue influence. Voidable contracts can be saved by severance which might be deemed have occurred where the injured party affirms the contract by continuing with the task instead of bringing an action before the courts immediately. A void contract can be illegal from the time it was made or can be declared null by the courts for violating principles such as fairness or public policy. A contract can become void if there are changes in the law. If the person contracting is a minor, insane or intoxicated the contract is automatically void. Rescission Where the courts allow rescission the contract is wiped out and the parties will be restored to the position they were in prior to the formation of the contract. Where money has been paid this must be repaid back to the injured party. In the above case this would mean that the courts would return the parties back to their original position with either side having to refund the other party for losses incurred as a result of bringing the action. Conclusion From the above it can be noted that the law attempts to prevent one of the parties from being subjected to economic duress by allowing contracts to be declared void or voidable or through rescission. To allow one of the parties to force another to perform when to do so would cause financial hardship or the company to fail is unjust and this is one of the reasons that the court are willing to intervene to prevent this unfairness. As mentioned above economic duress is where one of the parties attempts to exploit the other party by insisting on performance of the contract in situations that would lead to a financial loss for the other party. In general terms the courts will normally allow one of the remedies to succeed so that the person being placed under economic duress can avoid the contract. Bibliography Treitel, G H, The Law of Contract, 10th Ed, 1999, weet and Maxwell Beale, HD, Bishop, WD, Furmston, MP, Contract Cases and Materials, 3rd Ed, 1995, Butterworths Civil Procedure Volume 2, The White Book Service, 2002, Sweet and Maxwell Rose, FD, Statutes on Contract, Tort & Restitution, 10th Ed, 2000, Blackstone’s Civil Procedure Volume 1 2002, Sweet & Maxwell Harvey, b & Marston , J . Cases & Commentary on Tort, 1998, 3rd Ed, Pitman Publishing Mozeley & Whiteley’s, Law Dictionary, 1993, 11th Ed, Butterworths Treitel, G H. Law of Contract, 1999, 10th Ed, Sweet & Maxwell Table of Cases Astley v Reynolds (1731) 2 Str. 915. Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] 1 All ER 641 Barton v Armstrong [1976] AC 104 Carillion Construction Limited v Felix (UK) Limited [2001] BLR 1 D&C Builders v Rees (1966) 2. QB 617 (CA) Dimskal Shipping Co v ITWF (The Evia Luck) [1991] 4 All ER 871 DSND Subsea Limited v Petroleum Geo-Services ASA [2000]) ("DSND") BLR 530. Morgan v Fry [1968] 2 QB 710). North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1978] 3 All ER 1170 North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705 Pao On v Lau Yiu Long [1980] AC 614 The Sibeon and The Sibotre [1976] 1 Lloyds Rep 293. Universe Tankships v ITWF (The Universe Sentinel) [1982] 2 All ER 67 Vantage Navigation Corp v Bahwan Building Materials (The Alev) [1989] 1 Lloyds Rep 138 Read More