Case Study: Duress and Economic Duress in Contract Law

This document provides a detailed analysis of contract law, specifically focusing on the concept of duress and its various forms, including economic duress. The analysis begins with a factual scenario involving a contract for the purchase of candles, where one party attempts to alter the agreed-upon terms due to unforeseen circumstances. The document defines duress and economic duress, outlining the legal principles and conditions under which a contract can be deemed voidable due to improper pressure or threats. It explores the elements required to prove economic duress in court, emphasizing the lack of alternative options for the innocent party. The analysis is supported by several key case laws, including Atlas Express v Kafco, Pao On v Lau Yiu Long, and Barton v Armstrong, which illustrate the application of duress principles in different contexts, such as economic pressure, threats of violence, and threats to property. The document also covers the essential elements of a contract, the implications of duress in contract law, and the types of threats that can constitute duress, such as threats to a person or property, and how the courts evaluate these situations. Overall, the document offers a comprehensive overview of the concept of duress in contract law, providing students with a thorough understanding of its implications and applications.

Contract Law

Table of Contents
FACTS RELATED TO THE CASE ..............................................................................................................................1
ISSUE .............................................................................................................................................................................1
RULES............................................................................................................................................................................1
APPLICATION .............................................................................................................................................................7
CONCLUSION ..............................................................................................................................................................8

FACTS RELATED TO THE CASE
As per the given scenario, Tara and Samson has made a contract for the purchase of pre-
Christmas candles on the special demand of Tara for exchange of an agreed amount of £1000.
Later, Samson failes to make delivery due to some health issues and rise in the prices of
petroleum due to some international events as well. Samson demands to increase the price to
£3000 and reduce the number of candles and pre-Christmas by 40%. Further Samson states that,
he won't complete the contract on pre-agreed conditions. Those conditions are of no use. Upon
this, Tara agrees upon the revised conditions of Samson as she felt that she doesn't have any
other option. Later, Samson makes the deliveries as per the changed conditions.
ISSUE
 Is the contract is Duress?
 Is changes made by Samson in contract cover under Duress?
RULES
Duress:
Duress refers to a situation in which an improper pressure is made by one party to the
contract on another party. And the another party do not have any other choice rather than to enter
into the changed agreement. Contract made under Duress is voidable. Duress contracts are a kind
of undue influence made by one party to another party to the contract1. In other words, a
contract is covered under duress if party to the contract agreed to the terms and conditions to the
contract only due to threat, any physical violence, any unlawful action of the offended party and
the innocent party do not have any other options but to agree all the conditions to the contract.
Economic duress:
Economic duress occurs into a contract when one party pressurises another party to
compile into the contract at some improper economic conditions like charging unlawful price
and the innocent party doesn't have any other option but to enter into the said condition2.
Economic duress includes taking possession of goods with a view to make pressure over the
innocent party to enter into a contract with improper conditions. Also, to prove any contract as
1 Abdullah, M.F. and Rahman, R.A., 2015. Consent, standard form contracts and
empowerment for consumers.
2 Allsop, C.J., 2017. Conscience, Fair-Dealing and Commerce: Parliaments and the
Courts. AUSTRALIAN LAW JOURNAL. 91(10). pp.820-840.
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economic duress, it is important for the claimant party to prove that the party was not having any
another alternatives in order to get the possession of goods from the offended party. The court do
not held the contract as duress unless party satisfies the court that it was impossible for the party
not to enter into the contract as per the condition of offended party3.
Proving economic duress:
In case economic duress occurs between parties to the contract, and innocent party goes
to the court for justices, party need to prove in front of court that economic duress is being faced
by the party. The following elements need to be proved in front of court in order to satisfy court
that economic duress is present in the contract between parties:
 The conditions applied by the offended party is improper and unlawful as well4.
 Innocent party has been threatened to agree the improper condition of the another party to
the contract.
 There are no alternatives available for the innocent party other than to accept the terms
and conditions of offended party.
 In case, any changes made in the agreement made earlier between the parties that is
amounting to economic duress, defended party needs to proves that changed conditions
are not valid and reasonable and causing frustration to the party as well5.
CASE LAW:
Atlas Express vss Kafco (1989)
In the above mentioned case, Atlas Express is a company which transports goods in lorry and
Kafco is a small manufacturing company which manufactures Woolworth and supply them to
various companies. Both companies made a contract which contains conditions that Kafco will
deliver Woolworth to Atlas Express in small boxes against an agreed consideration of £1.10 per
box. But both parties did not specify the quantity of goods to be delivered in single load at the
time of making the contract6.
Later, manufacturing company delivered 200 box in single lorry which was insufficient
for Atlas. Further, the Atlas forced the small company to either deliver 200 more boxes or pay
3 Tamblyn, N., 2017. The Law of Duress and Necessity: Crime, Tort, Contract. Routledge.
4 Ceil, C., 2015. Contractual Free Will: doctrines of economic duress & undue influence.
5 Mitchell, C., 2018. Interpretation of contracts. Routledge-Cavendish.
6 Atlas Express vs Kafco (1989): economic duress.
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more money per delivery to the company otherwise the company would not make delivery of
consignment. Kafco decided to pay money as being a small company it was not possible to make
more delivery of boxes per lorry and also maintain the contract was important for the company
for its future growth and reputation. However, at the time of payment, company refused to pay
money and argued in the court saying that condition applied by offended party is economic
duress.
The court held the decision in favour of Kafco and decided that Atlas Express
illegitimately pressurised the innocent company and their was no other option avsailable for the
party other than to agree the conditions of Atlas Express.
Contract:
As per the UK law, contract is an agreement between two parties which is enforceable in
law. Offer, acceptance, agreement, consideration, enforcement in law are some major elements
of contract. It begins when a party gives offer to another party in order to purchase or sale any
product or services for some consideration and other party accepts the offer and shows
willingness to fulfil the terms of agreed conditions. Contract ends when both parties completes
their part of performance as per the agreement.
Duress in contract law:
In contract law, any contract made between the party can said to be duress if any party
enters into an agreement due to some threats of another party. Due to duress, offended party
revsises the situation of the contract made by the parties earlier. Threats includes physical
vsiolence and economic duress as well. Although, every rise in the price earlier decided for the
contract due to inflation in the economy does not amount to duress. Only unlawful rise into the
price amounts to the economic duress under contract law. As the contract made under situation
of duress makes the contract voidable, innocent party havse right to cancel the contract along
with calming damages from the offended party7.
Duress to person:
Duress to person includes violence made by any person, or giving threat of violence to
another person. Although, law says that violence or threat to violence need not to be made upon
the innocent party, but it can be done upon party's spouse, or upon any person who is in near
7 Palmer, J.P., 2017. Property Rights and Contract Enforcement in the Post-Zombie
Apocalypse. Interdisciplinary Approaches to Surviving the Zombie Apocalypse, pp.74-87.
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relation to the innocent party or to the employee of claimant party as well8. Evsen threats made
against the stranger can also be consider as duress by the court, if the innocent party proves that
there was no other option to protect the stranger other than entering into the contract.
Elements which makes the contract duress:
In the duress contracts, innocent party majorly needs to provse to court the amount of
pressure made by the offended party in order to enter into the contract9. Before givsing
judgement about whether the contract can be said as duress or not, court consider the following
major factors:
 Did the innocent party has another option in place of entering into the contract?
 Is the changes made into the contract really improper and unlawful?
 Did the offended party threaten the innocent party to compile into the contract?
 Did the claiming party protested for the improper action of offended party?
CASE LAW:
Pao On vs Lau Yiu Long (1980)
In the above mentioned case, Pao On was the owner of a private company and Fu Chip
Company was a public company. Pao On decided to sell the company to Fu Chip and Pao was to
get shares worth 4.2 million in the Fu Chip Company. Later, Fu Chip find that in case, Pao
immediately sell all the shares in the market, its price would definitely reduce. As a result,
company made an agreement with the Pao On that he would not sell 60% of his shares till the
end of 1 year of the purchase. As a result of this agreement, Pao On found a risk of huge loss in
case the price of the company fall even below $2.5.
As a result, in order to avoid this risk, both Pao On and FU Chip company entered into an
agreement that the company would re-purchase the shares of Pao On after completion of 1 year10.
But later, Pao On also felt that in case company's share price rises after 1 year, he would not be
able to gain the profit from the shares. Due to this threat, Pao On asked the company to agreed
upon the fixing resell price of shares to $2.50 per share and also to be agreed upon a condition
that company would be liable to pay compensation to Pao On in case share price fall below $2.50
8 Tamblyn, N., 2017. Contract: duress. In The Law of Duress and Necessity (pp. 99-144).
Routledge.
9 Sheehan, D., 2016. Defendant-sided unjust factors. Legal Studies. 36(3). pp.415-437.
10 Pao On vs Lau Yiu Long [1980] AC 614.
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per share otherwise he would not proceed the main agreement i.e. to sell the private company to
Fu Chain Company.
Further, company felt that the dispute between parties would result in damaging the
confidence of public on the company. Therefore, company agreed upon the condition of Pao On.
Later, on the completion of one year, price of the shares fall to 36% but the company refused to
pay compensation to Pao.
Later, Pao On sued to the company for non completion of the performance to the contract
and on the other hand, defendant party argued that there was economic duress in the agreement,
due to which company did not perform its part of performance.
The court held that there is no economic duress. Because, the defendant party did not
protest earlier regarding this. The company was also having an alternative of enforcing a contract
of specific performance of both the parties. As a result, contract was not held as economic duress
and remained valid.
Threats of violence:
Threat can be considered as threat of vsiolence when the offended party threaten innocent
party to kill the party itself or party's spouse or any other family members. Even threat to kill
party's friend or any stranger can also be consider as threat of violence.
CASE LAW:
Barton vs Armstrong(1976)
In the Barton vs Armstrong(1976) case, Barton was a managing director of Landmark
Corporation Ltd. A public company. On the other hand, Armstrong was chairman of the same
company and was having the largest share holding in the company as well. Armstrong was
having an aggressive nature, also other directors believed that due Armstrong's way of running
business is the only reason of company's risk of insolvency. As a result other directors were
unhappy with the Armstrong as being a chairman and having maximum power in the company,
Armstrong was abusing the privilege. All the directors wanted chairman to givse resign from the
post, but Armstrong was not ready in this regard.
In this instance, some managers decided to take control of subsidiary companies of the
public company and removes all the credit facilities available to the public company. When
Armstrong discovered this fact, he started giving death threaten to the managers and made
pressure on them in order to enter into a contract which contained number of unlawful elements
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like purchasing shares held by the Armstrong at substantially higher price by Barton. Later,
Barton agreed to the condition due to threats of chairman and also believing that due to this
action, Armstrong would no longer havse controlling power over the business.
Later, Barton sued Armstrong for creating duress and threat of death. Court held that their
was no choice to the innocent party and which resulted to Barton to enter into contract as per
chairman's conditions as non acceptance might cause death of the party. Therefore, court decided
that there is availability of duress and hence, the contract is voidable in hand of Barton i.e. the
innocent party.
Threat to property:
When the offended party offends innocent party to damage their house or any other
precious property, as a result of non acceptance of offer as per party's condition11. Court may
consider it as threat to property.
CASE LAWS:
Dimskal Shipping vs International Transport Workers Federation (The Evsia Luck) [1991]4
All ER 871:
In the above case Dimskal Shipping is an owner of ship who was pressurised to fulfil
some conditions of international transport workers federation. However, these conditions were
lawful as per Swedish laws. As per the conditions, company need to pay for the crew of back
dates and in case company refuse to perform the said actions, it would result astronomical for the
shipping company12.
In the above scenario, court need to decide which law would be applicable on the
contract. Because, application of Swedish law would make the conditions of offended party as
valid and as per English law the conditions are unlawful.
Further, the court held that English law would be applicable to the contract and as a result
shipping company can avoid the performance of contract as the conditions are causing economic
duress to it and as a result contract was voidable in the hands of innocent party.
IFR ltd vs Federal Trade Spa [2001] EWHC 519:
11 Riefa, C. and Saintier, S., 2017. Unfair Commercial Practices Directivse: remedying
economic torts?. In Research Handbook on EU Tort Law. Edward Elgar Publishing.
12 DIMSKAL SHIPPING CO SA vs INTERNATIONAL TRANSPORT WORKERS
FEDERATION (‘THE EvsIA LUCK’): HL 1991.
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As per the given case, IFR is an English company and Federal is an Italian company.
Both the companies entered into a contract according to which IFR need to provide sole right to
Federal in order to resale certain items like radio, electronic and telecommunication equipment13.
Later, they made changes in the agreement containing that English law would be applicable to
the contract and added attribution clause as well.
Further, three months before the expiry of the contract, IFR gave a written notice to the
company that it would not renew the contract. As per the Italian law, this termination may result
for IFR to pay compensation to Federal company. However, as per English law, there was no
such rule available regarding payment of compensation to the innocent party. Federal sued
against IFR for taking wrong advantage of English law and asked court to provside justice for
having right to get compensation for the action of IFR.
The court held that the contract as voidable as the action of IFR is causing duress to
Federal. The court also said that for duress, there need to be absence of choice to the innocent
party. And as per the scenario of this case, Federal were having no choice. Therefore, the
contract was held to be voidable in hand of Federal company.
APPLICATION
As per the scenario provided in the project, Tara and Samson makes a contract according
to which, Samson need to make delivery of candle for pre-Christmas for £1,000. Later, Samson
fails to deliver candles as per the agreement due to small heart attack and risen of price of
petroleum products as well. Further, Samson refuses to make delivery unless Tara agrees to rise
the price of product to £3,000 and reduce the number of candles to be deliver by 40%. Samson
also stated that the earlier agreement will be of no use unless she agrees to all conditions. As
Tara feels that she does not have any other option, Tara agrees upon the conditions made by
Samson.
In the present case, there is availability of economic duress as all major conditions
fulfilled in revised agreement. Like revision of condition unlawfully or improperly, rising the
price of product to £3000 and reducing the number of candles to be delivsered by 40% is
unreasonable and improper. Another major condition is that innocent party should not have any
other alternatives. Here, Tara does not have any alternatives other than to accept conditions of
13 IFR ltd vs Federal Trade Spa [2001] EWHC 519.
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Samson.
As per Atlas Express vs Kafco (1989) case, Kafco did not havse any other option, but to
accept the conditions of Atlas Express. Therefore, court made judgement in favour of Kafco and
held contract to be voidable. In the case Pao On vs Lau Yiu Long (1980) Pao sued against Lau
Yiu for non performance and the defendant party argued that the contract was under duress. But
the court held that contract is not of duress as company was having another alternatives and
defendant didn't protest for duress. In another case Barton vs Armstrong(1976), Armstrong made
threat to death to Barton and as a result, court held the contract as duress. In Dimskal Shipping vs
International Transport Workers Federation(1991) conditions applied on Dimskal were unlawful
and hence court declared contract as voidable in hand Dimskal. On the other hand in case IFR
Ltd vs Federal Trade Spa [2001] the court held that their can be presence of consent, but there
need to be absence of choice for innocent part to make any contract duress.
With application of declaration of these rulings on present case, it can be seen that Tara
was pressurised to agree conditions, all revised conditions are unlawful and improper, she isn't
having another alternatives and she has protested for duress as well. In this way, all conditions of
duress has been fulfilled. Therefore, contract can be covered under economic duress.
CONCLUSION
With application of rules, above case laws, it has been concluded that revised conditions
of Samson can be covers under economic duress as they fulfil all the conditions required to cover
any contract into duress. Tara was pressurised to agree into conditions of Samson, revised
conditions were unreasonable, unlawful and improper as well. Along with this, Tara also was not
having any another option, rather than to agree the improper conditions of Samson as it would be
result into cancellation of contract. Further, Tara also has been protested for the duress faced by
her. In other words, in the case, all conditions of economic duress has been fulfilled. Therefore,
in the light of ruling cases and conditions of duress, the present case can be termed as economic
duress and as a result, it can be concluded to be voidable in the hands of innocent party i.e. Tara.
Which means, Tara have right to cancel the contract or can decide to complete her part of
performance and agree all the condition to the contract in order to complete the contract as well.
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