Contracting under Pressure: A theory of duress

Cambridge Law Journal

Volumn 56, Issue 2, 1997, Pages 343-373

  Smith, Stephen A ^a  

^a UNIVERSITY OF OXFORD   (United Kingdom)

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EID: 85011457648     PISSN: 00081973     EISSN: 14692139     Source Type: Journal    
DOI: 10.1017/S0008197300081368     Document Type: Article

References (152)

1. Williams v. Roffey Brothers and Nicholls (Contractors) Ltd. [1991] 1 Q.B. 1.
2. [1983] 1 A.C. 366, 400.
3. See also, e.g., J. Cartwright, Unequal Bargaining (Oxford 1991) p. 155. The American position is the same: Section 175(1) of the Restatement of Contracts (2d) states that duress is shown if “a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative”.
4. The distinction between a plaintiff-based concern for wrongdoing and a defendant-based concern for autonomy is in some respects similar to a distinction employed by P. Birks and N. Y. Chin in “On the Nature of Undue Influence” in J. Beatson & D. Friedmann (eds), Good Faith and Fault in Contract Law (Oxford 1995). In their brief discussion of duress, however, Birks and Chin suggest that the issue in pressure cases is that of the legitimacy of the pressure (although they go on to say, strangely in my view, that invalidity for illegitimate pressure is, in my terminology, defendant-based).
5. See also P. Birks, “The Travails of Duress” [1990] L.M.C.L.Q. 342.
6. C. Fried, Contract as Promise (London 1981), ch. 7.
7. The principle is clearly stated in the American case of Riggs v. Palmer 115 HY 506, 511 22 NE 188, 190 (1889): “all laws as well as all contracts may be controlled in their operation and effect by general, fundamental maxims of the common law. No one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime.”
8. See also, e.g., St. John Shipping Corporation v. Joseph Rank Ltd. [1957] 1 Q.B. 267, 292.
9. See G. Lamond, “Coercion, Threats, and the Puzzle of Blackmail” in A. Simester & A.T.H. Smith (eds.), Harm and Culpability (Oxford 1996)
10. J. Raz, The Morality of Freedom (Oxford 1986) 36. I am indebted to Lamond for his sensitive discussion of threats (and of blackmail). Some authors, including Lamond, hold that a threat need not include a conditional request to do something. I am not inclined to this view, but will not press the point since for my purposes it is sufficient if conditional requests can be part of a threat.
11. See R. Nozick, “Coercion” in Philosophy, Science and Method: Essays in Honour of Ernest Nagel (New York 1969)
12. also, J. Beatson, “Duress, Restitution and Contract Modification” in The Use and Abuse of Unjust Enrichment (Oxford 1990), pp. 118–122.
13. Thus Atlas Express Ltd. v. Kafco Ltd [1989] Q.B. 833
14. D. & C. Builders Ltd. v. Rees [1966] 2 Q.B. 617
15. involved threats, whereas Williams v. Roffey Brothers and Nicholls (Contractors) Ltd. [1991] 1 Q.B. 1 arguably did not.
16. If such cases were common, the courts' task in renegotiation cases would be extremely difficult. Fortunately, in nearly all cases where an optional breach is “predicted” the speaker knows that breach is unwelcome and is hoping to induce a renegotiation, 11 Contrary to the view advanced in, e.g., A. Burrows, The Law of Restitution (London 1993), pp. 164, 179–82
17. Beatson, The Law of Restitution. note 8, at p. 129
18. E.A. Farnsworth, Contracts (Boston 1990), p. 261
19. Restatement of Contracts (2d) s. 176(1)(d).
20. R. Halston, “Opportunism, Economic Duress, and Contractual Modifications” [1991] 107 L.Q.R. 649, 662
21. Farnsworth, “Opportunism, Economic Duress, and Contractual Modifications” note 11, at p. 276
22. H. Mather. “Contract Modification under Duress” (1982) 33 South Carolina L.R. 615
23. Burrows, “Contract Modification under Duress” note 11, at p. 181
24. Restatement of Contracts (2d), s. 89(a)
25. Uniform Commercial Code s. 2–209(1).
26. Halston, Uniform Commercial Code. note 11, at p. 55
27. Mather, Uniform Commercial Code. note 11, at pp. 624–626.
28. S.A. Smith, “Performance, Punishment, and the Nature of Contractual Obligation” (1997) 60 MLR. 360, 373.
29. See, e.g., Graenberg v. Aetna Ins. Co. 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P 2d 1032 (1973)
30. Diamond, “The Tort of Bad Faith Breach of Contract: When, If At All, Should It Be Extended Beyond Insurance Transactions” (1981) 64 Marquette L.R. 425.
31. As noted in The Alev [1989] 1 Lloyd's Rep. 138, 142 & 145.
32. For a similar view, see Fried, 1 Lloyd's Rep. note 5, at p. 97.
33. The Universe Senlinel[1983] A.C. 366, 401
34. The Evia Luck [1990] 1 Lloyd's Rep. 319, 339
35. Thome v. Motor Trade Association [1939] A.C. 797. 801
36. CNT Cash & Carry Ltd v. Gallagher Ltd [1994] 4 All E.R. 714, 718. The Restatement of Contracts (1st) is clear that lawful and wrongful are distinct: “Acts or threats cannot constitute duress unless they are wrongful … But Acts may be wrongful within the meaning of this rule though they are not criminal or tortious or in violation of a contractual duty.” Some older English authorities held that duress required a threat to do an unlawful act
37. Hardie and Lane Ltd v. Chilton [1928] 2 K.B. 306
38. Mayor of Bradford v. Pickles [1895] A.C. 587)
39. but this requirement could be evaded by finding that the pressure constituted undue influence: Williams v. Bayley (1866) L.R. 1 H.L. 200
40. Mutual Finance Co. Ltd. v. Wetton & Sons Ltd. [1937] 2 K.B. 389. It should not be supposed that all undue influence cases, or even all cases of actual undue influence, are pressure cases. The essence of undue influence is surrender of judgment. Pressure may, but need not, accompany such a surrender.
41. On lawful threats generally, see J. Dawson, “Economic Duress–An Essay in Perspective” (1947) 45 Michigan L.R. 253
42. J. Dalzell, “Duress by Economic Pressure” (1942) 20 N.C.L.R 341
43. R. Hale “Bargaining, Duress and Economic Liberty” (1943) 43 Columbia L.R 603
44. J. Dawson, “Duress Through Civil Litigation” (1974) 45 Michigan L.R. 571 & 679
45. R. Sutton, “Duress by Economic Pressure” (1974) 20 McGill L.J. 554
46. N. Rafferty, “Wrongful Pressure in a Finding of Duress” (1980) 43 Alberta L.R 431
47. Beatson, 43 Alberta L.R. note 8, at p. 133.
48. An approach taken by Lord Diplock in The Universe Sentinel [1983] A.C. 366, 385.
49. Thus Hale's view that every contract is entered under a threat–the threat not to contract–is rejected: R. Hale, “Coercion and Distribution in a Supposedly Non-Coercive State” (1923) 38 Political Science Quarterly, 470.
50. For this reason, blackmail is a misleading example to use in support of the view that wrongful threats need not involve a threat to do an unlawful action (see, e.g., Lord Scarman, The Universe Sentinel [1983] A.C. 366, 401).
51. The reason that blackmail is wrong has nothing to do with the wrongfulness of the threatened action, whereas in the standard case of a wrongful threat to do a lawful action it is precisely the wrongfulness of the threatened action that makes the threat lawful: see Beatson, 38 Political Science Quarterly. note 8, at p. 133.
52. Theft Act 1968 s. 21(1).
53. Lamond, 38 Political Science Quarterly. note 7, at p. 216. On other possible justifications for blackmail
54. see J. Lindgren, “Unravelling the Paradox of Blackmail” (1984) 84 Columbia L.R. 670.
55. R. Wright, “Causation in Tort Law” (1985) 73 California L.R. 1735
56. building on H.L.A. Hart & A. Honore, Causation in the Law (Oxford 1959), p. 106.
57. This is especially likely if the plaintiff does not think that non-performance is a breach: E. Macdonald, “Duress by Threatened Breach of Contract” [1989] J. B. L. 460, 473.
58. For a contrary view see P. Birks, An Introduction to the Law of Restitution (Oxford 1985), p. 183.
59. Pau On v. Lau Yiu Long [1980] A.C. 614, 635
60. The Universe Sentinel [1983] A.C. 366, 400
61. R. Goff & G. Jones, Law of Restitution 2d ed. (London 1978), pp. 178–186
62. Halston, Law of Restitution. note 12, at p. 671.
63. Beatson's contrary view (Law of Restitution. note 8, at p. 123)
64. Pau On v. Lau Yiu Long [1980] A.C. 614, 635.
65. For an excellent discussion of this issue see Beatson, Law of Restitution. note 8.
66. In particular, the policy in favour of compromises and payments made under process of law does not apply if the party threatening to sue (or prosecute) knew the claim to be groundless: see Beatson, Law of Restitution. note 8, at pp. 97–106.
67. For a contrary view, see Nixon v. Furphy (1925) 25 N.S.W, 151, 158.
68. [1976] A.C. 104. See the discussion of Barton above in note 29.
69. See, e.g., Pau On v. Lau Yiu Long [1980] A.C. 614, 636
70. The Siboen [1967] 1 Lloyd's Rep. 293, 335
71. Hennessy v. Craigmyle [1986] I.C.R. 461, 468
72. The Atlantic Baron [1978] 3 All E.R. 1171, 1183
73. B&S Contract and Designs v. Victor Green Publications [1984] I.C.R. 419,428
74. The Universe Sentinel [1983] A.C. 366, 383
75. The A lev [1989] 1 Lloyd's Rep. 138, 145.
76. See, e.g. Hale, 1 Lloyd's Rep. note 22, at pp. 476–477
77. R. Hale, “Bargaining, Duress and Economic Liberty” (1943) Columbia L.R. 603
78. P. Atiyah, “Economic Duress and the Overborne Will” (1982) 98 L.Q.R. 197
79. Halston, 1 Lloyd's Rep. note 12, at pp. 612–613
80. A. Kronman, “Contract Law and Distributive Justice” (1980) 89 Yale L.J. 472
81. R. Bigwood, “Coercion in Contract: The Theoretical Constructs of Duress” (1996) U.T.L.J. 201
82. DPP v. Lynch [1975] A.C. 653, 680, 695, 710
83. Crescendo Management Ply. Ltd. v. Westpac Banking (1988) 19 N.S.W.L.R. 40, 46.
84. See, e.g., Atiyah, 19 N.S.W.L.R.
85. Kronman, 19 N.S.W.L.R., at 478
86. M. Trebilcock, The Limits of Freedom of Contract (Toronto 1993), p. 79.
87. Hale, The Limits of Freedom of Contract. note 22
88. K. Llewellyn “What Price Contract” (1931) Yale L. J. 704, 728
89. D. Patterson, “Compulsory Contracts in the Crystal Ball” (1943) 43 Columbia L.R. 731, 741
90. J. Dalzell, “Duress by Economic Pressure”, pp. 238–239
91. Dawson, The Limits of Freedom of Contract. note 43, at pp. 266–267
92. B. Coote, “Duress by Threatened Breach of Contract” [1980] C.L.J. 40, 45
93. Halston, The Limits of Freedom of Contract. note 12, at p. 665.
94. See, e.g., Fried, The Limits of Freedom of Contract. note 5.
95. See, e.g., R. Posner, Economic Analysis of Law 4th ed. (Boston 1992), p. 113.
96. See, e.g., Kronman, Economic Analysis of Law. note 41, at p. 480.
97. See, e.g., Dawson, Economic Analysis of Law. note 43, at p. 287.
98. Kronman, Economic Analysis of Law. note 41.
99. See W. Lucy, “Contract as a Mechanism of Distributive Justice” (1989) 9 O.J.L.S. 132, 137.
100. E. Weinrib, The Idea of Private Law (Cambridge, MA 1995), chs. 1 & 2.
101. See Lucy, The Idea of Private Law. note 49, at p. 39
102. H.L.A. Hart, Punishment and Responsibility (Oxford 1970), p. 152.
103. Judicial endorsements of this test include Pau On v. Lau Yiu Long [1980] A.C. 614, 635
104. The Universe Sentinel [1983] A.C. 366, 400
105. The Alev [1989] 1 Lloyd's Rep 138, 145
106. B & S Contract and Designs v. Victor Green Publications [1984] I.C.R 419, 426 & 428
107. The Atlantic Baron [1978] 3 All E.R. 1171, 1175.
108. See Lamond, 3 All E.R. note 7, at p. 226.
109. For a different view see A. Wertheimer, Coercion (Princeton 1987), p. 10.
110. On the economic torts generally, see P. Cane, Tort Law and Economic Interests (Oxford 1991).
111. On blackmail, see A.T.H. Smith, The Law of Theft 7th ed. (London 1993).
112. See, e.g., Williams v. Bayley (1866) L.R. 1 H.L. 200
113. Mutual Finance Ltd. v. John Wetton and Sons Ltd. [1937] 2 K.B. 389.
114. See, e.g., Norreys v. Zeffert [1939] 2 All E.R. 187.
115. In this respect, it is interesting that it is in those duress cases where wrongdoing was less clearly evident (mainly economic duress cases) that English courts appear to have employed the stricter but-for test of causation: see, e.g. Pau On v. Lau Yiu Long [1980] A.C. 614, 635
116. The Siboen [1961] 1 Lloyd's Rep. 293, 336.
117. Contrast Barton v. Armstrong [1976] A.C. 104, where wrongdoing was clearly evident and the weaker NESS test was endorsed.
118. A person has an autonomous life if, to adopt Raz's words, he is “the author of his own life”. A mere lack of alternatives does not always preclude a person from getting what he wants in life (his only options may be the option he wants anyway), but it will prevent that person from directing the course of his life, that is, from achieving an autonomous life: Raz, A.C. note 7, at ch. 14.
119. See Frankfurt, A.C. note 62.
120. A person being tortured, for example, may think that he should not reveal a secret yet be unable to resist the pressure to reveal. On the distinction between pressure which forces someone to act against their best judgment and pressure which is a factor in a person's best judgment, see Lamond A.C. note 7, at p. 218.
121. [1989] 1 Lloyd's Rep. 138, 1175.
122. 1 Lloyd's Rep., at p. 1175
123. Pau On v. Lau Yiu Long [1980] A.C. 614, 636.
124. Atlas Express Ltd. v. Kafco Ltd. [1989] Q.B. 833.
125. Thus I broadly agree with the approach outlined in D. Tiplady, “Concepts of Duress” (1983) 99 L.Q.R. 188
126. and disagree with P. Atiyah, “Economic Duress and the Overborne Will” (1982) 98 L.Q.R. 197.
127. This example is similar to the facts of Barton v. Armstrong [1976] A.C. 104. The difference between the tests of causation required by the wrongdoing principle and the autonomy principle helps to explain the differing decisions in Barton reached by the Court of Appeal of New South Wales and the Privy Council.
128. I discuss the concept of a fair price in greater detail in S.A. Smith, “In Defence of Substantive Fairness” (1996) 112 L.Q.R. 138.
129. See R. Whish, Competition Law (London 1993).
130. Smith v. Charlick (William) Ltd. (1924) 34 C.L.R. 38.
131. Smith, 34 C.L.R. note 71.
132. On the distinction between standard monopolies and situational monopolies and why courts are better equipped to assess the validity of contracts involving the latter, see Trebilcock, 34 C.L.R. note 42, at ch.4.
133. Where there is an available market, the provision of a service, such as rescuing a ship, can plausibly be valued at the cost of the service, i.e., its market value. The ship may be worth more than the cost of the service, but the value of the service to the owner is, arguably, his cost of obtaining that service from someone else in the market. But where there is no available market, as in the necessity cases, it is less obvious how to value the respective losses and benefits: Birks, 34 C.L.R. note 30, at pp. 109–140, 304–308
134. J. Beatson, “Benefit, Reliance and the Structure of Unjust Enrichment” (1987) 40 CLP. 71.
135. See N. McBride, “A Fifth Common Law Obligation” (1994) 14 Legal Studies 35, 40.
136. See McBride, 14 Legal Studies, at pp. 40–43.
137. See, e.g., William Lacey (Hounslow) Ltd. v. Davis [1957] 1 W.L.R. 932
138. Leigh v. Dickson (1884) 15 Q.B.D. 60
139. and other cases cited in McBride, 15 Q.B.D. note 78 at pp. 40–43.
140. On consumer surplus, see Harris, Ogus & Phillips, “Contract Remedies and the Consumer Surplus” (1979) 95 L.Q.R. 581.
141. The importance of consumer surplus in assessing damages for breach of contract was recently recognised explicitly in Ruxley Electronics & Construction Ltd v. Forsyth [1995] 3 W.L.R. 118.
142. [1983] A.C. 366, 400.
143. Other examples include the rules regarding innocent misrepresentation and undue influence. On “innocent” undue influence, see Birks & Chin, A.C. note 4.
144. Thus in Akerblom v. Price (1885) 7 Q.B.D. 129, 132–133
145. Brelt L.J. held that “If the parties have made an agreement, the court will enforce it, unless it be manifestly unfair and unjust”. See also The Medina (1876) 1 P.D. 272, affd (1876) 2 P.D. 5
146. The Port Caledonia and the Anna [1903] P. 184.
147. But see United Slates v. Bethlehem Steel Corp 315 US 289, 330 (1942), where Justice Frankfurter, in a powerful dissent, held that a situation where the plaintiff had no choice but to pay the defendant monopolist an extortionate price for vital war supplies was “strikingly analogous” to the salvage and rescue cases. The majority, upholding the contract, did not so much disagree with Frankfurter's principle, as with his conclusion that the plaintiff had no alternatives.
148. See, e.g., Dawson, Port Caledonia and the Anna. note 43
149. Hale, Port Caledonia and the Anna. note 22
150. P. Atiyah, “Contract and Fair Exchange” in Essays on Contract (Oxford 1986).
151. Restatement of Contracts (2d) s. 89(a).
152. See also Uniform Commercial Code, s. 2–209(1) read in conjunction with s. 2 103(1)(b).