Duress as a vitiating factor for contracts
A party can establish that a contract was entered into as a result of duress, if they establish that the other contracting party exerted improper pressure upon them which made them feel that they had no choice but to enter into the contract or transaction. Duress appears in various forms. One could establish that there was duress to a person or duress to a person’s property or economic duress. We will proceed below to consider each form of duress separately.
Duress to the person occurs when a contract is made because of either actual or threatened violence to either one of the parties or to that party's family. The act or threatened act must be illegal, so, in other words, it must constitute a crime or tort.
Duress to the property occurs when there is a threat to damage a person's property. The courts’ view is that, even if there is no threat of physical violence to a person, if there is a threat to a person's property which compels them to sign a contract, then this would be sufficient to establish duress.
Economic duress occurs where one party takes advantage of the financial difficulties of the other to either negotiate the terms of a new contract or re-negotiate and amend the terms of an existing contract. The courts have further indicated that to establish duress in a commercial context one had to consider whether the boundaries between hard commercial bargaining and duress have been crossed, which is not always easy to determine. Relevant factors which would be taken into consideration to determine this would be whether there was an actual or threatened breach of contract, whether a party acted in bad faith purporting to take advantage of the financial difficulties of the other party and/or an imminent contractual breach, whether the innocent party had any realistic practical alternative but to submit to the pressure, whether the innocent party was independently advised and whether the innocent party protested at the time of the contract or soon afterwards.
As mentioned above, to establish duress the pressure exercised from one party to another must be illegitimate. The meaning of illegitimacy in relation to such pressure has been considered by the courts. To reach a conclusion the nature of the pressure and the nature of the demand made under such pressure should be carefully examined. Therefore, if the threat was unlawful, it will probably be duress. If the threat is lawful but is used to support a demand that is unlawful, it will likely be duress. Lord Hoffman in R v Attorney General for England and Wales [2004] 2 NZLR 577; [2003] UKPC 22 quotes Lord Atkin in Thorne v Motor Trade Association [1937] AC 797, 806 as follows: “The ordinary blackmailer normally threatens to do what he has a perfect right to do – namely, communicate some compromising conduct to a person whose knowledge is likely to affect the person threatened. What he has to justify is not the threat, but the demand of money.” Further, apart from proving the illegitimacy of the pressure, one should also prove that this pressure was a significant cause, albeit not the only cause, inducing the innocent party to enter into the contract. Once duress has been successfully, the burden of proof lies with the guilty party to prove that the unlawful pressure did not contribute to the innocent party's decision to make the contract.
A contract made under duress is voidable, which means that the innocent party can request the rescission of this contract. The effect of rescission would be to set aside the contract retrospectively, putting the parties back in their original positions before they made the contract. The rights and obligations will be treated as if they never existed, and the parties must make restitution by returning the benefits which each has received from the other. However, the right to rescind may be lost either through the lapse of time or if the contract is affirmed by the innocent party.
