If a contract was entered by a party solely because of a threat, physical violence, unlawful restraint or economic duress, then the contract can be set aside, i.e. void. An agreement made under duress means that the other party had no other option but to sign and comply with whatever term was present to it.
For the defence of duress to exist, the claimant has to prove that;
1. The pressure was illegal: The claimant was threatened that the contract would be broken, or a lawful act was exerted unreasonably Atlas Express Ltd v Kafco (Importers and Distributors) Ltd (1989): Kafco had to supply Woolworth good, but the carrier company demands extra money. Kafco wins.
Duress, however, does not mean that the parties can avoid the pressure and obligations that a contract can bring upon them. For example, a person who is taking out a loan on high interest rate cannot rely on duress for the financial pressure that it could put on him. This was evident in the case of CTN Cash and Carry v Gallaher (1994). Gallaher was a huge cigarette Company, and threatened to withdraw credit facility. The defendant (Gallaher) wins.
2. Physical violence: A contract signed because threats of physical violence would render the contract void Barton v Armstrong (1975). In this case the ex-chairman threatened to kill the current managing director if he did not buy his shares. The claimant bought as told but not purely because of the threat but also as he had other reasons. However the court decided in favour of the claimant.
3. The contracting party had no other choice but to enter the contract. Universe Tankships v International Transport Workers’ Federation (The Universe Sentinel) (1983). The ITWF demanded a payment to its welfare fund or it would continue a strike. The strike was affecting a ship belonging to the claimant. The claimant made the payment but later sought to recover the money under duress. It was held the claimant did have a choice not to pay the money – it was not duress.
4. The claimant protested at the time of contract or shortly after. This case North Ocean Shipping Co v Hyundai Construction Co (The Atlantic Baron) involved a ship building company which demanded more money from the claimant. The claimant paid the money as the company had contract for renting out the ship to another company. It later raised the issue of economic duress. The claimant lost the case as it had taken too long to protest (8 months) despite having the element of economic duress.
The consequences of duress in a contract:
Duress can rescind a contract: A contract made because of duress can be annulled and the innocent party in such case will need to inform the other party. If the innocent party cannot find the other party, it will need to let the police know or apply to the court for an order of rescission.
Once a contract is rescinded, the parties would need to return the due obligations such as money, property etc to the other party. Further obligations then will not need to be performed.
Sometimes when a contract is to be rescinded because of new terms or demands added to it, then the rescission will only render the additional term void rather than the whole contract.