Duress Remedies
Cases
Barton v. Armstrong
[1976] AC 104
Lord Cross of Chelsea. Their Lordships turn now to consider the question oflaw·which provokeda difference of opinion in the Court of Appeal Division. It is hardly surprising that there is no direct authority on the point, for ifA threatensB with death if he does not execute some document and B, who takes A’s threats seriously, executes the document it can be only in the most unusual circumstances that there can be any doubt whether the threats operated to induce him to execute the docu ment. But this isa most unusual case and the findings of fact made below do undoubtedly raise
the question whether it was necessary for Barton in order to obtain relief to establish that he would not have executed the deed in question but for the threats. In answering this question in favour ofBarton,JacobsJA relied both on a number of old common law authorities on the sub ject of ‘duress’ and also-by way of analogy–on later decisions in equity with regard to the avoidance of deeds on the ground of fraud. Their Lordships do not think that the common law authorities are of any real assistance for it seems most unlikely that the authors of the statements relied on had the sort of problem which has arisen here in mind at all. On the other hand they think that the conclusion to which Jacobs JA came was right and that it is supported by the equity decisions. The scope of common law duress was very limited and aat comparatively early date equity began to grant relief in cases where the disposition in question had been procured by the exercise of pressure which the Chancellor considered to be illegitimate–although it did not amount to common law duress. There was a parallel development in the field of disposi tions induced by fraud. At common law the only remedy available to the man defrauded was an action for deceit but equity in the same period in which it was building up the doctrine of ‘undue influence’ came to entertain proceedings to set aside dispositions which had been obtained by fraud: see Holdsworth, A History of English law, vol. V (1924), 328-9. There ii an obvious analogy between setting aside a disposition for duress or undue influence and settin1 it aside for fraud. In each case-to quote the words of Holmes Jin Fairbanks v. Snow (1887) 13 NE 596, 598-‘the party has been subjected to an improper motive for action.’ Again in the similarity of the effect in law of metus and dolus in connection with dispositions of property is noted by Stair in his Institutions of the Law of Scotland, New edn. (1832), Book IV, title 40.25. Had Armstrong made a fraudulent misrepresentation to Barton for the purpose of inducing him to execute the deed of January 17, 1967, the answer to the problem which has arisen would have been clear. If it were established that Barton did not allow the representation to affect his judg ment then he could not make it a ground for relief even though the representation was designed and known by Barton to be designed to affect his judgment. If on the other hand Barton relied on the misrepresentation Armstrong could not have defeated his claim to relief by showing that there were other more weighty causes which contributed to his decision to execute the deed, for in this field the court does not allow an examination into the relative importance of con tributory causes.
‘Once make out that there has been anything like deception, and no contract resting in any degree on that foundation can stand’: per Lord Cranworth LJ in Reyne/Iv. Sprye (1852) 1 De GM & G 660, 708–see also the other cases referred to in Cheshire and Fifoot’s Law of Contract, 8th edn. (1972), 250-1. Their Lordships think that the same rule should apply in cases of duress and that if Armstrong’s threats were ‘a’ reason for Barton’s executing the deed he is enti tled to relief even though he might well have entered into the contract if Armstrong had uttered no threats to induce him to do so.
It remains to apply the law to the facts. What was the state of Barton’s mind when he exe cuted the deed is, of course, a question of fact and a question the answer to which depended largely on Barton’s own evidence. The judge who heard him give evidence was in a better posi tion than anyone else to decide whether fear engendered by Armstrong’s threats was ‘a’ reason for his executing the deed. It was submitted that the decision of Street J in favour of Armstrong amounted to a finding that fear engendered by the threats was not such a reason and that as that decision had been affirmed by a majority of the Appeal Division the Board should not disturb it. But this case, as their Lordships see it, is not one to which the rule as to ‘concurrent find ings’ is applicable. In the first place some of the findings of fact made by the judge were varied by the Appeal Division. In particular they held that he was wrong in finding that Barton did not think that Armstrong’s threats were being made with a view to inducing him to execute the agreement. Again there appears to have been little discussion of the law before Street J and it is by no means clear that he directed his mind to the precise question which was debated in the Appeal Division and before the Board. Consequently one cannot be sure that if he had applied to the facts found by him as modified by the Appeal Division what their Lordships think to be the correct principle oflaw he would have reached the conclusion which he did reach. He might have done so but equally he might not have done so. The judges in the Appeal Division approached the case no doubt in the light of what their Lordships assume to be the right find ings of fact but the majority applied to them what in their Lordships’ judgment was a wrong principle of law. In these circumstances their Lordships think that they can properly, and indeed should, reach their own conclusion by applying the law as they understand it to the facts found by the judge as modified by the Appeal Division. They proceed then on the footing that although, when he learnt that UDC had decided no longer to finance the Paradise Waters pro ject, Barton was at first despondent as to its future he soon came to share Bovill’s view that UDC would change its mind when once Armstrong was out of the way; that the confidence to the eventual success of the project to which he gave expression to Smith and othen durlns the negotiations and shortly after the execution of the documents was genuine; that he thousht that the agreement with Armstrong was a satisfactory business arrangement ….
. But even so Barton must have realised that in parting with all Landmark’s liquid assets to Armstrong and in agreeing himself to buy Armstrong’s shares for almost twice their market value in the hope that when Armstrong was out of the way UDC would once more pro vide finance he was taking a very great risk. It is only reasonable to suppose that from time to time during the negotiations he asked himself whether it would not be better either to insist that any settlement with Armstrong should be conditional on an agreement with UDC or to cut his own and Landmark’s losses on the Paradise Waters project altogether rather than to increase the stakes so drastically. If Barton had to establish that he would not have made the agreement but for Armstrong’s threats, then their Lordships would not dissent from the view that he had not made out his case. But no such onus lay on him. On the contrary it was for Armstrong to establish, ifhe could, that the threats which he was making and the unlawful pressure which he was exerting for the purpose of inducing Barton to sign the agreement and which Barton knew were being made and exerted for this purpose in fact contributed nothing to Barton’s decision to sign. The judge has found that during the 10 days or so before the documents were executed Barton was in genuine fear that Armstrong was planning to have him killed if the agreement was not signed. His state of mind was described by the judge as one of ‘very real mental torment’ and he believed that his fears would be at end when once the documents were executed….
In an action such as the present, then, the first step required of the plaintiff is to show that some illegitimate means of persuasion was used. That there were threats to Barton’s life was found by the judge, though he did not accept Barton’s evidence in important respects. We shall return to this point in detail later.
……..
It is true that .on the facts as their Lordships assume them to have been Armstrong’s threats may have been unnecessary; but it would be unrealistic to hold that they played no part in making Barton decide to execute the documents. The proper inference to be drawn from the facts found is, their Lordships think, that though it may be that Barton would have executed the documents even if Armstrong had made no threats and exerted no unlawful pressure to induce him to do so the threats and unlawful pressure in fact contributed to his decision to sign the documents and to recommend their execution by Landmark and the other parties to them. It may be, of course, that Barton’s fear of Armstrong had evaporated before he issued his writ in this action but Armstrong-understandably enough-expressly dis claimed reliance on the defence of delay on Barton’s part in repudiating the deed.
In the result therefore the appeal should be allowed and a declaration made that the deeds in
question were executed by Barton under duress and are void so far as concerns him….
Lord Wilberforce and Lord Simon of Glaisdale: The reason why we do not agree with the majority decision is, briefly, that we regard the issues in this case as essentially issues of fact, issues moreover of a character particularly within the sphere of the trial judge bearing, as they do, upon motivation and credibility. On all important issues, clear findings have been made by Street J and concurred in by the Court of Appeal-either unanimously or by majority. Accepted rules of practice and, such rules apart, sound principle should, in our opinion, prevent a second court of appeal from reviewing them in the absence of some miscar riage of justice, or some manifest and important error of law or misdirection. In our view no such circumstance exists in this case.
Before stating those findings of fact, which are to our mind conclusive, we think it desirable to define in our own way the legal basis on which they rest.
The action is one to set aside an apparently complete and valid agreement on the ground of duress. The basis of the plaintiff’s claim is, thus, that though there was apparent consent there was no true consent to the agreement: that the agreement was not voluntary.
This involves consideration of what the law regards as voluntary, or its opposite; for in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind prove that the contract was not made because of the threats.
Assuming therefore that what has to be decided is whether the illegitimate means used was a reason why the complainant acted as he did, it follows that his reason for acting must (unless the case is one of automatism which this is not) be a conscious reason so that the complainant can give evidence of it: ‘I acted because I was forced.’ If his evidence is honest and accepted, that will normally conclude the issue. If, moreover, he gives evidence, it is necessary for the
court to evaluate his evidence by testing it against his credibility and his actions.
In this case Barton gave evidence–his was, for practical purposes, the only evidence sup porting his case. The judge rejected it in important respects and accepted it in others. The issues as to Barton’s motivations were issues purely of fact (that motivation is a question of fact hardly needs authority, but see Cox v. Smail [1912] VLR 274 per Cussen J): the findings as to motivation were largely, if not entirely, findings as to credibility. It would be difficult to find matters more peculiarly than these within the field of the trial judge who saw both contestants in the box, and who dealt carefully and at length with the credibility, or lack of credibility, of each of them.
In our opinion the case is far from being one in which a second appellate court should reverse findings made below and endorsed by a Court of Appeal. Respect for such findings–partic ularly where the issues depend so much upon credibility and an estimate of rival personalities appears to us to be a central pillar of the appellate process. It is perhaps otiose, but also fair to the judges below, to say that we have no ground for thinking that the factual conclusions which they reached after so prolonged a search did not represent the truth of the situation–or at least the nearest approximation to truth that was attainable. We would dismiss the appeal.
Astley v. Reynolds
(1731) 2 Str. 915
Holt CJ: … We think that this is a payment by compulsion; the plaintiff might have such an immediate want of his goods, that an actipn of trover would not do his business: where the rule volenti non fit injuria is applied, it must be where the party had his freedom of exercising his will, which this man had not: we must take it he paid the money relying on his legal remedy to get it back again.
Skeate v. Beale
(1841) 11 Ad. & E 983, Court of King’s Bench
Lord Denman CJ (delivering the judgment of the court): … We consider the law to be clear, and founded on good reason, that an agreement is not void because made under duress of goods. There is no distinction in this respect between a deed and an agreement not under seal; and, with regard to the former, the law is laid down … and the distinction pointed out between duress of, or menace to, the person, and duress of goods. The former is a constraining force, which not only takes away the free agency, but may leave no room for appeal to the law for a remedy: a man, therefore, is not bound by the agreement which he enters into under 1uch cir cumstances: but the fear that goods may be taken or injured does not deprive any one of his free agency who possesses that ordinary degree of firmness which the law requires all to exert. It i1 not necessary now to enter into the consideration of cases in which it has been held that money paid to redeem goods wrongfully seized, or to prevent their wrongful seizure, may be recovered back in an action for money had and received: for the distinction between those cases and the present, which must be taken to be that of an agreement, not compulsorily but voluntarily entered into, is obvious. Lindon v. Hooper (1 Cowp. 414), and Knibbs v. Hall (l Esp. 84), are, however, authorities to shew that, even if the money had been paid in this case, instead of the agreement to pay it entered into, no action for money had and received could have been sus tained by the now defendant. For, although there is a difference in the circumstances, and, the distress having been made, and some rent admitted to be in arrear, no replevin could have been successfully made, yet if the plaintiff distrained goods of the value of 201. when little more than
31. were due, there is no doubt that, on payment of the value of the goods, or the sum claimed, an action would have lain for the excessive distress. And it is of great importance that parties should be holden to those remedies for injuries which the law prescribes, rather than allowed to enter into agreements with a view to prevent them, intending at the time not to keep their contracts. In the argument for the defendant, reliance was placed on the facts that the agree ment was entered into under protest, and that the plaintiff must have known that only the smaller amount of rent was due. It is unnecessary to consider what the effect of these would have been; for neither of them is alleged in the plea. As, therefore, this plea relies solely on the menace as to the goods, under which the agreement was made, for avoiding it, we think it discloses no answer to the declaration….
North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd
(TheAtlantic Baron) [1979] QB 705,
Mocatta J (having found that the agreement to pay the additional 10 per cent was supported by consideration, continued): Having reached the conclusion that there was consideration for the agreement made on June 28 and 29, 1973, I must next consider whether even if that agree ment, varying the terms of the original shipbuilding contract of April 10, 1972, was made under a threat to break that original contract and the various increased instalments were made conse quently under the varied agreement, the increased sums can be recovered as money had and received. Mr Longmore [counsel for the plaintiffs] submitted that they could be, provided they were involuntary payments and not made, albeit perhaps with some grumbling, to cloN the
transaction.
Certainly this is the well-established position if payments are made, for example, to avoid tho wrongful seizure of goods where there is no prior agreement to make such payments. The beat known English case to this effect is probably Maskell v. Horner (1915] 3 KB 106, where the plaintiff had over many years paid illegal tolls on his goods offered for sale in the vicinity of Spitalfields Market. The plaintiff had paid under protest, though the process was so prolonged, that the protests became almost in the nature of jokes, though the plaintiff had in fact suffered seizures of his goods when he had not paid. Lord Reading CJ did not say that express words of protest were always necessary, though they might be useful evidence to negative voluntary pay ments; the circumstances taken as a whole must indicate that the payments were involuntary. Buckley LJ at 124, regarded the making of a protest before paying to avoid the wrongful seizure of one’s goods as ‘a further factor,’ which went to show that the payment was not voluntary. Pickford LJ at 126 likewise regarded the fact of protest as ‘some indication’ that the payer intended to resist the claim.
There are a number of well-known examples in the books of English cases where the pay ments made have been involuntary by reason of some wrongful threatened action or inaction in relation to goods and have subsequently been recovered, but where the issue has not been com plicated by the payments having been made under a contract. Some of these cases have con cerned threats to seize, seizure or wrongful detention of goods, Maskell v. Horner being the best known modern example of the former two categories and Astley v. Reynolds (1731) 2 Str. 915 a good example of the latter category, where a pawnbroker refused to release plate when the plaintiff tendered the money lent and, on demand, more than the legal rate of interest, since without this the pawnbroker would not release the plaintiff’s plate. The plaintiff recovered the excess, as having paid it under compulsion and it was held no answer that an alternative rem edy might lie in trover.
Mr Longmore referred me to other cases decided in this country bordering upon what he called economic duress as distinct from duress to goods. Thus in Parker v. Great Western Rail11Jay Co. (1844) 7 Man. & G 253, approved in Great Western Railway Co. v. Sutton (1869) LR 4 HL 226, it was held that the railway was not entitled to differentiate adversely between charges on goods made against one carrier or packer using the railway and others. Excess charges payable by such persons were recovered. In advising the House of Lords in the latter case, Willes J said, at 249:
‘ Ihave always understood that when a man pays more than he is bound to do by law for the performance of a duty which the law says is owed to him for nothing, or for less than he has paid, there is a compulsion or concussion in respect of which he is entitled to recover the excess by condictio indebiti, or action for money had and received. This is every day’s practice as to excess freight.’
Another case, decided in 1844, on which Mr Longmore relied was Close v. Phipps (1844) 7 Man. & G 586, in which the attorney of a mortgagee threatened to sell the mortgaged property unless certain costs, to which he was not entitled, were paid in addition to the mortgage money. The additional costs were paid under protest and were subsequently recovered as money had and received. It was stressed in argument, rightly I think, that this was a case of money paid under duress, the duress being a threatened breach of contract, though in Goff and Jones, The Ul’fll of Restitution (1966), 149 the case is categorised as an example of duress of goods….
There has been considerable discussion in the books whether, if an agreement is made under duress of goods to pay a sum of money and there is some consideration for the agreement, the excess sum can be recovered. The authority for this suggested distinction is Slm,te v. lh, (1841) 11 Ad. & El. 983. It was there said by Lord Denman CJ that an agreement was not void because made under duress of goods, the distinction between that case and the cases of money
paid to recover goods wrongfully seized being said to be obvious in that the agreement compulsorily but voluntarily entered into. In the slightly later case of Wake.field v. Newbon (1844) 6 Q!l 276, Lord Denman CJ referred to cases such as Skeate v. Beale as ‘that class where the parties have come to a voluntary settlement of their concerns, and have chosen to pay what
is found due.’ Kerr Jin Occidental Worldwide Investment Corporation v. Skibs Al S Avanti (The Siboen and The Sibotre) [1976] 1 Lloyd’s Rep. 293,335, gave strong expression to the view that the suggested distinction based on Skeate v. Beale would not be observed today. He said, though obiter, that Skeate v. Beale would not justify a decision:
‘For instance, if I should be compelled to sign a lease or some other contract for a nomi nal but legally sufficient consideration under an imminent threat of having my house burnt down or a valuable picture slashed, though without any threat of physical violence to any one, I do not think that the law would uphold the agreement.’
I was referred to a number of cases decided overseas. Nixon v. Furphy (1925) 25 SR (NSW) 151; Knutson v. Bourkes Syndicate [1941) 3 DLR 593 and In re Hooper and Grass’ Contract [1949] VLR 269, all of which have a similarity to Close v. Phipps, 7 Man.& G 586. Perhaps their greatest importance, however, is the quotation in the first mentioned from the judgment of Isaacs] in Smith v. William Charlick Ltd (1924) 34 CLR 38, 56 where he said:
‘It is conceded that the only grouqd on which the promise to repay could be implied is “compulsion.” The payment is said by the respondent not to have been “voluntary” but “forced” from it within the contemplation of the law … “Compulsion” in relation to a payment of which refund is sought, and whether it is also variously called “coercion,” “exaction” or “force,” includes e,;ery species of duress or conduct analogous to duress, actual or threatened, exerted by or on behalf of the payee and applied to the person or the property or any right of the person who pays Such compulsion is a legal wrong, and the law provides a remedy by raising a fictional promise to repay.’
These cases do not, however, expressly deal with the position arising when the threat or com pulsion result in a new or varied contract. This was, or something very like it, however, the position in Sunde/l’s case, 56 SR (NSW) 323. In that case the plaintiff had originally entered into a contract to buy from the defendant a quantity of galvanised iron at £100 15s. a ton and had established a letter of credit in favour of the defendant seller accordingly. The iron was to come from France and some months after the contract had been entered into the seller said that an increase in price of probably £27 was inevitable and requested that the letter of credit be increased, otherwise the plaintiff would not get his iron. Eventually the buyer on April 17 sent the seller a fresh order for the same quantity of iron at £140 per ton, but asking the seller to acknowledge that the buyer should have the right to contend that the original contract required the seller to supply the iron at £109 15s. a ton. The buyer amended and increased his letter of credit accordingly, but the seller in acknowledging the buyer’s letter did not accept the terms laid down in it. Eventually the iron arrived before the argument had been resolved and full use was made of the increased letter of credit.
The buyer thereafter sued to recover the excess he had paid through the increased letter of credit as having been paid under ‘practical compulsion.’ The first point taken in answer to this was that the original contract was varied or superseded by a new contract made on April 17 and that accordingly the buyer was obliged thereunder to pay. This argument failed since the court found there was no consideration for the provision of the increased letter of credit. The second point argued was that a payment could not be said to have been made under ‘practical compulsion’ where a threat was made by the payee to withhold from the payer a contractual right as distinct from a right of possession of property, a statutory right or some proprietary right. This it was argued would be to break new ground and would be contrary to what was said by Lord Sumner in Sinclair v. Brougham [1914) AC 398, 453-4 against extending the action for money had and received. These arguments were rejected by the court who cited the passage from the judgment of Isaacs J set out above emphasising by italics the words ‘or any right’ of the person paying under compulsion. It would seem, therefore, that the Australian courts would be prepared to allow the recovery of excess money paid, even under a new contract, as the result of a threat to break an earlier contract, since the threat or compulsion would be applied to the original contractual right of the party subject to the com pulsion or economic duress. This also seems to be the view in the United States, where this was one of the grounds of decision in King Construction Co. v. W. M. Smith Electric Co. (1961) 350 SW 2d 940. This view also accords with what was said in D. (S C. Builders Ltd v. Rm [1966) 2 Q!3 617, 625, per Lord Denning MR: ‘No person can insist on a settlement procured by intimidation.’
I may here usefully cite a further short passage from the valuable remarks of Kerr J in The Siboen and The Sibotre [1976) 1 Lloyd’s Rep. 293, 336, where, after referring to three of the Australian cases I have cited, he said:
‘It is true that in [D (SC Builders Ltd v. Rees], and in all the three Australian cases, it was held that there had been no consideration for the settlement which the courts reopened. But I do not think that it would have made any difference if the defendants in these cases had also insisted on some purely nominal but legally sufficient consideration. If the con tract is void the consideration would be recoverable in quasi-contract; if it is voidable equity could rescind the contract and order the return of the consideration.’
It is also interesting at this point to quote a few sentences from an article entitled ‘Duress As A Vitiating Factor in Contract’ by Mr Beatson, Fellow of Merton College, Oxford in (1974) 33 Cambridge Law Journal 97, 108:
‘It is submitted that there is no reason for making a distinction between actual payments and agreements to pay. If that is so there is nothing to prevent a court from finding that duress of goods is a ground upon which the validity of a contract can be impeached … The law was accurately stated by the courts of South Carolina as early as 1795, when it was said that ” whenever assumpsit will lie for money extorted by duress of goods, a party may defend himself against any claim upon him for money to be paid in consequence of any contract made under similar circumstances.”‘
Before proceeding further it may be useful to summarise the conclusions I have so far reached. First, I do not take the view that the recovery of money paid under duress other than to the person is necessarily limited to duress to goods falling within one of the categories hitherto established by the English cases. I would respectfully follow and adopt the broad statement of principle laid down by Isaacs J cited earlier and frequently quoted and applied in the Australian cases. Secondly, from this it follows that the compulsion may take the form of ‘economic duress’ if the necessary facts are proved. A threat to break a contract may amount to such ‘eco nomic duress.’ Thirdly, if there has been such a form.of duress leading to a contract for con sideration, I think that contract is a voidable one which can be avoided and the excess money paid under it recovered.
I think the facts found in this case do establish that the agreement to increase the price by l 0 per cent reached at the end of June 1973 was caused by what may be called ‘economic duress.’ The Yard were adamant in insisting on the increased price without having any legal justifica tion for so doing and the owners realised that the Yard would not accept anything other than an unqualified agreement to the increase. The owners might have claimed damages in arbitra tion against the Yard with all the inherent unavoidable uncertainties of litigation, but in view of the position of the Yard vis-a-vis their relations with Shell it would be unreasonable to hold that this is the course they should have taken: see Astley v. Reynolds (1731) 2 Str. 91S. The own ers made a very reasonable offer of arbitration coupled with security for any award in the Yard’s favour that might be made, but this was refused. They then made their agreement, which can truly I think be said to have been made under compulsion, by the telex of June 28 without prejudice to their rights. I do not consider the Yard’s ignorance of the Shell charter material. It may well be that had they known of it they would have been even more exigent.
If I am right in the conclusion reached with some doubt earlier that there was consideration for the 10 per cent increase agreement reached at the end of June 1973, and it be right to regard this as having been reached under a kind of duress in the form of economic pressure, then what is said in Chitty on Contracts, 24th edn. (1977), vol. 1, para. 442, to which both counsel referred me, is relevant, namely, that a contract entered into under duress is voidable and not void:
‘… consequently a person who has entered into a contract under duress, may either affirm or avoid such contract after the duress has ceased; and ifhe has so voluntarily acted under it with a full knowledge of all the circumstances he may be held bound on the ground of ratification, or if, after escaping from the duress, he takes no steps to set aside the trans action, he may be found to have affirmed it.’
On appeal in Ormes v. Reade/, 2 De GF & J 333 and in Kerr J’s case [1976] 1 Lloyd’s Rep. 293 there was on the facts action held to amount to affirmation or acquiescence in the form of tak ing part in an arbitration pursuant to the impugned agreement. There is nothing comparable to such action here.
On the other hand, the findings of fact in the special case present difficulties whether one is proceeding on the basis of a voidable agreement reached at the end of June 1973, or whether such agreement was void for want of consideration, and it were necessary in consequence to establish that the payments wer!! made involuntarily and not with the intention of closing the transaction.
I have already stated that no protest of any kind was made by the owners after their telex of June 28, 1973, before their claim in this arbitration on July 30, 1975, shortly after in July of that year the Atlantic Baroness, a sister ship of the Atlantic Baron, had been tendered, though, as I understand it, she was not accepted and arbitration proceedings in regard to her are in con sequence taking place. There was therefore a delay between November 27, 1974, when the Atlantic Baron was delivered and July 30, 1975, before the owners put forward their claim.
The owners were, therefore, free from the duress on November 27, 1974, and took no action by way of protest or otherwise between their important telex of June 28, 1973, and their formal claim for the return of the excess 10 per cent paid of July 30, 1975, when they nominated their arbitrator. One cannot dismiss this delay as of no significance, though I would not consider it conclusive by itself. I do not attach any special importance to the lack of protest made at the time of the assignment, since the documents made no reference to the increased 10 per cent. However, by the time the Atlantic Baron was due for delivery in November 1974, market con ditions had changed radically, as is found in paragraph 39 of the special case and the owners must have been aware of this. The special case finds in paragraph 40, as stated earlier, that the owners did not believe that if they made any protest in the protocol of delivery and acceptance that the Yard would have refused to deliver the vessel or the Atlantic Baroness and had no reason so to believe. Mr Longmore naturally stressed that in the rather carefully expressed findings in paragraphs 39 to 44 of the special case, there is no finding that if at the time of the final pay ments the owners had withheld payment of the additional 10 per cent the Yard would not have delivered the vessel. However, after careful consideration, I have come to the conclusion that the important points here are that since there was no danger at this time in registering a protest, the final payments were made without any qualification and were followed by a delay until July 31, 1975, before the owners put forward their claim, the correct inference to draw, taking an objective view of the facts, is that the action and inaction of the owners can only be regarded as an affirmation of the variation in June 1973 of the terms of the original contract by the agree ment to pay the additional 10 per cent. In reaching this conclusion I have not, of course, over looked the findings in paragraph 45 of the special case, but I do not think that an intention on the part of the owners not to affirm the agreement for the extra payments not indicated to the Yard can avail them in their view of their overt acts. As was said in Deacon v. Transport Regulation Board [1958] VR 458,460 in considering whether a payment was made voluntarily or not: ‘No secret mental reservation of the doer is material. The question is-what would hit conduct indicate to a reasonable man as his mental state.’ I think this test is equally applicable to the decision this court has to make whether a voidable contract has been affirmed or not, and I have applied this test in reaching the conclusion I have just expressed.
I think I should add very shortly that having considered the many authorities cited, even if
I had come to a different conclusion on the issue about consideration, I would have come to the same decision adverse to the owners on the question whether the payments were made volun tarily in the sense of being made to close the transaction.
Pao On v. Lau Yiu Long
[1980] AC 614,
Lord Scarman
The American Law Institute in its Restatement of the Law, Contracts, Chapter 3, section 84(d), has declared that performance (or promise of performance) of a contractual duty owed to a third person is sufficient consideration. This view (which accords with the statement of our Jaw in New Zealand Shipping Co. Ltd v. A. M. Satterthwaite (S Co. Ltd [1975) AC 154) appears to be generally accepted but only in cases where there is no suggestion of unfair economic pres sure exerted to induce the making of what Corbin on Contracts calls ‘the return promise.’
Their Lordships’ knowledge of this developing branch of American law is necessarily lim ited. In their judgment it wmdd be carrying audacity to the point of foolhardiness for them to attempt to extract from the American case law a principle to provide an answer to the question now under consideration. That question, their Lordships repeat is whether, in a case where duress is not established, public policy may nevertheless invalidate the consideration if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a domi nating bargaining position. Their Lordships’ conclusion is that where businessmen are negoti ating at arm’s length it is unnecessary for the achievement of justice, and unhelpful in the development of the law, to invoke such a rule of public policy. It would also create unaccept able anomaly. It is unnecessary because justice requires that men, who have negotiated at arm’s length, be held to their bargains unless it can be shown that their consent was vitiated by fraud, mistake or duress. If a promise is induced by coercion of a man’s will, the doctrine of duress suffices to do justice. The party coerced, if he chooses and acts in time, can avoid the contract, If there is no coercion, there.can be no reason for avoiding the contract where there is shown to be a real consideration which is otherwise legal. Such a rule of public policy as is now being considered would be unhelpful because it would render the law uncertain. It would become a question of fact and degree to determine in each case whether there had been, short of duress, an unfair use of a strong bargaining position would create anomaly because, if public policy invalidates the consideration, the effect is to make the contract void. But unless the facts are such as to support a plea of ‘non est factum,’ which is not suggested in this case, duress does no more than confer upon the victim the oppor tunity, if taken in time, to avoid the contract. It would be strange if conduct less than duress could render a contract void, whereas duress does no more than render a contract voidable.
Indeed, it is the defendants’ case in this appeal that such an anomaly is the correct result. Their case is that the plaintiffs, having lost by cancellation the safeguard of the subsidiary agreement, are without the safeguard of the guarantee because its consideration is contrary to public pol icy, and that they are debarred from restoration to their position under the subsidiary agree ment because the guarantee is void, not voidable. The logical consequence of Mr Leggatt’s submission is that the safeguard which all were at all times agreed the plaintiffs should have- the safeguard against fall in value of the shares-has been lost by the application ofa rule of public policy. The law is not, in their Lordships’ judgment, reduced to countenancing such starkinjustice: nor is it necessary, when one bears in mind the protection offered otherwise by the law to one who contracts in ignorance of what he is doing or under duress. Accordingly, the
submission that the additional consideration established by the extrinsic evidence is invalid on the ground of public policy is rejected.
The third question
Duress, whatever form it takes, is a’coercion of the will so as to vitiate consent. Their Lordships agree with the observation of J(err J in Occidental Worldwide Investment Corporation v. Sleibs Al S Avanti [1976] 1 Lloyd’s Rep. 293, 336 that in a contractual situation commercial pressure is not enough. There must be present some factor ‘which could in law be regarded as a coercion of his will so as to vitiate his consent.’ This conception is in line with what was said in this Board’s decision in Barton v. Armstrong [1976] AC 104, 121 by Lord Wilberforce and Lord Simon of Glaisdale-observations with which the majority judgment appears to be in agreement. In determining whether there was a coercion of will such that there was no true consent , it is material to inquire 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. All these matters are, as was recognised in Mas/eel/ v. Horner [1915] 3 KB 106, relevant in determining whether he acted voluntarily or not.
In the present case there is unanimity amongst the judges below that there was no coercion of the first defendant’s will. In the Court of Appeal the trial judge’s finding … that the first defendant considered the matter thoroughly, chose to avoid litigation, and formed the opinion that the risk in giving the guarantee was more apparent than real was upheld. In short, there was commercial pressure, but no coercion. Even if this Board was disposed, which it is not, to takea different view, it would not substitute its opinion for that of the judges below on this question of fact.
It is, therefore, unnecessary for the Board to embark upon an inquiry into the question whether English law recognises a category of duress known as ‘economic duress.’ But, since the question has been fully argued in this appeal, their Lordships will indicate very briefly the view which they have formed. At common law money paid under economic compulsion could be recovered in an action for money had and received: Astley v. Reynolds (1731) 2 Str. 915. The compulsion had to be such that the party was deprived of ‘his freedom of exercising his will’ (see916). It is doubtful, however, whether at common Jaw any duress other than duress to the person sufficed to render a contract voidable: see Blackstone’s Commentaries, Book I, 12th edn.
130-1 and Skeate v. Beale (1841) 11 Ad. & E 983. American law (Williston on Contracts, 3rd I edn.) now recognises that a contract may be avoided on the ground of economic duress. The commercial pressure alleged to constitute such duress must, however, be such that the victim must have entered the contract against his will, must have had no alternative course open to him, and must have been confronted with coercive acts by the party exerting the pl’CIIUre: Williston on Contracts, 3rd edn., vol. 13 (1970), section 1603. American judges pay great atten tion to such evidential matters as the effectiveness of the alternative remedy available, the fact or absence of protest, the availability of independent advice, the benefit received, and the speed with which the victim has sought to avoid the contract. Recently two English judges have recog nised that commercial pressure may constitute duress the pressure of which can render a con
tract voidable: Kerr J in Occidental Worldwide Investment Corporation v. Skibs Al S Avanti [1976] I Lloyd’s Rep. 293 and Mocatta J in North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd [1979] QJJ 705. Both stressed that the pressure must be such that the victim’s consent to the contract was not a voluntary act on his part. In their Lordships’ view, there is nothing contrary to principle in recognising economic duress as a factor which may render a contract voidable, provided always that the basis of such recognition is that it must amount to a coercion of will, which vitiates consent. It must be shown that the payment made or the con tract entered into was not a voluntary act.
Universe Tankships of Monrovia v. International Transport Workers Federation
[1983] I AC 366, &use of Lords
Lord Diplock: … My Lords, I turn to the second ground on which repayment of the $6,480 is claimed, which I will call the duress point. It is not disputed that the circumstances in which ITF demanded that the shipowners should enter into the special agreement and the typescript agreement and should pay the moneys of which the latter documents acknowledge receipt, amounted to economic duress upon the shipowners; that is to say, it is conceded that the finan cial consequences to the shipowners of the Universe Sentinel continuing to be rendered off-hire under her time charter to Texaco, while the blacking continued, were so catastrophic as to amount toa coercion of the shipowners’ will which vitiated their consent to those agreements and to the payments made by them to ITF. This concession makes it unnecessary for your Lordships to use the instant appeal as the occasion for a general consideration of the develop ing law of economic duress as a ground for treating contracts as voidable and obtaining restitu tion of money paid under economic duress as money had and received to the plaintiffs’ use. That economic duress may constitute a ground for such redress was recognised, albeit obiter, by the Privy Council in Pao On v. Lau Yiu Long [1980] AC 614. The Board in that case referred with approval to two judgments at first instance in the commercial court which recognised that commercial pressure may constitute duress: one by Kerr J in Occidental Worldwide /nv,stmtnl Corporation v. Skibs Al S Avanti [1976] I Lloyd’s Rep. 293, the other by Mocatta J in North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd [1979] ® 705, which traces the devel
opment of this branch of the law from its origin in the eighteenth and early nineteenth-century cases.
It is, however, in my view crucial to the decision of the instant appeal to identify the rationale of this development of the common law. It is not that the party seeking to avoid the con tract which he has entered into with another party, or to recover money that he has paid to another party in response to a demand, did not know the nature or the precise terms of the con tract at the time when he entered into it or did not understand the purpose for which the pay ment was demanded. The rationale is that his apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind. It is a ratio nale similar to that which underlies the avoidability of contracts entered into and the recovery of money exacted under colour of office, or under undue influence or in consequence of threats of physical duress.
Commercial pressure, in some degree, exists wherever one party to a commercial transaction is in a stronger bargaining position than the other party. It is not, however, in my view, neces sary, nor would it be appropriate in the instant appeal, to enter into the general question of the kinds of circumstances, if any, in which commercial pressure, even though it amounts to a coer cion of the will of a party in the weaker bargaining position, may be treated as legitimate and, accordingly, as not giving rise to any legal right of redress. In the instant appeal the economic duress complained of was exercised in the field of industrial relations to which very special con siderations apply.
My Lords, so far as is relevant to this appeal, the policy of Parliament, ever since the Trade Disputes Act 1906 was passed to overrule a decision of this House, has been to legitimise acts done by employees, or by trade unions acting or purporting to act on their behalf, which would otherwise be unlawful wherever such acts are done in contemplation or furtherance of a dispute which is connected with the terms and conditions of employment of any employees. I can con fine myself to the kind of acts and the particular subject matter of the trade dispute that was involved in the instant case, and I use the expression ‘legitimise’ as meaning that the doer of the act is rendered immune from any liability to damages or any other remedy against him in a court of justice, at the suit of a person who has suffered loss or damage in consequence of the act; save only a remedy for breach of contract where the act is done in breach of a direct contract between the doer of the act and the person by whom the damage is sustained.
The statutory provisions in force when the events with which this appeal is concerned took place, and which point to the public policy to which effect ought to be given by your Lordships, are chiefly contained in sections 13, 14 and 29 of the Trade Union and Labour Relations Act 1974. The legislative history of these sections is referred to in the recent decision of this House in Hadmor Productions Ltd v. Hamilton [1982] 2 WLR 322. In terms they are confined to bestowing immunity from liability in tort; they do not deal with immunity in any other type of action. In the case of a trade union such immunity is extended by section 14 to virtually all torts; in the case of individuals, it is extended by section 13 to defined classes of torts (which would include the blacking of the Universe Sentinel) which are limited, not only in their nature, but also by the requirement that what would otherwise be the tortious act must be committed In contemplation or furtherance of a trade dispute as defined in section 29.
The use of economic duress to induce another person to part with property or money is not
a tort per se; the form that the duress takes may, or may not, be tortious. The remedy to whlc:h economic duress gives rise is not an action for damages but an action for restitution of property or money exacted under such duress and the avoidance of any contract that had been induced by it; but where the particular form taken by the economic duress used is itself atort, the resti tutionalremedy for money had and received by the defendant to the plaintiff’s use is one which the plaintiff is entitled to pursue as an alternative remedy to an action for damages intort.
Inextending into the field of industrial relations the common law concept of economic duress and the right to a restitutionary remedy for it which is currently in process of development by judicial decisions, this House would not, in my view, be exercising the restraint thatis appro priate tosuch a process if it were so to develop the concept that, by the simple expedient of ‘waiving the tort,’ a restitutionary remedy for money had and received is made enforceable in cases in which Parliament has, over so long a period of years, manifested its preference fora public policy that a particular kind of tortious act should be legitimised in the sense thatI am using that expression.
It isonly in this indirect way that the provisions of the Trade Union and Labour Relations Act 1974 are relevant to the duress point. The immunities from liability in tort provided by sec tions 13 and 14 are not directly applicable to the shipowners’ cause of action for money had and received.Nevertheless, these sections, together with the definition of trade dispute in section 29, afford anindication, which your Lordships should respect, of where public policy requires that the line should be drawn between what kind of commercial pressure by a trade union upon an employer in the field of industrial relatjons ought to be treated as legitimised despite the fact that the will of the employer is thereby coerced, and what kind of commercial pressure in that
fielddoes amount to economic duress that entitles the employer victim to restitutionary reme dies.
My Lords, ITF does not suggest that the immunity from suit in most kinds of tort conferred upon trade unions by section 14 whether or not they are committed in contemplation or fur therance of a trade dispute, point to a public policy that trade unions should be immune from a restitutionary action for money had and received. Such a suggestion would not be sustainable. If Parliament had intended to give to trade unions, simply because they are tradeunions,a widerimmunity from suit than that for which section 14 provides, it would have doneso. What
ITF relies upon is the immunity from actions for particular kinds of tort given by section 13 to every person, whether a trade union or not.
Toqualify forimmunity under section 13, an act, which would otherwise be actionable in tort, must be done in contemplation or in furtherance of a trade dispute; and fora dispute to qualifyasa trade dispute within the meaning of section 29(1), it must be a dispute which is con nected with one or more of a number of subject matters, of which the only one relied on by ITF in this appealis: ‘terms and conditions of employment’ of the crew of the Universe Sentinel. [His Lordshipproceeded to consider whether the demand was connected with the crew’s terms andcondi tions of employment and concluded:] But what I regard as fatal to the contention that the demand for contributions to the welfare fund was connected with terms and conditions of employment is that there is nothing whatever to suggest the entitlement of a member of the crew of the UniverseSentinel to take advantage of any benefits that might be provided for out of the fund would be inany way dependent upon the existence or non-existence of a relationship of employee and employer between the crew member and the shipowners….
Lord Scarman (dissenting): It is, I think, already established law that economic pressure can in law amount toduress; and that duress, if proved, not only renders voidable a transaction into whicha person has entered under its compulsion but is actionable as a tort, if it causes damage or loss: Barton v. Armstrong [1976) AC 104 and Pao On v. Lau Yiu Long [1980) AC614. The authorities upon which these two cases were based reveal two elements in the wrong ofduress:
(I) pressure amounting to compulsion of the will of the victim; and (2) the illegitimacy of the pressureexerted. There must be pressure, the practical effect of which is compulsion or the absence of choice. Compulsion is variously described in the authorities as coercion or the viti ation of consent. The classic case of duress is, however, not the lack of will to submit but the victim’s intentional submission arising from the realisation that there is no other practical choice open to him. This is the thread of principle which links the early law of durea (threat to life or limb) with later developments when the law came also to recognise as duress first the threat to property and now the threat to a man’s business or trade. The development is well traced in Goff and Jones, The Law of Restitution, 2nd edn. (1978), chapter 9.
The absence of choice can be proved in various ways, e.g. by protest, by the absence of independent advice, or by a declaration of intention to go to law to recover the money paid or the property transferred: see Maskell v. Horner [1915) 3 KB 106. But none of these evidential matters goes to the essence of duress. The victim’s silence will not assist the bully, if the lack of any practicable choice but to submit is proved. The present case is an excellent illustration. There was no protest at the time, but only a determination to do whatever was needed as rapidly as possible to release the ship. Yet nobody challenges the judge’s finding that the owner acted under compulsion. He put it thus [1981) /CR 129, 143:
‘It was a matter of the most urgent commercial necessity that the plaintiffs should regain the use of their vessel. They were advised that the prospects of obtaining an injunction were minimal, the vessel would not have been released unless the payment was made, and they sought recovery of the money with sufficient speed once the duress had terminated.’
The real issue in the appeal is, therefore, as to the second element in the wrong duress: was the pressure applied by the ITF in the circumstances of this case one which the law recognises as legitimate? For, as Lord Wilberforce and Lord Simon of Glaisdale said in Barton v. Armstrong [1976) AC 104, 1210: ‘the pressure must be one of a kind which the law does not regard as legitimate.’
As the two noble and learned Lords remarked at 121D, in life, including the life of commerce and finance, many acts are done ‘under pressure, sometimes overwhelming pressure’: but they are not necessarily done under duress. That depends on whether the circumstances are such that the law regards the pressure as legitimate.
In determining what is legitimate two matters may have to be considered. The first is as to the nature of the pressure. In many cases this will be decisive, though not in every case. And so the second question may have to be considered, namely, the nature of the demand which the pressure is applied to support.
The origin of the doctrine of duress in threats to life or limb, or to property, suggests strongly that the law regards the threat of unlawful action as illegitimate, whatever the demand. Duress can, of course, exist even if the threat is one of lawful action: whether it does so depends upon the nature of the demand. Blackmail is often a demand supported by a threat to do what is law ful, e.g. to report criminal conduct to the police. In many cases, therefore, ‘What [one] has to justify is not the threat, but the demand ‘:see per Lord Atkin in Thorne v. Motor Trade
Association [1937) AC 797, 806.
The present is a case in which the nature of the demand determines whether the pressure threatened or applied, i.e. the blacking, was lawful or unlawful. If it was unlawful, it is conceded that the owner acted under duress and can recover. if it was lawful, it is conceded that there was no duress and the sum sought by the owner is irrecoverable. The lawfulness or otherwise of the demand depends upon whether it was an act done in contemplation or furtherance of a trade dispute. If it was, it would not be actionable in tort: section 13(1) of the Act. Although no question of tortious liability arises in this case and section 13(1) is not, therefore, directly in point, it is not possible, in my view, to say of acts which are protected by statute from suit in tort that they nevertheless can amount to duress. Parliament having enacted that such acts are not actionable in tort, it would be inconsistent with legislative policy to say that, when the rem edy sought is not damages for tort but recovery of money paid, they become unlawful.
In order to determine whether the making of the demand was an act done in contemplation or furtherance of a trade dispute, it is necessary to refer to section 29 which sets out the SUN ory meaning of ‘trade dispute.’
The issue therefore is reduced to the one question. Was the demand for contributlonal welfare fund connected with one or more of the matters specified in section 29 of the Act? It is common ground that unless the demand was connected with ‘terms and conditions of employ ment’ it was not within the section. [After examining the relevant provisions he concluded that the demand was related to the terms and conditions of employment and so was a legitimate exercise of pres sure and did not constitute duress.
B & S Contracts and Design Ltd v. Victor Green Publications Ltd
[1984] ICR 419,
Eveleigh LJ: Thmeatters that have to be established in order to substantiate a claim for
the return of money on the ground that it was paid under duress have been stated in a number of different way . We have been referred to a number of cases and indeed we have been taken through the history of the common law on duress, so thoroughly set out in the judgment of MocattaJ in North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd [1979] QJ3 705. It is not necessary to consider these cases: for the purpose of my judgment all I require to read is a passage from the speech of Lord Diplock in Universe Tankships Inc. of Monrovia v. International Transport Workers Federation (1982] ICR 262. He said, referring to the law on duress, at 272-3:
‘The rationale is that his apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by impli cation after the illegitimate pressure has ceased to operate on his mind. It is a rationale sim ilar to that which underlies the avoidability of contracts entered into and the recovery of money exacted under colour of office, or under undue influence or in consequence of threats of physical duress.’
It is not necessary to consider precisely the meaning of the word ‘legitimate’ in that context. For the purpose of this case it is sufficient to say that if the claimant has been influenced against his will to pay money under the threat of unlawful damage to his economic interest he will be entitled to claim that money back, and as I understand it that proposition was not dissented from.
In this case the plaintiffs say that there was no threat; that Mr Fenech was really stating the obvious, stating the factual situation, namely, that unless they could retain the workforce they would be unable to perform their contract. I have had some difficulty in deciding whether or not the evidence in this case did disclose a threat, but on a full reading of the evidence of Mr Fenech and Mr Barnes and the cross-examination of Mr Fenech I have come to the conclusion that the judge was right in the way in which he put it. There was here, as I understand the evi dence, a veiled threat although there was no specific demand, and this conclusion is very much
supported, as I see it, by Mr Barnes’s reaction which must have been apparent to Mr Fenech
when Mr Barnes said, ‘You have got me over a barrel.’ On 18 April what was happening wu this. Mr Fenech was in effect saying, ‘We are not going on unless you are prepared to pay another £4,500 in addition to the contract price,’ and it was clear at that stage that there wu no other way for Mr Barnes to avoid the consequences that would ensue if the exhibition could not be held from his stands than by paying the £4,500 to secure the workforce. But, the plalnti«. now say, ‘Even so, this was not an unlawful threat or a threat of unlawful action becauae Nein that there was a strike the strike clause–the force majeure clause–applied and the plain were entitled to take advantage of that clause and to cancel the contract, and so there was no threat of unlawful action.’ [he considered the force majeure clause and concluded that it did not apply to the present facts] …
Griffiths LJ: I agree. The law on economic pressure creating a situation which will be recog nised as duress is in the course of development, and it is clear that many difficult decisions lie ahead of the courts. Many commercial contracts are varied during their currency because the parties are faced with changing circumstances during the performance of the contract, and it is certainly not on every occasion when one of the parties unwillingly agrees to a variation that the law would consider that he had acted by reason of duress. The cases will have to be examined in the light of their particular circumstances. But two recent decisions of the highest author ity-the decision of the Privy Council in Pao On v. Lau Yiu Long [1980] AC 614 and Universe Tankships Inc. of Monrovia v. International Transport Workers Federation [1982] ICR 262- establish that a threatened breach of contract may impose such economic pressure that the law will recognise that a payment made as a result of the threatened breach is recoverable on the grounds of duress.
The facts of this case appear to me to be as follows. The plaintiffs intended to break their contract, subject to the effect of the force majeure clause, by allowing their workforce to walk off the job in circumstances in which they could not possibly replace it with another workforce. I
The defendants offered to advance the 1um of £4,500 on the contract price, which would have enabled the plaintiffs to pay the men a sufficient extra sum of money to induce them to remain on the job. The plaintiffs refused this sum of money. There is no question that they refused to pay as a matter of principle. They refused to pay because they did not want to reduce the sum they would receive for the contract. They said to the defendants, ‘If you will give us £4,500 we will complete the contract.’ The defendants, faced with this demand, were in an impossible position. If they refused to hand over the sum of £4,500 they would not be able to erect the stands in this part of the exhibition, which would have clearly caused grave damage to their rep utation and I would have thought might have exposed them to very heavy claims from the exhibitors who had leased space from them and hoped to use those stands in the ensuing exhi bition. They seem to me to have been placed in the position envisaged by Lord Scarman in the Privy Council decision, Pao On v. Lau Yiu Long [1980] AC 614, in which they were faced with no alternative course of action but to pay the sum demanded of them. It was submitted to us that there was no overt demand, but it was implicit in negotiations between the parties that the plaintiffs were putting the defendants into a corner and it was quite apparent to the defendants, by reason of the plaintiffs’ conduct, that unless they handed over £4,500 the plaintiffs would walk off the job. This is, in my view, a situation in which the judge was fully entitled to find in the circumstances of this case that there was duress. As the defendants’ director said, he was over a barrel, he had no alternative but to pay; he had no chance of going to any other source oflabour to erect the stands. That being so, the only fall-back position for the plaintiffs was the force majeure clause. Clauses of this kind have to be construed upon the basis that those rely ing on them will have taken all reasonable efforts to avoid the effect of the various matters set out in the clause which entitle them to vary or cancel the contract: see Bulman (S Dickson v. Fenwick (S Co. [1894] l ® 179, in the speech of Lord Esher MR at 185. Qµite apart from that general principle this particular clause starts with the following wording: ‘Every effort will be made to carry out any contract based on an estimate,’ which is saying in express terms that which the law will imply when construing such a clause.
There is no doubt that the plaintiffs were faced with a strike situation and the question is, did they behave reasonably when faced with this situation? I, like Eveleigh LJ, am far from say ing that whenever a contracting party with such a clause is faced with a strike situation he must give in to it in order to perform his contract. If that were the situation the clause would be absolutely worthless. But the special circumstances of this case, as I see it, are as follows. The plaintiffs were going to close down their subsidiary company; they had already dismissed the workforce and the men were working out their time. There is no question here of any ongoing industrial situation between the plaintiffs’ subsidiary company and the workforce.Therewu no question of principle at stake; the plaintiffs were perfectly prepared to pay what themen were demanding save for the fact, they said, they did not have the money available. Well, then there came the offer of the defendants to make the money available by giving them anadvance. In those circumstances I can see no reason why they should not have accepted the money and paid the workforce save their own immediate economic interests, and they chose not to do that but to put pressure on the defendants by refusing the offer and indicating that the only way out was for the defendants to hand over the £4,500 as a gift rather than as an advance.
I think that was thoroughly unreasonable behaviour, and that being so they are not entitled to rely upon the force majeure clause, and for these reasons I agree this appeal fails.
Kerr LJ: …
Turning to the other half of the case, what is the position if the force majeure clause is left out of account? On that basis the plaintiffs were clearly saying in effect,’This contract will not be performed by us unless you pay an additional sum of £4,500.’ This faced the defendants with a disastrous situation in which there was no way out for them, and in the face of thisthreatwhich is what it was-they paid the £4,500. In the light of the authorities it is perhaps import ant to emphasise that there is no question in this case of the defendants having subsequently approbated this payment or failed to seek to avoid it, which in some cases (such as the North Ocean Shipping Co. Ltd v. Hyundai Construction Co. Ltd [1979] ® 705a, decision of Mocatta J, to which Eveleigh LJ has referred) would be fatal. In the present case the defendants took immediate action by deducting that £4,500 from the invoiceprice.
I also bear in mind that a threat to break a contract unless money is paid by the other party can, but by no means always will, constitute duress. It appears from the authorities that it will only constitute duress if the consequences of a refusal would be serious and immediate so that there is no reasonable alternative open, such as by legal redress, obtaining an injunction,etc.I think that this is implicit in the authorities to which we have been referred, of which the most recent one is Universe Tankships Inc. of Monrovia v. International Transport Workers Federation [1982] ICR262.I would only refer to one passage from the speech of Lord Scarman, not because he states anything that differs from what was stated elsewhere, but becauseI wonder whether this passage may not contain a typographical error. Lord Scarman is reported at 288-9
as having said–and it applies to the facts of this case:
‘The classic case of duress is, however, not the lack of will to submit but the victim’s inten tional submission arising from the realisation that there is no other practical choice open
to him.’
I wonder whether ‘the lack of will to submit’ should not have been ‘the lack of will to resist’ or ‘the lack of will in submitting.’ However that may be, there was no other practical choice open to the defendants in the present case, and accordingly I agree that this isa case where money has been paid under duress, which was accordingly recoverable by the defendants provided they actedpromptly as they did, and which they have recovered by deducting it from the contract price. In these circumstances the plaintiffs’ claim for this additional sum must fail.
Dimskal Shipping Co. SA v. International Transport Workers’ Federation
[1992] 2 AC 152, House of Lords
Lord Goff of Chieveley: In the present action, the owners claimed declarations that they had lawfully avoided all the above contracts on the ground of duress, including the contracts with the ITF and the contracts with the Filipino seamen. They claimed restitution in respect of the payments made to the ITF, including the backdated wages for the Filipino seamen, and the entrance fees, membership fees and welfare fund contributions; these sums were claimed as having been paid under duress. They also claimed the total sum ofU.S.$140,067.31 as dam ages in tort, the torts relied on being intimidation and interference with contractual rights. It was agreed between the parties that (l) the agreement for payment was governed by English law as its proper law; (2) the contractual documents concluded between the parties were gov erned by English law as their proper law; (3) the question whether the agreement for payment and the contractual documents had been avoided for duress fell to be determined according to English law; and (4) the question whether the owners were entitled to restitution of the moneys paid fell to be determined according to English law. The agreement between the partie■did not extend to the proper law of the new contracts of employment of the Filipino seamen. Phillips J held that this was Philippine law, as the system oflaw with which thoae contract had their closest connection. The judge decided however that he should not make any declarations in respect of those contracts, since the crew members were not before the court.
It isa crucial feature of the present case that, on the findings of the judge, the pressure exerted by the ITF upon the owners at Uddevalla, although by English law it amounted to eco nomic duress which was not at the relevant time legitimised by any applicable statutory provi sion in this country, was lawful under Swedish domestic law. On that basis, the judge dismissed the owners’ claim in tort, because the acts committed by the ITF in Sweden were not action able by the law of that country. That claim was not pursued by the owners in the Court of Appeal. Accordingly the Court of Appeal, like your Lordships’ House, was concerned only with the owners’ claim so far as it related to avoidance of the relevant contract and recovery in resti tution of the money paid thereunder to the ITF. It appears to have been common ground between the parties that under English law the pressure exerted by the ITF which induced the owners to enter into the contract under which they made the payments to the ITF would amount to duress unless such pressure was legitimised under the relevant system of law. The point at issue between the parties related to the identity of the legal system by reference to which the question whether such pressure had been so legitimised had to be answered. For the owners, it was submitted that it had to be answered by reference to English law as the proper law of the contract, which at the relevant time did not legitimise such action. For the ITF, on the other hand, it was submitted that th’e relevant system oflaw was Swedish law, as the law of the country where the pressure was exc;rted; and, as I have recorded, at the relevant time such pressure was lawful by Swedish law.
. Heconsidered that there were three options open to the court. These were (1) to consider whether the action was legitimate according to English law without reference to the English statutes which govern industrial relations; (2) to consider whether the action would ha’,(e been legitimate if it had taken place in England under the regime of those English statutes; or (3) to consider whether the action was legitimate accord ing to the law of the country where the action took place. The first option he rejected as unre alistic, and productive of uncertainty and injustice. The second he dismissed because he considered that it would be ludicrous to apply English labour law in order to judge the legiti macy of industrial action taken in a foreign jurisdiction. The third option commended itself to him not merely by default of the other two. He said (1989) 1 Lloyd’s Rep. 166, 180:
‘Mr Burton submitted that a man ought to be able safely to regulate his conduct by com plying with the laws of the country in which he finds himself. The attraction of this pro position is self-evident. Furthermore the third option is consonant with the approach of English law to liability in tort. A defendant will not be subject to liability in respect of con duct that is tortious at English law if the conduct was not actionable in the country where it took place. It seems to me that the policy underlying this rule should, a fortiori, protect a defendant from a claim to restitution when the conduct alleged to give rise to that claim was lawful in the country where it took place.’
On this basis, he dismissed the owners’ claims. In the Court of Appeal (1990) ICR 694, how ever, only Neill LJ, who considered that in this particular branch of the law the concept of economic duress must take account of the local law of the place where the activities in question occurred, agreed with Phillips J. The majority (McCowan LJ and Sir Roger Ormrod) accepted
the submission of the owners, and held that the question must be answered by reference to Englishlaw. The Court of Appeal accordingly allowed the appeal of the owners, and made the order asked for by them in respect of the avoidance of the contracts and recovery of the money paid by them to the ITF. It is against that decision that the ITF now appeals to your Lordships’ House.
It was common ground between the parties before your Lordships that the money in respect of which the owners claimed restitution was paid to the ITF under a contract, albeit a contract which the owners claim to have been voidable by them, and indeed to have been avoided by them, on the ground of duress. It follows that, before the owners could establish any n,ht &o recover the money, they had first to avoid the relevant contract. Until this was done, the money in question was paid under a binding contract and so was irrecoverable in restitution. But once the contract was avoided, the money paid under it was recoverable in restitution, on the ground either of duress or possibly of failure of consideration. It was not, in my opinion, necessary for the owners, even if the duress relied upon by them was in fact tortious, to base their claim on waiver of tort (see the note by Ewan McKendrick in [1990) ILJ 195), nor have they done so. The present case is, however, concerned with the anterior question whether the pressure exerted by the ITF constituted duress enabling the owners to avoid the contract on that ground, as they claim to have been entitled to do.
We are here concerned with a case of economic duress. It was at one time thought that, at common law, the only form of duress which would entitle a party to avoid a contract on that ground was duress of the person. The origin for this view lay in the decision of the Court of Exchequer in Skeate v. Beale (1841) 11 Ad. & El. 983. However, since the decisions of Kerr J in Occidental Worldwide Investment Corporation v. Skibs Al S Avanti (The Siboen and The Sibotre) [1976) 1 Lloyd’s Rep. 293, ofMocattaJ in North Ocean Shipping Co. Ltdv. Hyundai Construction Co. Ltd [1979) QB 705, and of the Judicial Committee of the Privy Council in Pao On v. Lau Yiu Long (1980) AC 614, that limitation has been discarded; and it is now accepted that economic pressure may be sufficient to amount to duress for this purpose, provided at least that the economic pressure may be characterised as illegitimate and has constituted a significant cause inducing the plaintiff to enter into the relevant contract (see Barton v. Armstrong [1976) AC 104, 121, per Lord Wilberforce and Lord Simon of Glaisdale (referred to with approval in Pao On v. Lau Yiu Long [1980) AC 614, 635, per Lord Scarman) and Crescendo Management Pty. Ltd v. Westpac Banking Corporation (1988) 19 NSWLR 40, 46,per McHughJA). It is some times suggested that the plaintiff’s will must have been coerced so as to vitiate his consent. This approach has been the subject of criticism; see Beatson, The Use and Abuse of Unjust Enrichment (1991), 113-17; and the notes by Professor Atiyah in (1982) 98 LQR 197-202, and by Professor Birks in (1990) 3 LMCLQ 342-51. I myself, like McHugh JA, doubt whether it is helpful in this context to speak of the plaintiff’s will having been coerced. It is not however necessary to explore the matter in the present case. Nor is it necessary to consider the broader question of what constitutes illegitimate economic pressure, for it is accepted that blacking or a threat of blacking, such as occurred in the present case, does constitute illegitimate economic pressure in English law, unless legitimised by statute. The question which has fallen for decision by your Lordships is whether, in considering the question whether the pressure should be treated as legitimised, the English courts should have regard to the law of Sweden (where the relevant pressure WllcS exerted on the owners by the agents of the ITF) under which such pressure was lawful.
The starting point for the consideration of this question is the decision of your Lordships’ House in The Universe Sentinel [1983) I AC 366, and in particular the speech in that case of Lord Diplock, who delivered the leading speech for the majority….
Itis not necessary for present purposes to explore the basis of this decision. It appears to bear some affinity to the principle underlying those cases in which the courts have given effect to the inferred purpose of the legislature by holding a person entitled to sue for damages for breach
of a statutory duty, though no such right of suit has been expressly created by the statute impos ing the duty. It is enough to state that, by parity of reasoning, not only may an action of resti tution be rejected as inconsistent with the policy of a statute such as that under consideration in The Universe Sentinel [1983] 1 AC 366, but in my opinion a claim that a contract is voidable for duress by reason of pressure legitimised by such a statute may likewise be rejected on the
same ground.
It is against the background of that decision that the problem in the present cue fall■&o be considered. However, that problem did not arise in the case of The Universe Sentinel. There,111 relevant events took place within the jurisdiction of the English courts; and by common consent, English law was the only relevant system of law. In the present case, although the pay ments to the ITF were made, as is agreed, under a contract governed by English law, never theless the pressure which induced the [owners] to enter into that contract was effected in Sweden, and by Swedish law such pressure was lawful. And so, as I have said, the question which your Lordships have to consider is whether, and if so to what extent, regard should be had in such circumstances to Swedish law.
I start from the generally accepted proposition, embodied in rule 184 set out in Dicey (5 Morris, The Conflict of Laws, 11th edn. (1987), vol. 2, 1213, that the material or essential valid ity of a contract is governed by the proper law of the contract, which in the present case is English law. Rule 184 is one of a group of rules (rules 181-187) concerned with the scope of application of the proper law of a contract. It is expressed to be subject to two exceptions. The first exception asserts that a contract is generally invalid in so far as its performance is unlaw ful by the law of the place of performance; with that exception we are not, in my opinion, here concerned. The second (which is not strictly an exception to rule 184) concerns the primacy of what used to be called the distinctive policy of English law over any provision of foreign law, in so far as such provision might be relevant to the validity or invalidity of a contract; to that topic, I will briefly return in a moment.
Accordingly in the present case we look to English law, as the proper law, to discover whether the contract may, as a matter of pri iple, be affected by duress and, if so, what constitutes duress for this purpose; what impact such duress must have exercised upon the formation of the contract; and what remedial action is available to the innocent party. We know, of course, that by English law a contract induced by duress is voidable by the innocent party; and that one form of duress is illegitimate economic pressure, including the blacking or the threat of black ing of a ship. I can see no reason in principle why, prima facie at least, blacking or the threat of blacking a ship should not constitute duress for this purpose, wherever it is committed whether within the English jurisdiction or overseas; for in point of fact its impact upon the con tract does not depend upon the place where the relevant conduct occurs.
It follows therefore that, prima facie at least, whether or not economic pressure amounts to duress sufficient to justify avoidance of the relevant contract by the innocent party is a matter for the proper law of the contract, wherever that pressure has been exerted. Here, of course, the proper law is English law. Moreover in the present case there was at the relevant time no applicable statutory provision of English law which required that blacking or the threat of blacking should not be regarded as duress. So, unencumbered by any such provision, we are left simply with an English contract which is voidable by the innocent party if the formation of the contract has been induced by duress in the form of blacking or the threat of blacking aves sel. The question then arises whether there is any basis in law for rejecting this simple approach,
on the ground that the conduct in question was lawful by the law of the place where it occurred, viz. Swedish law.
Before your Lordships, it was the primary submission of Mr Burton on behalf of the ITF that in relation to any duress abroad, in English law the court should, subject to overriding questions of public policy, look to the law of the place of duress to test its lawfulness or legiti macy. I of course accept that, if Mr Burton’s submission is correct, it must be subject to the qualification that, if it was inconsistent with the distinctive policy of English law to treat the rel evant conduct as lawful, the English courts (consistently with the second exception to rule 184 in Dicey (5 Morris, The Conflict of Laws) would refuse to do so. But the question is whether Mr Burton’s submission is correct. I have to say that I know of no authority which supports his
submission which, if correct, would require the recognition and formulation of a fresh excep tion to rule 184 in Dicey (5 Morris.
Before your Lordships, as in the courts below, the ITF relied upon the analogy of tort. Under English law, since the decision of your Lordships’ House in Boys v. Chaplin [1971] AC 356, conduct in a foreign country is only actionable as a tort in this country if it is both so actionable in English law (i.e. would be so actionable if the relevant conduct had occurred in this country), and so actionable by the law of the foreign country where the relevant conduct occurred: see rule 205 of Dicey (5 Morris, vol. 2, 1365 ff. and cases there cited. So, it was sug gested, by parity of reasoning regard should be paid to the law of Sweden in the present case, in order to decide whether the conduct of the ITF constituted duress rendering an English con tract voidable on that ground. I am bound to say however that I do not find the analogy com pelling. In the first place it is not to be forgotten that conduct does not have to be tortious to constitute duress for the purpose of English law; this is so even at common law, and still more so if one has regard to the equitable doctrine of undue influence as an extended form of duress. It is by no means difficult to envisage categories of duress or undue influence which might ren der a contract voidable by English law as the proper law of the contract, but would not do so by the law of some other country where the relevant conduct in fact occurred. It is difficult to see what relevance the analogy of the English rule of the conflict of laws applicable in the case of tort can have to such a case. More fundamentally, however, there is a basic difference between the case of a foreign tort, and a case such as the present. In the case of a foreign tort, not only has the relevant conduct ex hypothesi occurred outside the jurisdiction of the English court, but the only fact which brings in English law at all is the fact that the defendant is amenable to the jurisdiction of the English court. In the present case, however, there is another English connection of great importance, which is that the dispute relates to a contract whose proper law is English law, and the relevant incidents of which are therefore governed by English law. Some cogent reason has to be produced why in such a case the English courts should not simply apply the principles of English law in deciding whether or not the relevant conduct con stitutes duress capable of rendering the contract voidable. I do not find the analogy of tort suf ficiently apposite or compelling to achieve that result.
What other reason can be adduced? The judge was impressed by another argument advanced on behalf of the ITF, which was that a man ought to be able safely to regulate his conduct by complying with the laws of the country in which he finds himself. This may be true so far as· the criminal law is concerned; but I cannot see that it applies in the case of matters which may affect the validity of a contract governed by some other system of law. If a person enters into such a contract, he has for most purposes to accept the regime of the proper law of the contract; and if under that regime a particular form of conduct constitutes duress, or for that matter undue influence, rendering the contract voidable wherever the relevant conduct occurs, he has in my opinion to accept the consequences of his conduct under that system oflaw. He should not assume that, simply because his conduct is lawful in the place overseas where it is per formed, it cannot for that reason render an English contract voidable for duress.
CTN Cash and Carry Ltd v. Gallaher
[1994] 4 All ER 714,
Steyn LJ Itis necessary to focus on the distinctive features of this case, and then to ask whether it amounts to a case of duress.
The present dispute does not concern a protected relationship. It also does not arise in the context of dealings between a supplier and a consumer. The dispute arises out of arm’s length commercial dealings between two trading companies. It is true that the defendants were the sole distributors of the popular brands of cigarettes. In a sense the defendants were in a monopoly position. The control of monopolies is, however, a matter for Parliament. Moreover, the com mon law does not recognise the doctrine of inequality of bargaining power in commercial dealings (see National Westminster Bank pie v. Morgan [1985] l All ER 821, [1985] AC 686). The fact that the defendants were in a monopoly position cannot therefore by itself convert what is not otherwise duress into duress.
A second characteristic of the case is that the defendants were in law entitled to refuse to enter into any future contracts with the plaintiffs for any reason whatever or for no reason at all. Such a decision not to deal with the plaintiffs would have been financially damaging to the defendants, but it would have been lawful. A fortiori, it was lawful for the defendants, for any reason or for no reason, to insist that they would no longer grant credit to the plaintiffs. The defendants’ demand for payment of the invoice, coupled with the threat to withdraw credit, was neither a breach of contract nor a tort.
A third, and critically important, characteristic of the case is the fact that the defendants bona fide thought that the goods were at the risk of the plaintiffs and that the plaintiffs owed the defendants the sum in question. The defendants exerted commercial pressure on the plaintiffs in order to obtain payment of a sum which they bona fide considered due to them. The defen dants’ motive in threatening withdrawal of credit facilities was commercial self-interest in obtaining a sum that they considered due to them.
Given the combination of these three features, I take the view that none of the cases cited to us assist the plaintiffs’ case. Miss Heilbron accepted that there is no decision which is in mater ial respects on all fours with the present case. It is therefore unnecessary to disinter all those cases and to identify the material distinctions between each of those decisions and the present case. But Miss Heilbron rightly emphasised to us that the law must have a capacity for growth in this field. I entirely agree.
I also readily accept that the fact that the defendants have used lawful means does not by itself remove the case from the scope of the doctrine of economic duress. Professor Birb, in A11 Introduction to the Law of Restitution (1989) 177, lucidly explains:
‘Can lawful pressures also count? This is a difficult question, because, if the amww 11 that they can, the only viable basis for discriminating between acceptable and unaccept able pressures is not positive law but social morality. In other words, the judpa mu1t •Y what pressures (though lawful outside the restitutionary context) are improper u contrary to prevailing standards. That makes the judges, not the law or the legislature, the arbiters of social evaluation. On the other hand, if the answer is that lawful pressures are always exempt, those who devise outrageous but technically lawful means of compulsion must always escape restitution until the legislature declares the abuse unlawful. It is tolerably clear that, at least where they can be confident of a general consensus in favour of their evaluation, the courts are willing to apply a standard of impropriety rather than technical unlawfulness.’
And there are a number of cases where English courts have accepted that a threat may be ille gitimate when coupled with a demand for payment even if the threat is one of lawful action (see Thorne v. Motor Trade Association [1937) 3 All ER 157 at 160-1, [1937) AC 797 at 806-7,
Mutual Finance Ltd v. John Wetton £S Sons Ltd [1937) 2 All ER 657, [1937) 2 KB 389 and Universe Tankships Inc. of Monrovia v. International Transport Workers’ Federation [1982) 2 All ER 67 at 76, 89, [1983) l AC 366 at 384, 401). On the other hand, Goff and Jones, Law of Restitution (3rd edn. 1986), 240 observed that English courts have wisely not accepted any gen eral principle that a threat not to contract with another, except on certain terms, may amount to duress.
We are being asked to extend the categories of duress of which the law will take cognisance. That is not necessarily objectionabJe, but it seems to me that an extension capable of covering the present case, involving ‘lawful act duress’ in a commercial context in pursuit of a bona fide claim, would be a radical one with- far-reaching implications. It would introduce a substantial and undesirable element of uncertainty in the commercial bargaining process. Moreover, it will often enable bona fide settled accounts to be reopened when parties to commercial dealings fall out. The aim of our commercial law ought to be to encourage fair dealing between parties. But it is a mistake for the law to set its sights too highly when the critical inquiry is not whether the conduct is lawful but whether it is morally or socially unacceptable. That is the inquiry in which we are engaged. In my view there are policy considerations which militate against ruling that the defendants obtained payment of the disputed invoice by duress.
Outside the field of protected relationships, and in a purely commercial context, it might be a relatively rare case in which ‘lawful act duress’ can be established. And it might be particularly difficult to establish duress if the defendant bona fide considered that his demand was valid. In this complex and changing branch of the law I deliberately refrain from saying ‘never’. But as the law stands, I am satisfied that the defendants’ conduct in this case did not amount to duress. It is an unattractive result, inasmuch as the defendants are allowed to retain a sum which at the trial they became aware was not in truth due to them. But in my view the law compels the result.
For these reasons, I would dismiss the appeal.
Sir Donald Nicholls V-C: I also agree. It is important to have in mind that the sole issue raised by this appeal and argued before us was duress. The plaintiff claims payment was made by it under duress and is recoverable accordingly. I agree, for the reasons given by Steyn LJ, that that claim must fail. When the defendant company insisted on payment, it did so in good faith. It believed the risk in the goods had passed to the plaintiff company, so it considered it was entitled to be paid for them. The defendant company took a tough line. It used its com mercial muscle. But the feature underlying and dictating this attitude was a genuine belief on its part that it was owed the sum in question. It was entitled to be paid the price for the goods. So it took the line: the plaintiff company must pay in law what it owed, otherwise its credit would be suspended.
Further, there is no evidence that the defendant’s belief was unreasonable. Indeed, we were told by the defendant’s counsel that he had advised his client that on the risk point the defen dant stood a good chance of success. I do not see how a payment demanded and made in those circumstances can be said to be vitiated by duress.
So that must be an end to this appeal. I confess to being a little troubled at the overall out come. Aat late stage of the trial the defendant’s counsel accepted that the risk in the goods had not in law passed to the plaintiff. Hence, and this must follow, the defendant company was not, and never had been, entitled to be paid for the goods. The risk remained throughout on the defendant. What also follows is that the basis on which the defendant had sought and insisted
on payment was then shown to be false.
In those circumstances I confess to being a little surprised that a highly reputable tobacco
manufacturer has, so far, not reconsidered the position. A claim for restitution based on wrong ful retention of the money, once the risk point had been established, was not pursued before us, no doubt for good reasons. But on the sketchy facts before us, and I emphasise that we have heard argument only from the plaintiff, it does seem to me that prima facie it would be uncon scionable for the defendant company to insist on retaining the money now. It demanded the money when under a mistaken belief as to its legal entitlement to be paid. It only made the demand because of its belief that it was entitled to be paid. The money was then paid to it bya plaintiff which, in practical terms, had no other option. In broad terms, in the end result the defendant may be said to have been unjustly enriched. Whether a new claim for restitution now, on the facts as they have since emerged, would succeed is not a matter I need pursue.I observe, as to that, only that the categories of unjust enrichment are not closed.
I too would dismiss this appeal.
Williams v. Bayley
(1866) LR 1 HL 200
Cranworth LC: … Now the question is, what was the sort of influence which they exercised on the mind of the father to induce him to take on himself the responsibility of paying these notes? Was it merely, we do not know these to be forgeries, we do not believe them to be so, but your son is responsible for them, and if you do not help him we must sue him for the amount? Or was it, if you do not pay these notes we shall be in a position to prosecute him for forgery, and we will prosecute him for forgery? What is the fair inference from what took place? I do not know what may be the opinion of the rest of your Lordships, but I very much agree with the argument of Sir Hugh Cairns, that it is not pressure in the sense in which a Court of equity sets aside transactions on account of pressure, if the pressure is merely this: ‘If you do not do such and such an act I shall reserve all my legal rights, whether against yourself, or against your son.’ If it had only been, ‘if you do not take on yourself the debt of your son, we must sue you for it,’ I cannot think that that amounts to pressure, when the parties are at arms’ length, and particularly when, as in this case, the party supposed to be influenced by pressure had the assistance of his solicitor, not, indeed, on the first occasion, but afterwards, before any thing was done. But if what really takes place is this: If you do not assist your son, by taking on yourself the payment of these bills and notes on which there are signatures which are said, at least, to be forgeries, you must not be surprised at any course we shall take, meaning to insin uate, if not to say, we shall hold in our hands the means of criminally prosecuting him for forgery.I say, if it amounts to that, that it is a very different thing. [He then set out the facts and
continued:] The father, then, was acting in this matter under the notion that ifhe did not inter fere to save his son, the latter would be liable to be prosecuted, and, probably, would be pros ecuted for forgery, and so be transported for life….
That being so, I think the case in point of fact is this:-Here are several forged notes. The bankers, in the presence of the father and of the person who forged them, both being pel’IOl’II of apparent respectability in the country, carrying on business as tradesmen, and the father hav ing the presence and the assistance of his solicitor, the bankers say to him what amounts to thil: ‘Give us security to the amount of these notes, and they shall all be delivered up to you; or do not give us security, and then we tell you we do not mean to compound a felony; in other worda, we mean to prosecute.’ That is the fair inference from what passed. Now is that a transaction which a Court of equity will tolerate, or is it not? I agree very much with a good deal of the argument of Sir Hugh Cairns as to this doctrine of pressure. Many grounds on which a Court of equity has acted in such cases do not apply in this case. The parties were not standing in any fiduciary relation to one another; and if this had been a legal transaction I do not know that we should have thought that there was any pressure that would have warranted the decree made by the Vice-Chancellor. But here was a pressure of this nature. We have the means of prose cuting, and so transporting your son. Do you choose to come to his help and take on yourself the amount of his debts-the amount of these forgeries? If you do we will not prosecute; if you do not, we will. That is the plain interpretation of what passed. Is that, or is it not, legal? In my opinion, my Lords, I am bound to go the length of saying that I do not think it is legal. I do not think that a transaction of that sort would have been legal even if, instead of being forced on the father, it had been proposed by him and adopted by the bankers….
Lord Chelmsford: My Lords, I agree with my noble and learned friend on the woolsack, that the object of the arrangement between the parties was to save William Bayley from a prosecu tion for forgery; and I make that the foundation of the opinion which I have formed with regard to the agreement having been extorted from the father by undue pressure. It appears to me to be quite clear that the negotiations between the parties proceeded upon the footing of forgery having been committed by William Bayley, and of his being liable to a criminal prosecution; and that the bankers, both personally, and by means of their agents, Mr Thursfield their solicitor and Mr Deakin their manager, availed themselves of the fears of the father for the safety of his son, to press the arrangement upon him.
[I]n my opinion, this negotiation proceeded upon an understanding between the parties that the agreement of James Bayley, to give security for the notes, would relieve William Bayley from the consequences of his criminal act; and the fears of the father were stimulated and oper ated on to an extent to deprive him of free agency, and to extort an agreement from him for the benefit of the bankers. It appears to me, therefore, that the case comes within the principles on which a Court of equity proceeds in setting aside an agreement where there is inequality between the parties, and one of them takes unfair advantage of the situation of the other, and uses undue influence to force an agreement from him….
Lord Westbury: Thequestion, therefore, my Lords, is, whether a father appealed to under such circumstances, to take upon himself an amount of civil liability, with the knowledge that, unless he does so, his son will be exposed to a criminal prosecution, with the certainty of con viction, can be regarded as a free and voluntary agent? I have no hesitation in saying that no man is safe, or ought to be safe, who takes a security for the debt of a felon, from the father of the felon, under such circumstances. A contract to give security for the debt of another, which is a contract without consideration, is, above all things, a contract that should be based upon the free and voluntary agency of the individual who enters into it. But it is clear that the power of considering whether he ought to do it or not, whether it is prudent to do it or not, is alto gether taken away from a father who is brought into the situation of either refusing, and leav ing his son in that perilous condition, or of taking on himself the amount of that civil obligation. I have, therefore, my Lords, in that view of the case, no difficulty in saying that, u far u my opinion is concerned, the security given for the debt of the son by the father under auch circumstances, was not the security of a man who acted with that freedom and power of deliberation that must, undoubtedly, be considered as necessary to validate a transaction of such a description.
My Lords,I would add to that, the great folly, nay, impropriety, of the bankers proceeding to take this security from the defenceless old man after his solicitor had left him, protesting in such an emphatic manner against the proceedings which he knew they were about to enter upon. The Respondent’s solicitor remained so long as a valid contract, namely, that touching the property of William Bayley, was regarded as possible. When that was impossible, and the bankers began to exert pressure on the father, the solicitor left, remonstrating with all parties against the impropriety of what they were about to do.
My Lords, there remains the other aspect of the case, which is this: Was the transaction, regarded independently of pressure, an illegal one, as being contrary to the settled rules and principles of law. [His Lordship considered the matter and concluded that the transaction was indeed illegal.
My Lords,I regard this as a transaction which must necessarily, for purposes of public util ity, be stamped with invalidity, because it is one which undoubtedly, in the first place, isa departure from what ought to be the principles of fair dealing between man and man, and it is also one which, if such transactions existed to any considerable extent, would be found pro
ductive of great injury and mis,chief to the community. I think, therefore, that the decree which has been made in this case is a perfectly correct decree.
I do not mean for one single moment, by anything I have said, to cast any imputation on the character of these gentlemen:! am only dealing with abstract principles of law. They might, perhaps, fairly have thought that they were doing the best for the family of Mr William Bayley and for the father.I beg particularly that it may not be understood that I mean to convey, by any words thatI have used, any reproach on their character. I have used those words as neces sary to vindicate the policy and justice of the rule oflaw, and to shew how highly requisite it is thata Court of equity should undo a transaction such as this, whether it is regarded as pro ceeding froma father who cannot be considered as a voluntary agent, or, taking the other aspect of it, as violating the rules of law which prescribe the duties of individuals under such circum stances. On both of these grounds I think that this is a transaction which ought to be set aside.
Mutual Finance Ltd v. John Wetton & Sons Ltd
[1937] 2 KB 389
Porter J: … Prima facie the plaintiffs are entitled to recover. They have a guarante deliber ately made and in due form. But it is said that that guarantee is voidable because it was obtained by duress or by undue influence. If the question were whether there was any such duress as the common law would recognize, I should unhesitatingly answer, No. But the right to avoida con tract is not at the present time confined to questions of duress. It depends’ on the much wider
relief given on principles originally evolved in the Chancery Courts under the name of undue influence.
The question remains, hat forms of coercion, oppression, or compulsion amount to undue influence invalidating a contract as between strangers between whom there exists no fiduciary relation? How is the line to be now drawn between those forms of coercion or persuasion which are permissible and those which the law recognizes as unlawful and as a ground of contractual invalidity? To this question it is impossible, as the authorities at present stand, to give any definite or confident reply. In the case already cited of Kaufman v. Genon1 it is suggested that the line should be drawn by reference to general considerations of public pol icy, the question in each case being: “Is the coercion or persuasion by which this contract was procured of such a nature that the enforcement of a contract so obtained would be contrary to public policy?” Just as a contract may be invalid because it is contrary to public policy in its substance or its purposes, so it may be invalid because it is contrary to public policy in respect of the coercive method of its procurement. If this is the true underlying principle, it is for the law in its future development to reduce this general principle so far as possible to the form of specific rules in respect of divers methods of coercion, just as the requirements of public pol icy have been similarly made specific in respect of illegal and nugatory contracts. Where the instrument of coercion is the doing or threatening of a wilfully illegal act of any description, it may be anticipated that, notwithstanding the limits of the older common law of duress, a con tract so procured will in general be held invalid. But even although the instrument of coercion is not thus in itself illegal, as in the case of a threat of prosecution, the enforcement of a con
tract so procured may nevertheless be held in appropriate cases to be contrary to public policy.’ That states the problem, but by no means solves it.
Duress at common law could only be pleaded where the end arrived at was achieved by the use of something in the nature of unlawful force or the threat of unlawful force against the per son of the other contracting party. Undue influence in the Chancery Courts might exist where a promise was extracted by a threat to prosecute certain third persons unless the promise were given. It is not necessary that there should be any direct threat. The headnote in Williams v. Bayley2 setting out the principle deduced from the speech of Lord Westbury is, I think, a cor rect exposition of the law.
Not only is no direct threat necessary, but no promise need be given to abstain from a pro secution. It is enough if the undertaking were given owing to a desire to prevent a prosecution and that desire were known to those to whom the undertaking was given. In such a case one may imply (as I do here) a term in the contract that no prosecution should take place: see Jones
v. Merionethshire Permanent Benefit Building Society.3
Kaufman v. Gerson4 is another example of the principle applied in Williams v. Bayley, but in the former case the underlying threat was the prosecution of the husband, while in the latter case it was of a son. In Seear v. Cohen5 the same principle was applied in a case where the under lying threat was against the son of one of the defendants and the nephew of the other, and in Brook v. Hook6 against the brother-in-law of the defendant.
Is the principle wide enough to cover the case where the persons involved are the brother and father of the alleged criminal? I think it is. It is not necessary to determine the exact bounds beyond which the doctrine would not be applied, but I should myself be inclined to say that it extended to any case where the persons entering into the undertaking were in substance influ enced by the desire to prevent the prosecution or possibility of prosecution of the person impli cated, and were known and intended to have been so influenced by the person in whose favour the undertaking was given. Nor do I think it matters that Percy Wetton would not have cared, if he alone were concerned, whether his brother went to prison or not. In fact he did care, and Lopresti knew that he cared, owing to his fear of the effect on his father’s health. If the known object was to prevent the prosecution of his brother for whatever reason, that, I think, is enough.
But it is said that in all the cases cited the sole consideration was to stifle a prosecution, whereas in the present case the agreement which was made concerned four parties-namely, the plaintiffs, the defendants, Gregory, and the sellers—and that just as a debtor may secure his debt though the object be to avoid a prosecution, as in Flower v. Sad/er,7 because there isa further consideration, so, an agreement which results in the sale of a lorry by one person to another, the hiring by that other to a third person, and the guarantee of the hirer’s debt bya
fourth, is a perfectly legitimate transaction, though the result may be and was intended to be the stifling of a prosecution.
In my view, however, the question is what was the person giving the guarantee in substance doing and intending to do to the knowledge of the person to whom the guarantee was given? In the present case the defendants gained no benefit for themselves and, as I find, were known by the plaintiffs to be gaining no benefit. The sellers had the same knowledge as the plaintiffs, and the fact that Gregory had a lorry delivered to him on hire purchase at an excessive price does not, in my view, affect the right of the debtor to avoid the contract.
It was further argued before me that the defendants’ guarantee, if obtained by undue influ ence, was voidable and not void, and that as it was not repudiated at the earliest possible moment the defendants had aflirmed it. But what is the earliest possible moment? In my view it is the earliest moment at which the undue influence has ceased to operate: see per Collins MR in Kaufman v. Gerson.8 ‘
In the present case, up to the issue of the writ the defendants were always subject to the fear ofa prosecution of Joseph Wetton and were never free agents. I think that they did avoid the contract in time. For these reasons I think that the defendants are entitled to avoid the guaran tee. There will be judgment for the defendants, with costs.
Norreys v. Zeffert
[1939] 2 All ER 187,
Atkinson J: … Even if all this happened, and if such a promise was obtained, a serious ques tion arises as to whether or not a promise so obtained is one which the court will enforce. There has been a good deal of difference of opinion as to how far agreements to pay money obtained by threats are enforceable. The cases, and particularly, I think, Thorne v. Motor Trade Auom,,1 seem to establish the proposition that, if the threat is a threat to take a step in lawful further ance of the creditor’s business interests, the refraining from taking such step may be good con sideration for a promise to pay money not otherwise recoverable, however seriously the person threatened would be injured by the carrying out of the threat. On the other hand, if the threat is only an injuring threat, in order to induce payment of money, the refraining from carrying out the threat will not in general be good consideration for a promise to pay. The mere fact that a person may have a legal right to do something which will injure another is not sufficient jus tification for the demand of money as the price of not doing it. The opinion of Scrutton, LJ, to the contrary was expressly dissented from by the House of Lords in Thorne v. Motor Trade Assocn., where Lord Atkin said, at 806, 807 ([1937) 3 All ER at 160):
… the mere fact that the threat is to do something a person is entitled to do either causes the threat not to be a ‘menace’ within the Larceny Act, 1916, or in itself provides a rea sonable or probable cause for the demand.
In the same case, Lord Wright says, at 817, 818 ([1937) 3 All ER at 167):
I think the word ‘menace’ is to be liberally construed, and not as limited to threats of violence but as including threats of any action detrimental to or unpleasant to the person addressed Ithink the jury should be directed by the judge that the respondent asso
ciation had a legal right to put the person’s name on the stop list, so long as they did so in order to promote the trade interests of the association and its members and not with intent to injure, and so long as the money, fine or penalty demanded was reasonable and not extortionate. In other words, the jury would have to answer the question suggested by Lord Dunedin, ‘Whether there was a conspiracy to injure or only a set of acts dictated by business interests.’
Of course, there is no question of conspiracy here, but it merely illustrates, I think, the divid ing line between legitimate business threats and threats which are not legitimate Inmy
opinion, the threat to report to Tattersalls was a threat which the plaintiff, through Carpenter, was entitled to make, and a promise to refrain from thus reporting the defendant would be good consideration. It would be merely taking a step in accordance with the recognised practice of bringing the matter before an independent committee, and the plaintiff, through Carpenter, would in no way be responsible for the consequences which automatically followed any finding of the committee [S]o long as a promise to pay is made in consideration of refraining from
taking the recognised step, the recognised procedure, which exists for the protection of the interests of the creditor of this class, the agreement may be a good one. It certainly would be in accordance with the principle laid down in Thorne’s case. Such a step is one primarily aimed at protecting and furthering the interests of bookmakers, but threats that the National Turf Protection Society would notify members of a social club and the trade protection societies are, in my view, threats to defame, which are threats to.injure, and seem to me to come within that class of threats which, according to Thorne’s case, the creditor is not entitled to make. They are aimed merely at injuring. As Lord Atkin said, at 807 ([1937) 3 All ER at 160):
He must no doubt be acting not for the mere purpose of putting money in [the plaintiff’s] pocket, but for some legitimate purpose other than the mere acquisition of money.
… Ihave dealt with what seems to me to be the law as it was argued. I have no doubt that it is all obiter, because I am not satisfied that any contract was in fact made in this case….
Borrelli & Ors v Ting & Ors (Bermuda)
[2010] UKPC 21
LORD SAVILLE OF NEWDIGATE:
1. James Henry Ting was formerly the Chairman and Chief Executive Officer of Akai Holdings Ltd, a Bermudan company originally incorporated in Hong Kong. Akai Holdings Ltd controlled a multinational group of companies specializing in electronics. The assets of the Akai group of companies were reported in January 1999 to exceed US$2 billion. However, in late 1999 Akai Holdings Ltd collapsed with an estimated net asset deficiency of over US$1 billion. On 23 August 2000 in Hong Kong, and on 29 September 2000 in Bermuda, Akai Holdings Ltd was ordered to be wound up.
2. The Liquidators of Akai Holdings were hampered in their investigation of the affairs of Akai Holdings Ltd by the absence of books and records; by the failure of James Henry Ting, despite many requests by the Liquidators, to provide them with any assistance; and by the fact that there were scant resources to fund the liquidation.
3. In order to raise funds, the Liquidators wished to realize the value of Akai Holdings Ltd’s listing on the Hong Kong Stock Exchange. To this end the Liquidators proposed a scheme of arrangement under section 99 of the Bermuda Companies Act 1981, whereby the shares of Akai Holdings Ltd, and thus its listing status, would be transferred to a third party, Hang Ten Group Holdings Ltd. Such a scheme would raise approximately HK$46.6 million, but required the approval of a majority in number representing three quarters in value of the shareholders present and voting at a meeting convened for that purpose; and thereafter the sanction of the Court.
4. The scheme meeting was convened in Hong Kong on 25 November 2002.
5. James Henry Ting controlled two companies, Blossom Assets Ltd and Costner Holdings Ltd, who together held 5.2% of the issued share capital of Akai Holdings Ltd. The Liquidators took the view that James Henry Ting was likely to oppose the scheme for no good reason and in advance of the meeting obtained ex parte an order from the Bermuda Court that they could mark the votes of Blossom Assets Ltd and Costner Holdings Ltd as objected to, with a view to their validity being determined at a subsequent court hearing.
6. At the scheme meeting Blossom Assets Ltd and Costner Holdings Ltd were represented by attorneys, who purported to act as proxies on behalf of these companies. However, the Chairman at the meeting rejected the authority of the proxies on the ground that their appointments as such were simply signed by James Henry Ting on behalf of the companies, whereas they should have been executed under the seal of the respective companies or under the hand of an “officer or attorney duly authorized”.
7. James Henry Ting was not at the meeting but in Shanghai. On being telephoned by one of the attorneys and informed of the objection to the proxies, he arranged for someone in Hong Kong to type up purported board resolutions dated 14 November 2002 appointing the attorneys as corporate representatives of Blossom Assets Ltd and Costner Holdings Ltd; and to forge his signature on those purported resolutions.
8. The purported resolutions bearing James Henry Ting’s forged signature were delivered to the scheme meeting, which was still in progress, and through the attorneys Blossom Assets Ltd and Costner Holdings Ltd voted against the scheme. Had these votes been accepted and stood they would have been sufficient to defeat the scheme, with the result that the Liquidators would have run out of money and the liquidation would effectively have come to an end. However, the Chairman marked these votes as objected to on the grounds that Blossom Assets Ltd and Costner Holdings Ltd had voted against the scheme for improper motives and that the purported signature of James Henry Ting was suspected to be forged.
9. By summons dated 2 December 2002 the Liquidators applied to the Bermuda Court to disallow the votes of Blossom Assets Ltd and Costner Holdings Ltd cast at the scheme meeting. The summons was opposed by these companies.
10. By this stage time was running short. Hang Ten Group Holdings Ltd had the right to withdraw from the scheme if it was not approved by the shareholders of Akai Holdings Ltd by 31 December 2002; and the Hong Kong Stock Exchange would not allow the substitution of another buyer of the Akai Holdings Ltd shares. Thus it was likely that if this deadline of 31 December 2002 was not met, the scheme could not be implemented.
11. Although by this stage the Liquidators had evidence that the signatures on the Board resolutions were forgeries, in order to facilitate an early hearing of the summons they agreed to confine the issue to the question whether the votes of Blossom Assets Ltd and Costner Holdings Ltd against the scheme had been cast for an improper purpose. However, in the meantime James Henry Ting continued to oppose the scheme. He denied that his signatures were forged and to that end procured his messenger in Hong Kong to swear an affidavit falsely asserting that the resolutions and signatures were genuine.
12. The judge first assigned to hear the summons recused himself after objection by James Henry Ting and the two companies. The replacement judge then broke her arm and was unable to hear the case; while the acting judge found to replace her also recused himself after further objections by James Henry Ting and his companies. The upshot was that the Liquidators were faced with the fact that they were unable to obtain a judicial determination of the validity of the challenged votes by 31 December 2002; and so stood to lose the value of the Hong Kong Stock Exchange listing of Akai Holdings Ltd and thus funds to continue the liquidation.
13. It was in these circumstances that the Liquidators, Akai Holdings Ltd, James Henry Ting, Blossom Assets Ltd, Costner Holdings Ltd and another company in liquidation (Kong Wah Holdings Ltd) entered into what was called a Settlement Agreement dated 30 December 2002.
14. Under the terms of this agreement James Henry Ting and his two companies agreed to withdraw their opposition to the scheme and so to advise the Bermuda Court, while the Liquidators agreed, among other things, as follows:
“3. Akai, Kong Wah and the Liquidators shall irrevocably covenant not to sue or otherwise pursue any claims against Mr Ting, Blossom and Costner from any and all past, present and future rights, claims, demands, debts, causes of action and suits at law or in equity of any kind or nature whatsoever whether presently known or unknown howsoever or wheresoever (including any rights and claims in but not limited to Hong Kong, Bermuda, PRC and any other competent jurisdiction) arising out of and or in connection with Akai and/or Kong Wah and/or their respective Liquidators.
9. Akai, Kong Wah and the Liquidators shall immediately cease all further investigations with a view to or in connection with issuing legal proceedings and/or making claims against Mr Ting.”
15. On the same day James Henry Ting and his two companies withdrew their objections to the scheme and signed a consent order disallowing their votes against the scheme, which was then sanctioned by the Supreme Court of Bermuda. On the following day the scheme was completed and the Liquidators received payment.
16. In 2003 the Liquidators sought orders to examine James Henry Ting in Hong Kong pursuant to section 221 of the Hong Kong Companies Ordinance. James Henry Ting commenced proceedings in Bermuda seeking to restrain the Liquidators from examining him, on the grounds that any such examination was contrary to the Settlement Agreement. Both Kawaley J and the Bermuda Court of Appeal rejected this argument, holding that such an examination was not a claim within the meaning of that agreement.
17. In the summer of 2005, the Liquidators obtained access to material that had been seized by the Commercial Crime Bureau of the Hong Kong Police in the course of their investigations into the affairs of Akai Holdings Ltd. The Liquidators formed the view that this material revealed substantial misappropriation by James Henry Ting of funds of Akai Holdings Ltd.
18. On 16 February 2006 solicitors acting on behalf of the Liquidators wrote to James Henry Ting asserting that the Settlement Agreement or the Liquidators’ undertaking under that agreement not to make claims against him was unenforceable or voidable.
19. In this letter the Liquidators put forward a number of grounds in support of this assertion. They contended that there was no consideration for the Settlement Agreement, since the opposition to the scheme by James Henry Ting through his two companies was not put forward in good faith, but was motivated solely by his desire to obtain a release from claims against him personally; that on its true construction the Settlement Agreement did not cover claims relating to or arising out of his positions and conduct as Chairman, Chief Executive Officer or director of the Akai group of companies; that his failure to make full and frank disclosure to the Liquidators of numerous breaches of his fiduciary duties as a director, including “massive” misappropriations of property belonging to the Akai group of companies for his own benefit and that of his associates, rendered the Settlement Agreement voidable and enabled the Liquidators to set it aside; and that he applied illegitimate pressure on the Liquidators to enter into the Settlement Agreement, by (among other things) causing his companies to oppose the scheme knowing that the deadline was fast approaching, so as to be able to demand a release from claims against him in return for the withdrawal of that opposition, which amounted to economic duress and also rendered the Settlement Agreement voidable.
20. In March 2006 the Liquidators joined James Henry Ting as a defendant to proceedings in Hong Kong, in which they alleged that he had misappropriated some HK$407.8 million from Akai Holdings Ltd and concealed this misappropriation through false accounting.
21. On 13 October 2006 James Henry Ting, Blossom Assets Ltd and Costner Holdings Ltd commenced the present proceedings in Bermuda against the Liquidators, seeking a declaration that the Settlement Agreement was valid and binding and an injunction to restrain the Liquidators from prosecuting the proceedings in Hong Kong against James Henry Ting, on the grounds that such proceedings were contrary to the Settlement Agreement.
22. After a trial lasting six days and on 5 December 2007 the Chief Justice of Bermuda gave judgment refusing to grant James Henry Ting and his companies any relief, but instead made Declarations in favour of the Liquidators. James Henry Ting’s lawyer gave evidence at the trial, but James Henry Ting did not himself give evidence.
23. The Chief Justice decided that the claims made in the Hong Kong proceedings (and any similar undisclosed defalcations) were founded upon breaches by James Henry Ting of his fiduciary or statutory duties to Akai Holdings Ltd, which were undisclosed and unknown to the Liquidators at the time of the Settlement Agreement and which were accordingly not subject to clauses 3 and 9 of that agreement; that the Settlement Agreement was voidable for non-disclosure by James Henry Ting of the wrongdoing alleged against him; that the Settlement Agreement was unenforceable by James Henry Ting by reason of his “sharp practice” in not revealing his knowledge of the claims now alleged against him when negotiating the Settlement Agreement; and that in any event the Court would have refused to enforce the Settlement Agreement in respect of the Hong Kong proceedings because James Henry Ting had come to court with “unclean hands,” having concealed what, if true, was his fraud and dishonesty and having resorted to forgery and false evidence in an attempt to validate the proxy votes of his two companies.
24. On 28 November 2008 the Court of Appeal for Bermuda, by a majority (Auld JA and Zacca JA), reversed the decision of the Chief Justice. In the view of that Court, the relevant clauses of the Settlement Agreement read in the context in which the agreement was made were wide enough to cover the claims made in the Hong Kong proceedings; that James Henry Ting owed no duty of disclosure to the Liquidators at the time of negotiating the Settlement Agreement, especially in view of the words “known or unknown” in clause 3 of that agreement and the suspicions held at the time by the Liquidators of the bona fides of James Henry Ting; that the “sharp practice” relied upon by the Chief Justice also fell away for the same reasons; and that since the effect of the Settlement Agreement was to wipe the slate clean, the doctrine of “clean hands” was inapplicable. It was only on the last of these points that Ward JA dissented.
25. The matter now comes before the Board by way of leave granted by the Court of Appeal.
26. There are two findings of fact by the Chief Justice, which in the view of the Board are of particular importance, in addition to his finding that James Henry Ting had resorted to forgery and the provision of false evidence in order to defeat the proposed scheme.
27. The first of these is that James Henry Ting, through “a long process of evasion and prevarication” deliberately avoided providing the Liquidators with any meaningful information about the Akai Group of companies. The evidence reveals that he failed to attend meetings with the Liquidators and failed to respond to inquiries by the Liquidators for information; and further failed to provide any explanation for the fact that the books and papers of Akai Holdings Ltd for the three years preceding the collapse were missing. The Chief Justice described James Henry Ting’s Statement of Affairs made in December 2000 as “woefully inadequate” and rejected any suggestion that James Henry Ting had at any stage co-operated with the Liquidators.
28. The second finding of particular importance is that James Henry Ting procured the opposition to the scheme by Blossom Holdings Ltd and Costner Assets Ltd “solely so as to defeat [the scheme] with the desire and intention of thereby depriving the Liquidators of funds with a view to preventing any further investigation of his conduct of the affairs of the company.” In other words, James Henry Ting’s opposition was not made in good faith, but for an improper motive. It was not suggested that in these circumstances the Court (had the matter got that far) would have done other than to disallow the votes against the scheme.
29. The situation facing the Liquidators in late December 2002 was that without realizing funds through the scheme there was unlikely to be any prospect of continuing to investigate the failure of Akai Holdings Ltd. The Chief Justice found that the Liquidators believed that James Henry Ting had resorted to false accounting in order to make Akai Holdings Ltd appear solvent; and also had suspicions that James Henry Ting might have misappropriated some of Akai’s assets, but that the Liquidators had no evidence that this was the case, and neither believed nor had any grounds for believing that James Henry Ting had misappropriated assets on a massive scale. The Liquidators did believe (correctly) that James Henry Ting had resorted to forgery and the provision of false evidence in an attempt to defeat the proposed scheme. But since it became impossible to obtain the sanction of the Court for the scheme before the deadline of 31 December 2002, the Liquidators were faced with the stark choice of either giving up the scheme and thus, in all probability, the liquidation and any chance of recouping money for the creditors, or making a deal with James Henry Ting in order to obtain the withdrawal of his companies’ opposition to the scheme.
30. James Henry Ting’s price for a deal was the agreement of the Liquidators not to investigate further his conduct of the affairs of Akai Holdings Ltd or to make any claims against him. Thus the choice facing the Liquidators was between two evils, either to abandon the scheme and thus any real prospect of funds to continue the liquidation, or to agree not to make any claims against James Henry Ting in relation to his conduct of the affairs of Akai Holdings Ltd.
31. In the view of the Board the Liquidators had no reasonable or practical alternative but to make a deal with James Henry Ting. Put colloquially James Henry Ting had the Liquidators over a barrel. The failure of Akai Holdings Ltd was generally regarded as the largest or one of the largest corporate insolvencies ever to take place in Hong Kong. The Liquidators considered that there might be grounds for seeking to recoup some at least of the losses from the auditors. To abandon the scheme meant in effect the end of any real chance of the Liquidators recovering anything from the collapse of Akai Holdings Ltd.
32. In the view of the Board James Henry Ting’s failure to provide any assistance to the Liquidators; his opposition to the scheme; and his resort to forgery and false evidence in order to further that opposition amount to unconscionable conduct on his part. Against the background of his failure to co-operate with the Liquidators, as it was his duty to do under the winding up rules of both Hong Kong and Bermuda, had he not opposed the scheme for purely personal and selfish reasons, in the process using forgery and false evidence, then there would have been no need for the Settlement Agreement. In other words, by agreeing to withdraw the opposition to the scheme James Henry Ting did no more than he should have done from the outset, had he acted in good faith rather than in an attempt to avoid responsibility for his conduct of the affairs of Akai Holdings Ltd.
33. In such circumstances the Board considers that it would offend justice nevertheless to permit James Henry Ting to call in aid the Settlement Agreement in order to defeat claims made by the Liquidators against him relating to the affairs of Akai Holdings Ltd. Those claims include claims (which the Chief Justice found to be well arguable) that he had misappropriated for his own benefit very large sums from Akai Holdings Ltd.
34. An agreement entered into as the result of duress is not valid as a matter of law. Duress is the obtaining of agreement or consent by illegitimate means. Director of Public Prosecutions for Northern Ireland v Lynch [1975] AC 653; Universal Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366. Such means include what is known as “economic duress”, where one party exerts illegitimate economic or similar pressure on another. An agreement obtained through duress is invalid in the sense that the party subject to the duress has the right to withdraw from the agreement, though that right may be lost if that party later affirms the agreement or waives the right to withdraw from it.
35. The Board is of the view that in the present case the Liquidators entered into the Settlement Agreement as the result of the illegitimate means employed by James Henry Ting, namely by opposing the scheme for no good reason and in using forgery and false evidence in support of that opposition, all in order to prevent the Liquidators from investigating his conduct of the affairs of Akai Holdings Ltd or making claims against him arising out of that conduct. As the Board has already observed, by adopting these means James Henry Ting left the Liquidators with no reasonable or practical alternative but to enter into the Settlement Agreement.
36. A submission that the Liquidators were estopped from denying the validity of the Settlement agreement as a result of the proceedings in 2003 was abandoned during the course of the hearing before the Board, though it was submitted that the Liquidators affirmed or acquiesced in that agreement by not then claiming to avoid it. It was further submitted that the Liquidators should have made such a claim at the first opportunity, namely when they had received the money from the scheme and so were no longer under the alleged duress.
37. The Board do not accept these submissions. The fact that in the 2003 proceedings the Liquidators argued (successfully) that the Settlement Agreement did not cover the examination of James Henry Ting under the Hong Kong Companies Ordinance without claiming to avoid that agreement did not, in the view of the Board, amount to accepting its validity. Furthermore, there is nothing to suggest that the lapse of time, or the conduct of the Liquidators at any stage after they had made the Settlement agreement, led James Henry Ting to believe that the Liquidators were accepting that the Settlement Agreement was binding on them. The Board has found nothing to suggest that because the Liquidators took no steps to escape from the Settlement Agreement until they had obtained evidence that James Henry Ting had misappropriated large amounts from Akai Holdings Ltd, it would somehow be unjust or inequitable for them then to take the point. In short, the Board considers that there is nothing to support the submission that the Liquidators affirmed or acquiesced in the validity of the Settlement Agreement.
38. There was a further submission to the effect that since duress rendered a contract voidable and not void, and since in the present case the parties could not be put back in the position they occupied before the Settlement Agreement was made, the Liquidators were precluded from avoiding that agreement. Rescission, it was submitted, is an all or nothing process; a contract cannot be rescinded in part because this would amount to the Court making a new bargain for the parties, which it has no power to do.
39. The main difficulty with that submission in the context of a case like the present is that it necessarily relies on the unacceptable proposition that because the parties cannot be restored to the position created by the illegitimate means employed by James Henry Ting, which resulted in the Settlement Agreement, the Liquidators are bound by that agreement. In truth the avoidance of the Settlement Agreement by the Liquidators did not amount to making a new bargain for the parties, but instead put the parties in the position they would have occupied had James Henry Ting not resorted to illegitimate means in order to secure the Settlement Agreement.
40. It was also submitted that the Settlement Agreement was so widely drafted that it excluded the right of the Liquidators to withdraw their agreement, even on the basis that it had been procured by illegitimate means. The Board reject this submission, which necessarily involves a further unacceptable proposition, namely that it is possible, by the use of illegitimate means, to obtain a binding agreement from which the party subject to the duress cannot withdraw.
41. In the view of the Board it may well be the case that the Settlement Agreement does not bind the Liquidators for another reason. As already observed, the price exacted by James Henry Ting was in return for his agreement to withdraw his and his companies’ opposition to the scheme. But as the Board has already pointed out, there were no bona fide grounds for opposing the scheme, so in truth all he was offering to do was to cease acting in bad faith and to do what he should have done in the first place. In such circumstances it is difficult to see what consideration James Henry Ting gave for the undertakings he abstracted from the Liquidators. However, it is unnecessary to express a concluded view on this point.
42. For the reasons that the Board has given it has concluded that the Settlement Agreement does not prevent the Liquidators investigating James Henry Ting’s conduct of the affairs of Akai Holdings Ltd or from making claims against him relating to that conduct. In other words, James Henry Ting cannot rely on the provisions of the Settlement Agreement to the contrary effect.
43. The Liquidators advanced a number of other grounds in support of their argument that James Henry Ting could not rely upon the Settlement Agreement to defeat the claims advanced against him. Much of the hearing before the Board was devoted to a consideration of these grounds, some of which entailed consideration of a substantial number of authorities on important, difficult and complex questions relating to the fiduciary duties of directors and the nature of compromises and releases. In view of the conclusion the Board has reached, it is not necessary to express any view on these other ways in which the Liquidators sought to meet James Henry Ting’s reliance on the Settlement Agreement.
44. The Board will humbly advise Her Majesty to allow the appeal, to order that the respondents pay the costs of the appellants, both before the Board and below, and to declare that James Henry Ting, Blossom Assets Ltd and Costner Holdings Ltd are not entitled to rely upon the Settlement Agreement in order to defeat any claims advanced by the Liquidators, Akai Holdings Ltd or Kong Wah Holdings Ltd.
Kolmar Group AG v Traxpo Enterprises PVT Ltd
[2010] EWHC 113
Mr Justice Christopher Clarke:
In this action the buyer, Kolmar Group AG (“Kolmar”), a Swiss corporation, claims against the seller, Traxpo Enterprises Pvt Limited (“Traxpo”), an Indian corporation:
(i) restitution of US $ 1,495,566.61 which Kolmar claims was extracted from it by economic duress;
(ii) $ 691,708.73 for short delivery of cargo;
(iii) $ 356,424.60 for demurrage; and
(iv) $ 5,162 for shifting expenses.
The trial began on 17th December 2009. By then Traxpo had failed to serve any witness statements by 30th September 2009, the date provided for in a consent order of 8th September 2009, and had dispensed with the services of its former solicitors. It had not engaged in the mediation provided for by that order. On 9th December 2009 Gross J declined to adjourn the trial, not being persuaded by anything he had read that such an adjournment was appropriate. He indicated that it would be open to Traxpo to renew its application to the trial judge. Traxpo renewed its application on paper but I, also, saw no justifiable basis on which to adjourn a trial that had been fixed for some time……………….
Economic duress
Mr Michael Ashcroft for the claimants submitted, and I agree, that the authorities (summarised in Goff & Jones, The Law of Restitution (17th Ed) 10-025 to 10-51 and Chitty on Contracts (30th Ed) 7-014 – 7-055; and in DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530 para 131) establish the following principles:
(i) Economic pressure can amount to duress, provided it may be characterised as illegitimate and has constituted a “but for” cause inducing the claimant to enter into the relevant contract or to make a payment. See Mance J in S.L. Huyton S.A. v Peter Cremer GmbH & Co [1999] 1 Lloyds Rep 620;
(ii) a threat to break a contract will generally be regarded as illegitimate, particularly where the defendant must know that it would be in breach of contract if the threat were implemented;
(iii) it is relevant to consider whether the claimant had a “real choice” or “realistic alternative” and could, if it had wished, equally well have resisted the pressure and, for example, pursued practical and effective legal redress. If there was no reasonable alternative, that may be very strong evidence in support of a conclusion that the victim of the duress was in fact influenced by the threat.
(iv) the presence, or absence, of protest, may be of some relevance when considering whether the threat had coercive effect. But, even the total absence of protest does not mean that the payment was voluntary.
Economic duress
I am quite satisfied from the evidence as to the history of events which I have summarised above that Kolmar agreed to amend the letters of credit to increase the price and reduce the quantity and to accept and pay for the documents tendered as a result of illegitimate pressure amounting to economic duress on the part of Traxpo which left Kolmar with no practical choice but to agree to pay an increased price for such methanol as it did receive. Kolmar had purchased the methanol at an agreed price in order to supply it to Methanex, a very important customer. Traxpo’s refusal to supply the quantity which it contracted to deliver at the agreed price placed Kolmar in a position in which it had no real alternative but to submit to Traxpo’s demands and claim redress later. For every day that the cargo was not loaded Kolmar was exposed to ever increasing claims from the shipowners in respect of demurrage on the vessel it had chartered at $ 20,000 per day. Arguing with Traxpo would be likely to delay the loading of the vessel still further with an increasing likelihood that the vessel would be taken off the berth again and only allowed back after several days had elapsed.
If a full cargo was not loaded Kolmar faced a very large claim for deadfreight. If the vessel had sailed on 5th October the deadfreight would have been about $ 1,075,000. Kolmar desperately needed the cargo in order to supply Methanex, and, if it failed to do so, would not merely suffer a severe loss of reputation with a client of great potential importance but would in all probability be exposed to very large claims. The price under the Methanex contract was $ 394 CIF Houston. The market price was $ 520. So the claim would be for over $ 2 million. If Kolmar did not procure the cargo from Traxpo the only alternative would be to try to purchase an alternative in the open market. If this had been possible at all, which, in the then state of the market was doubtful, it would have been at a very high price. The prospect of speedy legal redress was remote and any obligation of Traxpo was unsecured.
Kolmar, through Ms John, made contemporaneous protests which fell on deaf ears. On 5th October Kolmar provided amendments to the letter of credit on the basis that it “had no other alternative but to accept”. Ms John protested verbally to Mr Tapuriah about Traxpo’s threatened non-compliance in her discussions with him. There was, however, a practical limit to the extent that Kolmar could protest having regard to the possibility that Traxpo would walk away from the contract completely, which it had threatened to do. Mr Tapuriah cannot have thought that there was any legal or moral justification in the stance that he was taking. He must have sensed Kolmar’s increasing desperation. So soon as the cargo was finally secured, Kolmar promptly asserted its legal rights and began these proceedings.
In those circumstances, subject to the putative defences that have been raised by Traxpo, Kolmar is, in my judgment, entitled to restitution of the increased payment which it has been forced to pay by the economic duress constituted by Traxpo’s illegitimate threat of breach of contract.
Provision of a letter of credit
Traxpo contends that it was not obliged to perform the contract at all because Kolmar failed to provide an acceptable letter of credit. Kolmar agrees that it was bound to provide a letter of credit which complied with the terms of the contract and which was fair and reasonable in its terms as a condition precedent to Traxpo’s obligations to perform any part of the loading operation: Kronos Worldwide Ltd v Sempra Oil Trading SARL [2004] 1 Lloyd’s Rep 260.
The question arises as to the time by which Kolmar was bound to provide such a letter. I understood from Mr Ashcroft’s submissions at the hearing that there was no authority on the point and none was cited to me. Authority is not, however, lacking.
In Ian Stach v Baker Bosley Ltd [1958] 2 Q.B. 130 the contract was for the sale of ship plates f.o.b. Benelux port for shipment to Canada in August-September 1956 with payment to be by confirmed irrevocable credit. The buyers failed to open the credit either by August 1st or by August 8th when the sellers called for it to be opened immediately. Diplock, J, as he then was, held that it was the duty of the buyers to establish the credit by August 1st at the latest and that, although the sellers had waived their right to treat the contract as repudiated by reason of their failure to do so until such time had elapsed after August 8th as could be regarded as “immediately”, on August 14th the sellers had been entitled to accept, as they did, the buyers’ breach as a repudiation of the contract.
Diplock, J considered himself bound by the decision of the Court of Appeal in Pavia & Co S.P.A v Thurmann-Nielsen [1952] 2 QB 84 that in c.i.f. contracts the credit must be opened at the latest at the beginning of the shipment period. In such a case, the seller is entitled, before he ships the goods to be assured that when he does so, he will get paid. He also referred to what he regarded as obiter observations of Denning LJ in Sinason-Teicher Inter-American Grain Corporation v Oilcakes and Oilseeds Trading Co Ltd [1954] 1 WLR 1394 that the correct view, if nothing is said in a c.i.f. contract as to the time for opening a letter of credit, is that the buyer must provide the letter of credit within a reasonable time before the date of shipment.
He then referred to five cases on f.o.b. contracts where it was either held or assumed that the credit had to be opened at the latest by the shipment date. But, as he observed, none of those cases were cases of a classic f.o.b. contract where the buyer was entitled to call for shipment at any time within and up to the end of the shipping period.
In the absence of authority on the matter he determined that the credit must be opened at the latest by the earliest shipping date. He rejected the suggestion that it had to be opened only a reasonable time before the actual shipping date, a result which he regarded as giving rise to great uncertainty undesirable in a commercial contract.
This is not, however, the way in which the matter was pleaded in the defence, where Traxpo’s contention was that Kolmar was bound to open the letter of credit within a reasonable time after the contract was made, alternatively in good time to allow the cargo to be prepared for loading and loaded within the contractual period for shipment. Kolmar’s reply asserts that its obligation was to provide a letter of credit a reasonable time before shipment was to occur.
Mr Ashcroft submitted that it was sufficient if the credit was opened within such time as would enable the vessel to load the contractual quantity within the shipment period.
Even if it stood alone, I would be minded to follow Diplock J’s decision in Ian Stach. His conclusion produces commercial certainty and results in the credit being available to pay the price at whatever date the buyer chooses to call for shipment during the shipment period. An obligation to open the letter of credit within a reasonable time after the contract date introduces an element of uncertainty and might have the result in a case where the contract date is, as here, very close to the commencement of the shipment period that the credit was not open when the seller was called upon to ship them or when he was reasonably preparing to do so.
In a classic f.o.b. contract the duty of the buyer is to nominate a ship at such time as will enable the seller to put the goods on board before the end of the shipment period: J J Cunningham Ltd v Robert A Munro & Co Ltd (1922) 13 Ll .L. Rep 216. But that does not, as it seems to me, determine when the buyer is bound to provide the letter of credit. An obligation to provide the credit within such a time as would enable the vessel to load the contractual quantity within the shipment period or within a good time for that purpose would, if the buyer called for the goods at the beginning of the period mean that he was not guaranteed a credit until the end. An obligation to open a credit within a reasonable time before shipment leaves the seller without the security of a credit at the beginning of the shipment period which he may need in order to open a letter of credit in favour of his supplier.
It seems to me, however, that the issue is concluded by the decision of the Court of Appeal in Glencore Grain Rotterdam B.V. v Lebanese Organisation for International Commerce [1997] 2 Lloyd’s Rep 386. In that case the sale was an f.o.b. sale for shipment in March (subsequently varied to April), payment to be by confirmed letter of credit. The Court held that that the buyers were obliged to open a letter of credit in accordance with the contract requirements before the shipment period began i.e. by April 1st at the latest. Terms of the letter of credit notified on March 24th and March 29th were not as required by the contract. On 1st April the sellers refused to ship the goods in accordance with the contract, giving an inadequate reason for doing so. Instead they demanded a price increase and insisted on more onerous payment terms. But they were held to be entitled to treat the contract as repudiated by reason of the absence on 1st April of a letter of credit conforming to the contract.
The letter of credit in the form in which it was on 21st September after the first amendment was in my judgment acceptable. The incorporated UCP provided that the shipper or consignor did not have to be the beneficiary but that the invoice must appear to have been issued by the beneficiary. Neither PEC nor Traxpo was, as it seems to me, entitled to insist on the letter of credit specifically providing that all third party documents including invoice were acceptable. If that be wrong the letter of credit in the form in which it was on 26th September was acceptable, as Mr Tapuriah confirmed on 28th September.
An acceptable letter of credit was not, therefore, opened by the beginning of the shipment period. But Traxpo waived Kolmar’s obligation to open an acceptable letter of credit by that date.
It did so (i) by asking, on 10th September for the letter of credit to be established in favour of PEC Ltd; (ii) by detailing, on 18th September, the amendments to the existing Letter of Credit that it sought; (iii) by asking for further amendments on 19th and 26th September; (iv) by saying on 27th September that it had no objection to the vessel being brought for loading subject to confirmation, inter alia, that the letter of credit had been perfected in accordance with PEC’s requirements; (v) by confirming on 28th September to Ms John that PEC has received the latest amendment to the letter of credit and had confirmed that the same appeared OK; and (vi) by never suggesting that the contract was to be regarded as at an end or that it was not obliged to ship for want of a satisfactory letter of credit or that it would be so regarded if a satisfactory letter of credit was not produced within some specified period. Throughout the period Kolmar continued to perform its side of the contract by making the vessel available for loading and (but against its will) amending the letter of credit. After 28th September Traxpo continued to seek and obtain further amendments to the letter of credit, which amendments included extensions of the shipment and expiry dates.
If the relevant question is whether or not a letter of credit conforming to the contract was produced within a reasonable time after the contract, then that obligation was, in my judgment satisfied, whether one takes 21st or 26th September as the date.
Although it had taken over three or four weeks to produce the letter of credit, it seems to me that in determining what is a reasonable time it is legitimate to take into account the facts (a) that Traxpo had made no demands for the opening of a letter of credit prior to 12th September; (b) that Mr Tapuriah had e-mailed brief details of what he wanted in the letter of credit on 10th September and that thereafter there had been negotiations between the parties with a view to accommodating Traxpo’s requests; (c) that there had also been extensive discussions as to the tanks from which the methanol might be supplied; and (d) that at no time before 26th September did Kolmar seek to have the cargo shipped nor did Traxpo have a full cargo which it was prepared to make available.
If the test is whether an acceptable letter of credit was opened within such a time as would enable the vessel to load the contractual quantity within the shipment period, then, if one is to take the loading rate taken in the contract for the purpose of calculating laytime, there was plenty of time for loading if the relevant date is 21st September. If the relevant date is 26th September then there was just sufficient (17,500 m.v. @ 175 m.t. per hour = 100 hours = 4 days and 4 hours).
If the test is whether the letter of credit was opened a reasonable time before shipment, the answer is that it was because the parties extended the letter of credit shipment date to cover the shipment that was to take place.
In any event, even if Kolmar was in breach of its obligations in respect of the opening of a letter of credit because it failed to open a letter of credit in time, Traxpo waived that breach for the reasons set out in paragraph 109 above.
Tank USTTL 204
The second point upon which Traxpo has sought to rely is that Kolmar wrongly rejected cargo from tank USTTL 204. It is, however, apparent from the evidence of Ms John, Mrs Sandelowski, and Mr Berkhout, Kolmar’s surveyor, that Kolmar did no such thing. Tank 204 was originally approved for loading. Traxpo then decided not to use it, presumably because they wanted it for another customer. In the event loading did take place from that tank on 17th October, presumably after it had been refilled. At no stage was the product in the tank rejected.
Agreed amendments to the letter of credit
Lastly Traxpo relies on the contention that the increased prices were paid pursuant to agreed amendments to the letter of credit. But those amendments, which were the security for payment of an increased price for a lesser amount of cargo, were themselves procured by economic duress. They were the means by which Traxpo, by threatening breach of contract, extracted more than the contract price.
The claim under this head is for $ 1,405,566.61 calculated as follows:
Payment made $ 5,178,403.30
Less
Price due under the contract
14,795.438 m.t. x $ 255 $ 3,772,836.69
$ 1,405,566.61
Restitution and want of consideration
In my judgment Kolmar is entitled to recover that sum by way of restitution since it has been deprived of it by Traxpo’s economic duress. Further that sum represents an amount that Kolmar has paid out for a consideration which has wholly failed. Traxpo gave no consideration for that payment except a promise to perform a contractual obligation to which it was already subject accompanied by a threat of non-performance of that obligation which amounted to economic duress. That is not good consideration: South Caribbean Trading Ltd v Trafigura Beheer BV [2005] 1 Lloyd’s Rep 128.
Intimidation
The tort of intimidation is established where (i) the defendant makes a demand backed by a coercive and unlawful threat; (ii) the claimant complies with that demand because of the coercive and unlawful threat; (iii) the defendant knows or should have known that compliance with its demand will cause loss and damage to the claimant and (iv) the defendant intends its demand to cause loss and damage to the defendant: Clerk and Lindsell (19th Ed) 25-65 – 25-87.
Those requirements are, as it seems to me, satisfied. Mr Tapuriah made demands for price increases which were backed by coercive and unlawful threats that Traxpo would not perform its obligations. Mr Tapuriah intended that Kolmar should comply with those demands in a way which would, as he knew, cause it loss. Kolmar did comply with those demands as a result of those threats.
Accordingly, Kolmar is entitled to $ 1,405,566.61 as damages for intimidation.
Short delivery
Kolmar claims that it was entitled to, and did call for delivery of 17,500 m.t., whereas Traxpo only supplied 14,795.438 m.t – a shortfall of 2,704,562 m.t. Accordingly it claims damages for short delivery as follows:
(1) Contract price
204.562 m.t*. x $ 255 + 2,500 m.t. x $ 265 $ 714,663.51
* 15,000 – 14,795.438
(2) Market price
2,704,562 m.t. x $ 520** $1,406.372.24
** The undisputed market value at the material time
(3) Difference $ 691,708.73
The only defence raised in respect of this claim is that Kolmar agreed to vary the contract so as to accept a lesser quantity of cargo in full discharge of Traxpo’s obligations.
In this respect there was no amendment effected by Mr Tapuriah’s request of 29th August 2007: see para 8 above. Nor can Traxpo rely upon its insistence on Kolmar making amendments to the letter of credit so as to reduce the quantity of cargo which the letter of credit was to cover. These were variations to facilitate payment of the quantity of cargo that Traxpo was willing to provide at the prices which it demanded. Kolmar’s agreement to open letters of credit for amounts lesser and prices higher than the contract was the result of Traxpo’s economic duress and voidable (and avoided) by Kolmar. It does not represent a freely agreed renegotiation of the contract.
The contract originally provided for 15,000 m.t. +/- 5% in Buyer’s option and an optional 2,000 – 3,000 +/- 5% in Buyer’s option. Kolmar nominated the vessel to carry a minimum cargo of 17,500 and that nomination was accepted by Traxpo. But then Traxpo asked Kolmar to make amendments to the letter of credit which provided for the 5% to be at Traxpo’s option and Kolmar agreed to do so. That agreement was not the result of any form of duress. In those circumstances it seems to me that the parties have agreed a variation in respect of the contractual quantity so that Traxpo would be entitled to deliver only 95% of 17,500 i.e. 16,625.As Evans LJ said in Glencore v Lorico, the parties’ agreement as to the terms of the letter of credit “may result in a letter of credit agreement which supplements or even varies the terms originally agreed”: p 394.
In those circumstances Kolmar’s damages are as follows:
(1) Contract price
204.562 m.t*. x $ 255 + 1,625 m.t. x $ 265 $ 482,788.31
* 15,000 – 14,795.438
(2) Market price
1,829.562. x $ 520** $ 951,372.24
** The undisputed market value at the material time
(3) Difference $ 468,583.93
Demurrage
The loading rate was agreed as 175 m.t/hr and the demurrage rate as $ 20,000 pdpr. On that footing the demurrage due is in the sum of $ 356,424.60. The vessel was on demurrage for 17.82123 days calculated in the manner set out in paragraph 35 of the Points of Claim at $ 20,000 per day.
The documents evidencing the demurrage claim were presented to Traxpo on 22nd October. The only point raised contemporaneously was that the claim was premature because a copy of the charterparty had not been provided and the voyage had not been completed. The voyage has now been completed. The former point is irrelevant because the contract simply referred to the standard form not to any actual charterparty. The pleaded defence sets out no particular reasons for denying or disputing the claim. It denies that it was a term of the contract that Traxpo would pay demurrage. But, as appears from clause 9, the laytime and demurrage were to be agreed (as they were) on the vessel’s nomination and the other maritime conditions were to be in accordance with the Asbatankvoy form, which by clause 8 requires the payment of demurrage.
In my judgment Kolmar is entitled to recover $ 356,424.60 under this head.
Shifting expenses
Kolmar is entitled to recover $ 5,162.13 for the expenses, payable to the shipowners, of shifting the vessel off the berth on 8th October due to the total lack of any cargo for loading, which was the result of Traxpo’s breaches of contract in failing to load the cargo within the shipment period and in falling and refusing to make cargo available unless Kolmar paid an increased price.
Conclusion
Accordingly Kolmar is entitled in my judgment to recover as follows:
(a) In restitution or as damages for intimidation: $ 1,405,566.61
(b) As damages for short delivery $ 468,583.93
(c) For demurrage $ 356,424.60
(d) Shifting expenses $ 5,162.13
Total $ 2,235,737.27
I shall hear counsel on the questions of interest and costs.
Note 1 The latter two were not on Kolmar’s approved list. [Back]
Note 2 The mathematics is wrong. The true figure is $ 351.9. [Back]
Note 3 The actual wording is more elaborate but the content is as set out. [Back]
Cases Legal Pressure
Exall v. Partridge
(1799) 8 Term. Rep. 308
Lord Kenyon, Ch. J:Some propositions have been stated, on the part of the plaintiff, to which I I cannot assent. It has been said, that where one person is benefited by the payment of money by another, the law raises an assumpsit against the former; but that I deny: if that were so and I owed a sum of money to a friend, and an enemy chose to pay that debt, the latter might con vert himself into my debtor,nolens volens Iadmit that where one person is surety for another, and compellable to pay the whole debt,’and he is called upon to pay, it is money paid to the use of the principal debtor, and may be recovered in an action against him for money paid, even though the surety did not pay the debt by the desire of the principal: but none of those points affect the present question. As the plaintiff put his goods on the premises, know ing the interests of the defendants, and thereby placed himself in a situation where he was liable to pay this money, without the concurrence of two of the defendants, I thought at the trial that it was money paid to the use of [Partridge] only; but on·that point I have since doubted; and I rather think that the opinion I gave at the trial was not well founded.
Grose, J: The question is, whether the payment made by the plaintiff, under these circum stances, were such a one from which the law will imply a promise by the three defendants to repay? I think it was. All the three defendants were originally liable to the landlord for the rent: there was an express covenant by all, from which neither of them was released. One of the defendants only being in the occupation of these premises, the plaintiff put his goods there, which the landlord distrained for rent, as he had a right to do; then, for the purpose of getting back his goods, he paid the rent to the landlord, which all the three defendants were bound to pay. The plaintiff could not have relieved himself from the distress without paying the rent: it was not therefore a voluntary, but a compulsory payment. Under these circumstances, the law implies a promise by the three defendants to repay the plaintiff; and, on this short ground, I am of opinion that the action may be maintained.
Lawrence,]: One of the propositions stated by the plaintiff’s counsel certainly cannot be sup ported, that whoever is benefited by a payment made by another, is liable to an action of assumpsit by that other; for one person cannot, by a voluntary payment, raise an assumpsit against another: but here was a distress for rent, due from the three defendants; the notice of distress expressed the rent to be due from them all; the money was paid by the plaintiff in sat isfaction of a demand on all, and it was paid by compulsion; therefore I am of opinion that this action may be maintained against the three defendants. The justice of the case indeed is, that the one who must ultimately pay this money, should alone be answerable here: but as all the three defendants were liable to the landlord for the rent in the first instance, and as by this pay ment made by the plaintiff, all the three were released from the demand of the rent,I think that this action may be supported against all of them.
Le Blanc, J: The three defendants were all by their covenant bound to see that the rent was paid; by their default in not seeing that it was paid, the plaintiff’s goods were distrained fora debt due from the three defendants to Welch; by compulsion oflaw he was obliged to pay that debt; and, therefore, I think he has his remedy against the three persons who by law were bound to pay, and who did not pay this money.
Edmunds v. Wallingford
(1885) 14 ChD 811,
Lindley LJ
… The first question is the liability incurred by the defendant to his sons by reason of the seizure of what he has deliberately asserted to be their goods for his debt. That as between the father and the sons, the goods were theirs, we consider established by the father’s own state ments. Speaking generally, and excluding exceptional cases, where a person’s goods arc lawfully seized for another’s debt, the owner of the goods is entitled to redeem them and to be reim bursed by the debtor against the money paid to redeem them, and in the event of the good being sold to satisfy the debt, the owner is entitled to recover the value of them from the debtor [As examples of this general proposition], reference may be made to the case of a
person whose goods are lawfully distrained for rent due from some one else, as in Exa/1 v. Partridge; to the case of a surety paying the debt of his principal; to the case where the whole of a joint debt is paid by one only of the joint debtors; to the case where the joint property of a firm is seized for the separate debt of one of the partners. The right to indemnity or contribu tion in these cases exists, although there may be no agreement to indemnify or contribute, and although there may be, in that sense, no privity between the plaintiff and the defendant: see Johnson v. Royal Mail Steam Packet Co. But it is obvious that the right may be excluded by con tract as well as by other circumstances….
An exception to the general rule has been held to exist, where the owner of the goods has left them for his own convenience, where they could be lawfully seized for the debt of the per son from whom he seeks indemnity: England v. Marsden.1 The plaintiff in that case seized the defendant’s goods under a bill of sale, but did not remove them from the defendant’s house. The plaintiff left them there for his own convenience, and they were afterwards distrained by the defendant’s landlord. The plaintiff paid the rent distrained for, and brought an action to recover the money from the defendant. The Court, however, held that the action would not lie as the plaintiff might have removed his goods before, and could not under the circumstances be considered as having been compelledoto pay the rent. This appears to us a very questionable decision. The evidence did not shew that the plaintiff’s goods were left in the defendant’s house against his consent; and although it is true that the plaintiff only had himself to blame for expos ing his goods to seizure, we fail to see how he thereby prejudiced the defendant, or why, hav ing paid the defendant’s debt in order to redeem his own goods from lawful seizure, the plaintiff was not entitled to be reimbursed by the defendant [W]e think the decision ought not to be followed. Be the case of England v. Marsden, however, right or wrong, it is distinguishable in its facts from the case now before us’.
In order to bring the present case within the general principle alluded to above, it is neces sary that the goods seized shall have been lawfully seized; and it was contended-before us that the sons’ goods were in this case wrongfully seized, and that the defendant, therefore, was not bound to indemnify them. But when it is said that the goods must be lawfully seized, all that is meant is that as between the owner of the goods and the person seizing them, the latter shall have been entitled to take them. It is plain that the principle has no application, except where the owner of the goods is in a position to say to the debtor that the seizure ought not to have taken place; it is because as between them the wrong goods have been seized that any question arises. Now, in this case it has been decided between the owners of the goods seized (i.e., the sons), and the sheriff seizing them, that the goods were rightfully seized; and although the defendant is not estopped by this decision, and is at liberty, if he can, to shew that the seizure was one which the sheriff was not justified in making, he has not done so. Indeed, the defen dant’s connection with his sons’ business was such as to justify the inference that the sheriff had a right to seize the goods for the defendant’s debt, and if, in truth, any mistake was made by the sheriff, the defendant had only himself to thank for it. His own conduct led to the seizure, and although he did not in fact request it to be made, he brought the seizure about, and has wholly failed to shew that the seizure was wrongful on the part of the sheriff.
The case, therefore, stands thus: goods which the defendant has admitted in writing to be his sons’, have, owing to his conduct, been legally taken in execution for his debt, and the proceeds of sale have been impounded as a security for what is due from him to the execution creditors. The defendant, therefore, was liable to repay to his sons the amount realized by the sale of the goods. This liability the plaintiff, as the sons’ trustee in bankruptcy, was in a position to enforce, and he has never released it or agreed so to do except upon payment of £1200 The plaintiff is content to take the £ 1200 expressly promised to be paid instead of insisting on hia right to the £1300; and Huddleston, B, has properly given the plaintiff judgmenat ccordingly.
Moule v. Garrett
(1872) LR 7 Exch. 101,
Cockburn, CJ The premises which are the subject of the lease being in the possession of the defendants as ultimate assignees, they were the parties whose duty it was to perform the covenants which were to be performed upon and in respect of thosepremises. It was their immediate duty to keep in repair, and by their default the lessee, though he had parted with the estate, became liable to make good to the lessor the conditions of the lease. The damage there fore arises through their default, and the general proposition applicable to sucha case as the present is, that where one person is compelled to pay d_amages by the legal default of another, he is entitled to recover from the person by whose default the damage was occasioned the sum so paid. This doctrine, as applicable to cases like the present, is well stated by Mr Leake in his work on Contracts, ‘Where the plaintiff has been compelled by law to pay, or, being com pellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in theamount.’
Whether the liability is put on the ground of an implied contract, or of an obligation imputed by law, isa matter of indifference: it is such a duty as the law will enforce. The lessee ha been compelled to make good an omission to repair, which has arisen entirely from the default of the defendants, and the defendants are therefore liable to reimburse him.
Gebhardt v. Saunders
[1892] 2 QB 452, Queen’s Bench Division Divisional Court
Charles, J: … The first question is, Was the plaintiff legally compellable to do this work? I think he was. It seems that there was in the plaintiff’s house a drainage defect which, being latent, was one of which the sanitary authority may reasonably be held to be unable to find the author; they were, therefore, warranted in serving notice under s. 4, sub-s. I, on the occupier or owner to abate the nuisance. Such a notice was served upon the plaintiff’s premises, requir ing the abatement of the nuisance forthwith. Did that notice impose upon the plaintiff the legal liability to obey it? Having regard to the provisions of sub-s. 4, for the imposition of a penalty for default in compliance, I am clearly of opinion that it did. It is contended, however, that the plaintiff was not legally liable to do the work, because in the result it turned out that the defects were structural. Now, there is no doubt that under the proviso in s. 4, sub-s. 3, where the defects are structural, notice is to be served on the owner; it turned out in the present case that they were structural: hence the defendants’ contention. It is impossible, having regard to the language of sub-s. I, to assent to this argument;’looking at that sub-section it seems clear that,
if on inspection the cause of the nuisance cannot be found, it is right to serve the notice on the occupier. This first question must, therefore, be answered in the affirmative.
The second question is whether the defendams were legally compellable to do the work. The jury found that the nuisance was caused by a structural defect; the moment that that defect was discovered the defendants were the proper persons to do the work, and were bound to do it. I think, therefore, that it having been proved tqat a nuisance existed, and that it arose from a structural defect in the drain, the defendants were legally compellable to set it right. In my opinion the ordinary principle of law is applicable to this case apart from the statute, the prin ciple applicable to cases where one man has been legally compelled to expend money on what another man ought to have done, and, without having recourse to s. 11, the plaintiff is entitled to recover from the defendants as having been legally compelled to incur expense in abating a nuisance which the defendants themselves ought to have abated. As to the construction of s. 11, I agree with my brother Day. It is a difficult section to construe; but I think that a reasonable construction to place upon it is that where no order for the abatement of a nuisance is actually made, but the nuisance is abated in obedience to a notice from the sanitary authority, the expenses of abatement must be borne by the person causing the nuisance. Beyond all doubt the owners are here the persons responsible for the existence of this nuisance, and ought to pay for its abatement. It is contended that the section only applies where a nuisance order has been obtained; but I feel no difficulty in reading it otherwise so as to apply it to the expenses of serv ing a notice and carrying the notice into effect. In a sense, indeed, the notice is an order, for it is a requirement that certain things shall be done. I think, therefore, that both apart from and in accordance wit hs. 11, the plaintiff has proved his case.
Brook’s Wharf and Bull WharfLtd v. Goodman Brothers
1937]1 KB 534,
Lord Wright MR: The plaintiffs claim that they are entitled to recover from the defendants the amount which they have paid to the Customs in respect of duties due on the defen dantsg’ oods. They make their claim as for money paid to the defendants’ use on the principle stated in Leake on Contracts. The passage in question is quoted in the Exchequer Chamber by Cockburn CJ in Moulev. Garrett, and is in these terms: ‘Where the plaintiff has been compelled by law to pay, or, being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in theamount.’ This pas sage remains, witha slight verbal alteration, in the eighth edition of Leake on Contracts at 46. The principle has been applied in a great variety of circumstances. Its application does not depend on privity of contract. Thus in Moule v. Garrett, which I have just cited, it was held that the original lessee who had been compelled to pay for breach of a repairing covenant was entitled to recover the amount he had so paid from a subsequent assignee of the lease, notwithstanding that there had been intermediate assignees. In that case the liability of the lessee depended on the terms of his covenant, but the breach of covenant was due to the default of the assignee, and the payment by the lessee under legal compulsion relieved the assignee of his liability.
… Thesseence of the rule is that there is a liability for the same debt resting on the plain tiff and the defendant and the plaintiff has been legally compelled to pay, but the defendant pu the benefit of the payment, because his debt is discharged either entirely or pro tanto, whereu the defendant is primarily liable to pay as between himself and the plaintiff. The cueI• analo gous to that ofa payment by a surety which has the effect of discharging theprincipal’ debt and which, therefore, gives a right of indemnity against the principal. I need not refer to more than two of the numerous cases in which thisprinciple has been applied. In Pownal v Ferrand an endorser of a bill had been compelled on default by the acceptor to make a payment on account to the holder. He sued the acceptor for the money so paid as money paid to his use. The money so paid was a part only of the amount of the bill. He was held entitled to recover. Lord Tenterden CJ said:2 ‘I am of opinion that he is entitled to recover upon the general principle, that one man, who is compelled to pay money which another is bound by law to pay, is entitled to be reimbursed by the latter.’ As an instance of money payable under a statute I may refer to Dawson v. Linton,3 where a tax was due from the landlord, but there was power to enforce payment by distress, if necessary, from the tenant.
Abbott CJ said: ‘It is clear that this tax must ultimately fall on the landlord, and that the plaintiff has paid his money in discharge of it; he has therefore a right to call upon the landlord to repay it to him.’
These statements of the principle do not put the obligation on any ground of implied con tract or of constructive or notional contract. The obligation is imposed by the Court simply under the circumstances of the case and on what the Court decides is just and reasonable, hav ing regard to the relationship of the parties. It is a debt or obligation constituted by the act of the law, apart from any consent or intention of the parties or any privity of contract.
It is true that in the present case there was a contract of bailment between the plaintiffs and the defendants, but there is no suggestion th t the obligation in question had ever been con templated as between them or that they had ever thought about it. The Court cannot say what they would have agreed if they had considered the matter when the goods were warehoused. All the court can say is what they ought as just and reasonable men to have decided as between themselves. The defendants would be unjustly benefited at the cost of the plaintiffs if the lat ter, who had received no extra consideration and made no express bargain, should be left out of pocket by having to discharge what was the defendants’ debt.
I agree with the learned judge in holding that this principle applies to the present case. As I have explained, the duties were due from the importer. There is nothing in the machinery of the Customs Act which had removed this liability from him when the warehousemen paid the duties, as they were compelled to do under s. 85. The payment relieved the importer of his obligation. The plaintiffs were no doubt liable to pay the Customs, but, as between themselves and the defendants, the primary liability rested on the defendants. The liability of the plaintiffs
as warehousemen was analogous to that of a surety. Ii was imposed in order to facilitate the col lection of duties in a case like the present, where there might always be a question as to who stood in the position of importer. The defendants as actual importers have obtained the bene fit of the payment made by the plaintiffs and they are thus discharged from the duties which otherwise would have been payable by them. It may also be noted that the goods which were stolen were the defendants’ goods and the property remained in them after the theft. If the goods had been recovered, the defendants could have claimed them as their own and would have been free to apply them for home use without further payment of duty.
I agree with the learned judge that the claim for the amount of the duties succeeds. I think that the judgment oflearned judge should be affirmed and the appeal as a whole dismissed with costs.
Owen v. Tate
[1976] QB 402
Scarman LJ.: .. Mr Unwin, who argued the case for the plaintiff, the appellant in this court, makes thissubmission. He says that one who without being asked to do so guarantees payment of another’s debt is entitled upon paying the debt to be indemnified, and he submits that this isa rule that brooks of no exceptions. He gives as the reason for the rule that, at the time when the obligation to pay arises, that is to say, when the guarantor is called upon by the creditor to pay the debt, he, the guarantor, is compelled by law to make the payment sought by the cred itor. He relies on a dictum of Greene LJ in In re A Debtor [1937)Ch. 156, 166:
‘A question may arise as to the application of the subsection . where a guarantee is given without any antecedent request on the part of the debtor. That case is merely one example of a number of cases where the law raises an obligation to indemnify irrespective of any actual antecedent contractual relationship between the parties.’
Mr Stephenson, who has argued the case for the defendants, who are the respondents to this appeal, says that there is no such general rule as that for which Mr Unwincontends. He takes his stand upon the general rule that a volunteer cannot claim repayment of that which he has purely voluntarily paid, or in respect of which he has purely voluntarily assumed the obligation to pay.
… AsI understand the law, there are two general rules, both of them wellknown. The first is conveniently set out in Chitty on Contracts, 23rd edn. (1968), vol. 1, para. 1736, on which Mr Stephenson, for the defendants, naturally strongly relied. There it is said: ‘If the payment is regarded by the law as voluntary, it cannot be recovered.’ The editors then quotea passage from the judgment of Swinfen Eady Jin In re National Motor Mail-Coach Co. Ltd [1908]2 Ch. 515,
520.I quote from that judgment one sentence. The judge said: ‘If A voluntarily pays B’s debt, B is under no obligation to repay A.’ That is the first of the two general rules.
The second general rule which calls for consideration in this appeal was stated authoritatively by Lord Wright MR in Brook’s Wha,f and Bull Wharf Ltd v. Goodman Brothers [1937)1 KB 534. The rule applied in that case was formulated by Lord Tenterden CJ in an earlier case [Pownal v. Ferrand (1827) 6 B & C 439] in language which received the express approval of Lord Wright MR.I take Lord Tenterden’s words from 545 of the reports in the Brook’s Wharf cue. Lord Tenterden CJ said, at 443:
.’ .. one man, who is compelled to pay money which another is bound by law to pay, is entitled to be reimbursed by the latter.’
This appeal requires us to consider the interaction of the two rules in the particularcircum stances of this case. Before turning to those circumstances, I would add that neitherrulecan be treated as one to which there can conceivably be no exception. The first rule, that a volunteer who makes a payment on behalf of another cannot obtain repayment, does appear to me to have been one to which over the centuries the common law recognised exceptions. The exceptions have been constructed by the judges through a readiness to imply from the circumstances of the case a request or an authority to make the payment. Good illustrations of that readiness are
to be found in the books. I would refer only to a decision of Lord Kenyon CJ in Exa/1 v.Partridge (1799) 8 Term. Rep. 308. There is another illustration in the comment of Lindley LJ in Edmunds v. Wallingford (1885) 14 QBD 811 on England v. Marsden (1866) LR 1 CP 529. I need not at this stage do more than just refer to those two cases, in each of which one sees the point being considered whether in the circumstances of the case the law could imply a request, consent or some sort of authority for the payment made.
When one turns to the second general rule, namely, the rule that where a person is compelled by law to make a payment for which another is primarily liable he is entitled to be indemnified, notwithstanding the lack of any request or consent, one again finds that the law recognises exceptions. This rule has been subjected to very careful treatment in Goff and Jones, The Law of Restitution (1966), 207. The authors say, after stating the rule in general terms:
‘To succeed in his claim, however, the plaintiff must satisfy certain conditions. He must show (I) that he has been compelled by l w to make the payment; (2) that he did not offi ciously expose himself to the liability to make the payment; (3) that his payment dis charged a liability of the defendant; and° (4) that both he and the defendant were subject to a common demand by a third party, for which, as between the plaintiff and the defen dant, the latter was primarily responsible.’
In the present case we are very much concerned with the first two of those conditions: whether the plaintiff had been compelled by law to make the payment, and whether he did or did not officiously expose himself to the liability to make the payment. The editors, at 214, discuss the exceptions to the general rule which fall under their second condition, namely, the officious assumption of a liability to make the payment. If they are right-as I think they are, and as I think the cases show that they are–then there are excep tions to the second general rule; that is to say, the la does recognise that there may be excep tions, even when a man is legally liable to pay the debt of another, to the general rule that he has a right to an indemnity.
I think that the case law supporting the existence of such exceptions is really epitomised in the Brook’s Wharf case to which I have already referred. Lord Wright MR, having quoted the passage from Lord Tenterden CJ’s judgment that I have already quoted, Pownal v. Fe”and, explains the principle of the matter in these words [I 937) I KB 534, 545:
‘These statements of the principle do not put the obligation on any ground of implied con tract or of constructive or notional contract. The obligation is imposed by the court sim ply under the circumstances of the case and on what the court decides is just and reasonable, having regard to the relationship of the parties. It is a debt or obligation con stituted by the act of the law, apart from any consent or intention of the parties or any priv ity of contract.’
The breadth of those words is, in my judgment, important. ‘The obligation is imposed … sim ply under the circumstances of the case and on what the court decides is just and reason able, .. .’ That means clearly that circumstances alter cases. One may have a general rule such as Lord Wright MR had just previously stated, but that general rule derives from the principle of what is just and reasonable in all the circumstances of the case.
We are, therefore, in this appeal faced with two recognised and well-established general rules, each of which admits of exceptions. It is not necessary, therefore, in my judgment, to enter into the minutiae of factual analysis that Mr Un win for the plaintiff invited us to under take. In particular, he invited this court to answer the question raised obiter by Greene LJ in In re A Debtor, the question being: at what stage in a transaction of guarantee does the guaran tor become under an obligation to make the payment? The broad analysis of a guarantor situ ation suffices, and it is this: if, as in this case, there is no antecedent request, no consideration or consensual basis for the assumption of the obligation of a guarantor, he who assumes that obligation is a volunteer. That, of course, is not the end of the transaction. The time comes, or may come, and in this case did come, when the guarantor is called upon by the creditor to hon our his guarantee. At that moment undoubtedly the guarantor, having entered into his guaran tee, is under an obligation by law, or, in the words of the old cases, ‘is compelled by law’ to make the payment.
Mr Unwin invited this court to look exclusively at the situation as it existed when, in December 1970 or thereabouts, the plaintiff was called upon to pay. At that moment the plain tiff was undoubtedly compelled by law to make payment. Mr Stephenson invited us to look at the antecedent transaction and at the circumstances in which the plaintiff assumed the obliga tion of a guarantor. Of course, at that moment the plaintiff was, on the judge’s findings, a pure volunteer. For myself, I think the reconciliation (if that is what is needed) of the two general rules is easily achieved. I doubt whether it is necessary to consider in any case, and certainly I do not think it necessary to consider in this case, at what moment the volunteer guarantor becomes compellable at law to make the payment on behalf of the principal debtor. A right of indemnity is a right of restitution. It can arise, as the cases reveal, notwithstanding the absence of any con sensual basis. For instance, in Moule v. Ga”ett (1872) LR 7 Ex. 101 an original lessee, who was of course in privity of contract with his lessor, was compelled to pay for breach of a repairing covenant by a subsequent assignee. He was held to be entitled to an indemnity notwithstand ing the absence of any privity of contract between him and the subsequent assignee.
In the two cases to which I have already referred, Exa/1 v. Partridge, and England v. Marsden, the courts were faced with the owner of goods who had deposited them on the land of another, and that other had failed to pay either rates or rent, with the result that a distraint was levied, and the owner in order to release his goods paid their value to the distrainer. In Exall v. Partridge Lord Kenyon CJ was at pains to discover in the circumstances an implied request or authority from the mere fact that the goods were on the land with the consent of the occupier. In England v. Marsden no such consent was spelt out by implication by the court. But in Edmunds v. Wallingford, Lindley LJ said it should have been. We can, therefore, take that class of case as an illustration of where the law will grant a right of indemnity notwithstanding the absence really of any consensual basis. In the Brook’s Wharf case a warehouseman who paid import duties for which his customer-the owner of the goods-was primarily liable, and did so because of an obligation imposed by statute and without any prior request from the owner of the goods, was also held to be entitled to an indemnity.
These cases, to my mind, amply support the proposition that a broad approach is needed to the question whether in circumstances such as these a right of indemnity arises, and that broad approach requires the court to look at all the circumstances of the case. It follows that the way in which the obligation came to be assumed is a relevant circumstance. If, for instance, the plaintiff has conferred a benefit upon the defendant behind his back in circumstances in which the beneficiary has no option but to accept the benefit, it is highly likely that the courts will say that there is no right of indemnity or reimbursement. But (to take the other extreme) if the plaintiff has made a payment in a situation not of his own choosing, but where the law imposes an obligation upon him to make the payment on behalf of the principal debtor, then clearly the right of indemnity does arise. Not every case will be so dear-cut: the fundamental question is whether in the circumstances it was reasonably necessary in the interests of the volunteer or the person for whom the payment was made, or both, that the payment would be made-whether in the circumstances it was ‘just and reasonable’ that a right of reimbursement should arise.
I think now one can see the importance to this case of Greene LJ’s dictum upon which Mr Unwin so strongly relied. In this case it matters not when the obligation to make the payment arose. What is important to Mr Unwin’s case is that the dictum recognises that, even when an obligation is voluntarily assumed, the volunteer may be entitled at law to a right of indemnity. Adopting this broad approach, I now come to consider in more detail than I have yet done the two phases of the transaction of guarantee which appear to me to be of critical importance. The first phase consists of the circumstances in which the plaintiff entered into the guarantee; the second phase consists of the circumstances in which the plaintiff made the payment.
It is enough to refer to the judge’s findings of fact to know that the plaintiff assumed the obligation of a guarantor behind the back of the defendants, against their will, and despite their protest. At that moment he was interested, as the judge has found, not to confer a benefit upon the defendants; he was interested to confer a benefit upon Miss Lightfoot. Using the language of the old common law, I would say that the plaintiff was as absolute a volunteer as one could conceivably imagine anyone to be when assuming an obligation for the debt of another.
What of the second phase? Mr Unwin, rightly I think, relied strongly on two letters; and Mr Stephenson, also rightly, I think, invited us to consider a third. I now turn to those letters. The first letter on which Mr Unwin relied was a letter of July 1, 1970, addressed by the defendants’ solicitors to the bank, who at the time held not only the plaintiff’s signed guarantee, but the deposit of £350. Mr Unwin invited the court to read that letter as one in which the defendants were pressing the bank to clear their overdraf(by recourse to the money deposited by the plain tiff: and there is no doubt that that is exactly what the defendants at that moment were doing. On November 10 they once more invited the bank to clear their overdraft by recourse to the plaintiff. Mr Unwin submits that if one looks at those two letters, and at the whole history of the case, one reaches this situation: that by the time those letters were written the defendants were well aware, although they had not known it at first, that the plaintiff had guaranteed their account up to the sum of £350 and had deposited this sum with the bank. The defendants’ case, of course, is that this was an uncovenanted benefit, if benefit it was, and the fact that the plain tiff had conferred this benefit imposed upon them no duty to indemnify him when he made the payment. But, says Mr Unwin, if that is their position, they had a perfectly good opportunity in 1970 of telling the bank that on no account was it to have recourse to the plaintiff; that the plaintiff had interfered without their consent in their affairs, and that they proposed to deal with the matter of their overdraft without the support of the plaintiff’s guarantee. No doubt had they either paid off the overdraft or made some’suitable arrangements for securing it, the bank would not have had recourse to the plaintiff. But they chose at that moment to encourage the bank to have recourse to the plaintiff.
Mr Unwin has, as one might expect, put his point in a number of different verbal ways:
authority, ratification, adoption-all terms really borrowed from different transactions and dif ferent legal situations. But he is entitled to make the point under the general principle to which I have referred; he is entitled to rely on the circumstances of payment as part of the total cir cumstances of the case and to use them to support an argument that it would in all the cir cumstances be just and reasonable for the plaintiff to have his right of indemnity. But these letters have to be looked at in all the circumstances; and the circumstances, of course, include the earlier history. We learn from the third letter which was introduced before us by Mr Stephenson, and to which I need not refer in terms, something of the earlier history. When the defendants learnt that the bank were proposing to release Miss Lightfoot’s deeds because they had accepted a guarantee and a cash deposit, the defendants strongly objected. The bank, no doubt quite properly, did not tell the defendants that the guarantor was the plaintiff-who was, of course, a stranger to the Lightfoot/Tate transaction. When the Tates protested strongly, the bank replied that they were, as no doubt they were, entitled to disregard the protest, and were going to release, as in fact they did release, to Miss Lightfoot the deeds and rely upon the guar antee and deposit. At the time there was nothing to suggest to the defendants who the guar;m tor was, or that he was a stranger to the previous transaction. That being the case, must one read the subsequent letters to the bank to which I have referred as an adoption by the defen dants of a benefit conferred upon them by the plaintiff? They never wished to lose the security of Miss Lightfoot’s deeds. They lost it through circumstances outside their control and notwithstanding their protest. When the bank decided to call in the debt the defendants no longer had the security for the overdraft which was acceptable to them: they had to put up with a security which without their consent or authority had been substituted by the plaintiff for that which was, or had been, acceptable to them and agreed by them. I do not criticise the defen dants, nor do I think they can be reasonably criticised, for making the best of the situation in which they then found themselves, a situation which they did not desire, and one which I doubt ever appeared to them as beneficial.
Looking, therefore, at the circumstances as a whole, and giving weight to both phases of the transaction, I come to the conclusion that the plaintiff has failed to make out a case that it would be just and reasonable in the circumstances to grant him a right to reimbursement. Initially he was a volunteer; he has, as I understand the findings of fact of the judge and as I read the doc uments in the case, established no facts, either initially when he assumed the obligation, or later when he was called upon to make the payment, such as to show that it was just and reasonable that he should have a right of indemnity. I think, therefore, that on the facts as found this appeal fails.
In my judgment, the true principle of the matter can be stated very shortly, without reference to volunteers or to the compulsions of the law, and I state it as follows. If without an antecedent request a person assumes an obligation or makes a payment for the benefit of another, the law will, as a general rule, refuse him a right of indemnity. But ifhe can show that in the particular circumstances of the case there was some necessity for the obligation to be assumed, then the law will grant him a right of reimbursement if in all the circumstances it is just and reasonable to do so. In the present case the evidence is that the plaintiff acted not only behind the backs of the defendants initially, but in the interests of another, and despite their protest. When the moment came for him to honour the obligation thus assumed, the defendants are not to be criticised, in my judgment, for having accepted the benefit of a transaction which they neither wanted nor sought.
I therefore think the county court judge was right in the conclusion that he reached, and I would dismiss the appeal.
Stephenson LJ: I agree with the judgment of Scarman LJ. On March 19, 1969, the plaintiff guaranteed the defendants’ overdraft with Lloyds Bank, Sunderland, up to £350 and made
£350 available to the bank. He was not asked to do that by the defendants. He was asked to do it by Miss Lightfoot, and did it to oblige her and to enable her to recover title deeds which she had deposited with the bank when charging certain property on February 26, 1965, to secure a loan by the bank to the defendants up to £500. The defendants did not know of the plaintiff’s guarantee and deposit of £350 with the bank until later. The correspondence shows that on March 20, 1969, their solicitors were told that someone had given a guarantee supported by cash, and by July 1, 1970, they heard that that someone was the plaintiff. They preferred Miss Lightfoot’s legal charge and deposit of deeds to the plaintiff’s guarantee and deposit of cash; but on getting the latter the bank felt bound to Miss Lightfoot to release her deeds, and the defendants’ solicitors asked the bank on July 1, 1970, and again on November 10, 1970, in the letters to which Scarman LJ has referred, to clear the defendants’ overdraft by recourse to the plaintiff’s deposit.
On those facts I am driven to the conclusion that the plaintiff has not got a guarantor’s ordin ary right to be indemnified by the principal debtor, the defendants, against his liability to pay their debt. He voluntarily took upon himself the liability to pay their debt to the bank without any previous request from them, express or implied. He cannot, therefore, recover what he hu paid: In re National Motor Mail-Coach Co. Ltd [1908] 2 Ch. 515,520,523. He could have recovered ifhe had already been compellable by law to pay: Mou/e v. Garrett, LR 7 Ex. 101, 104 and Brook’s Wharf and Bull Wharf Ltd v. Goodman Brothers [1937] 1 KB 534. Nor can he recover because his apparently generous act-whether or not it is correctly described or unfairly denigrated as ‘officious’-has enabled the creditor to discharge the debt at the request of the principal debtor. The subsequent request to the creditor cannot give rise to any antecedent request to the guarantor.
There may be cases where a guarantee given without any antecedent request by the debtor gives rise in law to an obligation by the debtor to repay the guarantor. Greene LJ in In re A Debtor [1937) Ch. 156, 166 and Pearson Jin Anson v. Anson [1953) 1 ® 636, 642-3 clearly thought so. But I wish that they had indicated what those cases were. Perhaps they were cases of necessity as indicated by Goff and Jones, The Law of Restitution (1966), 214.
There may be cases where it is obviously unjust that the debtor should be enriched by accept ing the benefit, though unasked and even unneeded, of a guarantor’s payment of his debt with out indemnifying his benefactor, and the court may be able to do justice by compelling the debtor to make restitution to the guarantor. I shall imitate the reticence of Greene LJ and Pearson J and give no instances. But I cannot see in the circumstances of loan and guarantee as far as they emerged at this trial any sufficient reason for imposing that obligation to indemnify on this debtor in favour of this guarantor.
I agree with the statement in Cheshire and Fifoot’s Law of Contract, 8th edn. (1972), 632:
‘At common law … the mere volunteer, officious or benevolent, has no right of action. Only if the plaintiff has paid money uoder constraint is he entitled to sue the defendant for restitution. The nature of the constraint varies with the circumstances.’
‘.fhe plaintiff,was not under such constraint as may be one of the ways of creating a right which it is just and reasonable that a guarantor should have, as a general rule, to be indemnified by the debtor. whose debt he has discharged.
I therefore reject Mr Unwin’s admirable argument for the plaintiff; I would uphold the judge’s judgment, and I agree that the app al should be dismissed.
Ormrod LJ: I agree, and I have only two observations to add. It seems to me that the crucial question in this area of the law is whether the plaintiff is truly a volunteer in the proper sense of the word, or whether he has been compelled to make the payments. I think the two rules can be reconciled quite easily with one another on that footing.
The second observation that I would make is this. This case demonstrates clearly, in my view, the wisdom of the common law approach to the volunteer, which may be cautious, and perhaps unkind, if not cynical, because looked at superficially this case could be said to be one in which the defendants had acquired a considerable benefit from the acts of the plaintiff and had given nothing in return. But a glance through the correspondence indicates that the trans action in this case is only a part of a much more complex series of transactions which have been going on between various people for some years. Speaking for myself, on the material which was before the county court judge–and I do not criticise that there was not more material-I find it quite impossible to sort out the rights and wrongs in this case, and certainly quite impos sible to say whether or not the defendants in fact received a benefit by the plaintiff undertak ing an obligation of guarantor which had previously been undertaken by Miss Lightfoot. It seems to me it is possible that the defendants’ position was worsened, to use a general word, by the intrusion of the plaintiff rather than helped, and consequently I think it right to take a cau tious view towards volunteers in the sense that perhaps the old proverb about ‘Greeks bearing gifts’ may be applicable.
The only other point I would make is that, for my part, I would prefer to reserve any opin ion about guarantors who enter into guarantees without the request of the principal debtor until a specific case comes forward for consideration, because I find it difficult to imagine the cir cumstances which the Lords Justices had in mind in making the observations which have been referred to. I agree that the appeal should be dismissed.
Burger King v King Franchises
[2013] EWHC 1761
JUDGE MACKIE:
This is an application in an action arising out of disputed termination at a Burger King franchise in Cyprus. As I am clear in my mind what the outcome should be I am going to give judgment on the spot.
The Claimants, Burger King Corporation and Burger King Europe, granted the Defendants, King Franchises Limited, rights under development and some franchise agreements in 2003 and 2008. After the parties fell out they later entered into a severance agreement, dealing with matters that had arisen as at 2011.
On this application Miss Dillmott represents the Claimants and Miss Klaedes represents the Defendants. For the Claimants I have two witness statements from Miss Knox and one from the Claimant’s Cyprus lawyer Mr Kiriakedes. For the Defendants I have witness statements from a Mr Condras, who deals with company law, Mr Constanduras, a financial consultant, from Mr Yantiles, the managing director of the Second Defendant, and also from Messrs Pantelis, Christoferou and Laigos, dealing with the conditions of the restaurants run under the franchise by the Defendants.
This is, of course, not the trial of the action; this is an application for summary judgment or to strike out. I will treat it as an application for summary judgment. The application cannot succeed unless the Claimants can show that the Defendant has no real prospect of success. I have regard to the case law on the principles particularly, those set out by the then Lewison J in The Federal Republic of Nigeria v. St Helena. Some of the particular considerations which arise in this case are that the court must consider whether the defendant has a realistic as opposed to a fanciful prospect of success. In reaching a conclusion a Court must not conduct a mini trial, but that does not mean that the Court must take at face value without analysis everything that a Defendant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents.
As I say, the parties entered into development agreements in 2003 and 2008, by which the First Defendant was to be the franchisee and the Second Defendant, Laser, was to guarantee those obligations. The duration of each development agreement was five years. The Defendants had an exclusive right to develop Burger King restaurants in Cyprus and there were franchise agreements in conventional terms to be entered into when these came on stream. The First Defendant had to keep open a minimum of five restaurants and had to open further restaurants in accordance with a development schedule. The First Respondent had to make a payment on the opening of each new restaurant and pay royalties, broadly five per cent of gross sales.
Burger King was entitled to terminate the franchise agreements by giving notice in writing and without compensation if the franchisee ceased to occupy the restaurant, ceased to operate a franchised restaurant, failed to pay any sum due within 10 days of demand, transferred its rights under a franchise agreement or was in breach of any other obligation. In the event of termination the franchisee had to cease using Burger King’s trademarks, return operating manuals, remove signs and do the other customary acts of disengagement from a franchise.
It is common ground in a sense that the Defendants were for some time in breach of their obligations under the development agreements. On 10th February 2011 Burger King sent to Laser a letter setting out a series of alleged breaches of the development and franchise agreements. Those breaches were under the heading “violation of the development agreement opening for the third year; potential violation of the development agreement and contribution; violation of the franchise agreement outstanding payments; violation of the franchise agreement OER” — that is operational excellent review results — an aspect which has not been relied on by the Claimants in this application, and various other matters.
The parties had discussions following the receipt of that letter and this led to a settlement agreement, which is a crucial contract in this dispute. The settlement agreement between the parties dated 7th March 2011, but apparently signed a month later, begins with a number of preliminary statements. The parties acknowledge that they are parties to a development agreement dated 26th February 2008. KF and Laser, that is the two Defendants, acknowledge that they are in breach of both the development agreements and the franchise agreements as notified by the Claimants in their letter of 10th February 2011 and they then enter into a series of arrangements. The Defendants are to be joint debtors; there is an undertaking that had not existed before to pay debts to the suppliers of the Defendants. There are undertakings to pay outstanding money, unpaid royalties over a period of time and there are other provisions which broadly relax the strict commitments entered into by the earlier agreements.
Under the settlement agreement, as opposed to the earlier ones, English law has been chosen and this Court is to have jurisdiction. At the end of paragraph 7 the parties expressly agree that this agreement shall not supersede either the DA or the FA’s exhibited by the parties — that is the development agreements and franchise agreements — unless expressly provided. Therefore those agreements shall remain fully valid and effective among the parties. It is also expressly understood that any breach of this agreement by KF and Laser, as the Defendants are known, shall entitle the Claimant to terminate the same as well as to terminate the other agreements without further notice.
The parties no doubt did their best to give effect to the settlement agreement and there is a letter or note of 21st September, from Mr Yanetlis, the managing director of Laser, to Mr Rousseau, a director and general manager of Burger King, referring to plans and hopes and continuing arrangements to fulfil orders. As at September relationships with suppliers are said to be improving, and debts were almost 80 per cent settled:
“Also from the end of 2010 we initiate and extensively strengthened our relationship with Van Os the exclusive Burger King logistics and distribution company of Dutch Burger King stores.” (Quote unchecked)
As a result of the alleged failure by the Defendants to comply with the settlement agreement after a warning letter had been sent, a letter of termination was sent by, in effect, the Claimants to the Defendants on 20th February 2012, terminating upon the grounds set out in that letter.
In the Settlement Agreement the Defendants had acknowledged breaches of the prior agreements, as I say, a failure to pay suppliers and various other matters. It seems from the pleadings that the Defendants have admitted other matters alleged by the Claimants as well. They admit to failing to pay all the instalments required by the settlement agreement, to not paying royalties after the execution of the settlement agreement, notwithstanding a demand in writing. They admit failing to adhere to the development schedule, to closing two restaurants and failing to pay the initial franchise fee of US $50,000 on another franchise agreement. Thus there were breaches and on the face of it, therefore, the Claimants were justified in terminating.
The Claimants seek a declaration as to their right to terminate each of the relevant contracts, the payment of some €376,000 another €4m in damages and various other relief. The defence is not a satisfactory document and the Defendants have put forwarded an amended defence and counterclaim which they seek permission to bring in by way of amendment. In the ordinary way, of course, there would be no problem about them doing that. In a proposed counterclaim the Defendants seek a series of different remedies, including return of €350,000 paid by the Defendants to the Claimants as franchise fees, €100,000 for losses relating to particular restaurants, as well as €6m as compensation for a variety of other breaches.
The defences which the Defendants say have a real prospect of success, or rather that the Claimants cannot show have no real prospect of success, are set out somewhat confusingly in the witness statements and in the proposed pleading, but are summarised in Miss Klaedes skeleton argument as follows:
“It is alleged that the settlement agreement was entered into as a result of duress and/or coercion and/or force or threats.” (Quote unchecked)
They Defendants say that by failing to comply with the settlement agreement or to recognise it, they marked the fact that it had been entered into by duress. Various breaches of operational standards are also denied, albeit those are not relied on by the Claimants for today’s purposes, which denials are supported by some of the witness statements.
The Defendants also say that the settlement agreement was entered into by them without express and/or special resolution of the board and/or the company’s directors’ approval. The first development agreement cannot be relied upon for that reason and also because it has expired. There were numerous failures by the Claimants to train managers and do other tasks which they undertook under the terms of various agreements. And it is said, I think as part of the duress/coercion defence, that the Defendants were forced to close a number of their restaurants prior to termination. As part of a campaign the Claimants allegedly gave instructions to suppliers not to supply Burger King products to the Defendants. The dispute should be referred to arbitration. There are various other points relied upon.
I need not deal with the defence which relies upon arbitration, because it is clear beyond doubt that none of these agreements has an enforceable arbitration clause. That potential defence will get nowhere.
The Defendants rely upon the list of witness statements which I mentioned earlier. Although the Claimants put in their witness statements some time ago these only came in a week or so ago. The most important of the witness statements is that of Mr Yanetlis, the managing director of Laser. He deals with the background. He points to various events in the past which he says demonstrate that the Claimants from the beginning of a franchise relationship were flexible and waived their rights under the development agreement. He says that various of the agreements were signed by individuals who had no authority to enter into those transactions. He alleges in general terms the coercion or duress case. He emphasises that he made it his goal to run Burger King restaurants in Cyprus that would be of the highest quality food and hygiene standards. He gives what he describes as particulars and details of coercion, duress and undue influence, but for the most part those are taken from the pleadings and are expressed in very general terms. He says that allegations of insufficient operating standards were fabricated as part of the coercion and he then gives details of what he says were undue influence. He alleges that there were instructions by Burger King to suppliers to tell them not to supply further goods or credit to the Defendants and he says that by September 2011 they had cleared and made payment of over 80 per cent of old outstanding invoices.
This and the other witness statements are not detailed. They are not supported by contemporaneous documents. For example, the claim about suppliers is based entirely upon assertion by the witness. The Claimants say that it is more likely that refusal to supply was the result of those suppliers not being paid, a matter which was of concern to the Claimants as one can see from the Settlement Agreement.
The Claimants also rely upon what they call an unauthorised restaurant Ayia Napa. That is a restaurant which it is agreed is open or was open potentially in breach of the agreements. It was opened by a company called the Drain Pop(?). The Claimants have produced evidence showing that Drain Pop is within the Laser Group and is closely related to another company, Peach Noak(?), owned by Mr Eltetta, executive vice president and managing director of the Defendants. There has been no real attempt by the Defendants to refute that evidence.
I turn to the potential defences, the first one is lack of authority. That seemed initially to be a mixture of a claim of ultra vires, a claim that there was some breach of the Memorandum or the Articles and an allegation that the individuals who executed the agreements had no authority to do so. It has turned out that the potential defence is one of a lack of authority of the individuals who signed the documents. There is evidence from Mr Cocuneros, a Cypriot lawyer admitted to practice in that country, but like the lawyer for the Claimants, Mr Kiriakedes, he is not an independent expert. There are no signs from the information put forward to support the claim that he is a person with particular expertise in company law. It seems clear that the laws of Cyprus and England are, in this area, very similar.
The Claimants submit that the factual premise for some of the claims about directors is wrong and I am satisfied from what I have been shown that that is right. But it seems to me entirely unnecessary to make a detailed examination of that topic because it is clear the Defendants have either ratified the second development agreement and the other documents or are estopped from denying its enforceability. The Defendants entered into the second development agreement and took the benefit most obviously by opening up three restaurants. Similar observations relate to the franchise agreements.
The Settlement Agreement has been adopted, to put it mildly, by the Defendants. It was signed by Mr Yanetlis himself, the managing director of Laser and a director of the First Defendant. The signature on the Settlement Agreement is the same as that on his witness statement; although I appreciate it is not the Court’s duty to make a close forensic examination of signatures. Moreover, in proceedings in Cyprus which have been brought on the basis that they are ancillary to these proceedings, the Defendants expressly seek to rely upon the agreement, as one sees from a statement from Mr Eltetta himself. He says in the Cyprus proceedings:
“The settlement agreement was signed for the purpose of a full settlement of all disputes by the parties. The only contract that can be taken in mind by the court is the second settlement agreement dated 7th April 2011.” (Quote unchecked)
Thus, so far as those questions of authority are concerned, not only are they unattractive from a commercial point of view but there is no prospect whatever of them being improved upon between now and the trial. Therefore there is no real prospect of them succeeding.
The next defence is that of what is called “economic duress.” There is no dispute between the parties about the applicable principles. We did not look at the authorities in any detail because it seemed to me — and this was not disputed by Miss Klaedes — that the principles were accurately and helpfully summarised at pages 17 and 18 of the Claimants’ skeleton argument. This is, as it were, lawful act economic duress. Wrongful or illegitimate threats can constitute duress. If a party’s consent is induced by pressure which the law does not regard as legitimate, that consent will be treated in law as revocable. Threatening to carry out something within one’s rights will not normally amount to duress. There is a quotation from Chitty:
“A party relies on its existing contractual rights to drive a hard bargain is not on that ground alone guilty.” (Quote unchecked)
The Court of Appeal in Seekey v. Ketch observed that it would be a relatively rare case in which lawful act duress could be established in a commercial context. There would have to be immoral or unconscionable pressure. There is no doubt that the relationship between a large franchisor and a smaller franchisee is potentially open to abuse, but the facts would have to be very striking to give rise to the defence of economic duress.
The economic duress is said to apply to the Settlement Agreement. The Claimants say that it was clear that at that point there were unpaid royalties, outstanding debts and other admissions of breaches in the past and therefore there was a legal entitlement to make demands upon the Defendants. Furthermore, it is improbable that there was economic duress in play in the negotiation of the Settlement Agreement bearing in mind that it contained a variety of relaxations of existing contractual obligations. The Claimants say that there was no threat to stop supplying goods. There is no evidence, as I have said, to support the Defendants’ case beyond assertion. It is clear from the terms of the Settlement Agreement that Burger King wanted the suppliers paid. But there is no evidence of nor any apparent motive for Burger King to pressure them to stop dealing with the Defendants. Some of the things relied upon by the Defendants in support of their economic duress claim appear to have happened after but not before the Settlement Agreement was entered into.
There has been no sign of protest about the alleged duress. Indeed what the Defendants rely upon is their failure to comply with the terms of the settlement agreement as being of itself evidence that they were trying not to affirm it and that they objected to its terms. Ingenious though that and the other arguments are, those particular points seem to me to have no prospect whatever of success. The fact is there is nothing to indicate around the time of the settlement agreement that the Defendants were unhappy about it. They did not complain about it later and it is an agreement which they affirm for other purposes when it suits them.
There are in the papers but not strongly pressed in argument or the skeleton argument, claims of undue influence. These are commercial parties entering into franchise agreements, they are all companies, they are well away from the categories of relationships where undue influence can arise.
The Defendants allege failures by Burger King to do a variety of things which it is said they should have done during the course of this relationship. These are referred to in the defence and proposed amended counterclaim. These are difficult to address for a number of reasons. First, it is not clear what their effect is said to be upon the rights of the Claimants to terminate. Secondly, it is not explained how these grievances give rise to identifiable breaches of contract by the Claimants. It does not seem to me that there is any real prospect of these complaints ever amounting to material to show there is a real prospect of successfully defending the claim.
Another matter which is urged more strongly in argument than it had been previously is the allegation of waiver. That appears in the pleading and it is also in the witness statement of the Defendants’ managing director. Broadly it is said that there had been breaches over a long period of time by the Defendants. Those breaches have been waived by the Claimants. If they had not been so waived the Claimants would have done something about them both in the past and at least well before now.
The Claimants acknowledge that there may well be many breaches of the agreements which, over the course of time, they have chosen not to pursue or had not been aware of, but they deny that there is any waiver. There is a no waiver clause in the franchise agreements, albeit not in the others. As the authorities cited by the Defendants’ counsel point out, in order to have a waiver in a commercial context you need clear evidence of unequivocal acceptance of breaches of contract by the Claimants. If there is one thing that the Claimants have not been doing since they started serving notices and invoking their rights against the Defendants it is waiving. If one looks at the correspondence as a whole and the evidence there is nothing to support the claim of waiver. There is no evidence that the Claimants have unequivocally, in knowledge of the breaches, accepted that they would not be the cause of further complaint or action.
The submissions of Miss Klaedes also involve a claim that this Court should not deal with this matter at all, the reason being the pending proceedings in Cyprus. An application for provisional measures was brought by the Claimants in Cyprus in support of this action. It was heard in December and judgment is awaited. It is suggested to me that there is a risk if I determine this matter today of inconsistent judgments. I reject that submission. It is improbable that there is a risk of inconsistent judgments in a context where in Cyprus the Defendants themselves assert the validity of the Settlement Agreement and where the proceedings are expressly brought as being ancillary to this action.
It is also suggested that there is a risk of inconsistent judgments in the proceedings brought in relation to the Ayia Napa restaurant against Drain Pop Limited. I am told that third party proceedings have been brought against parties to this action in those proceedings and there is again a risk of inconsistent judgments. It seems to me improbable there is a risk of inconsistent judgments. Even if there were such a risk that does not in any sense affect my duty to decide this case on its merits today. The Defendants do not contest the jurisdiction and rightly so. This potential complication should not prevent me reaching a conclusion.
I therefore reach the conclusion that, for the reasons I have given, that the Defendants have no real prospect of successfully defending the claim.
I will now hear from the Claimants’ counsel and then from the Defendants about matters arising.
Bank of India v Riat
[2014] EWHC 1775 (Ch) (04 June 2014)
Mr David Casement QC
sitting as a Deputy Judge of the High Court
Part 5: Misrepresentation
It is common ground between the parties that in order to succeed in setting aside the guarantees it is necessary for Mr Riat to prove that (i) the Bank’s employee made a statement of fact (ii) the statement of fact was untrue (iii) it was reasonable for Mr Riat to rely upon the statement of fact made by the Bank and (iv) Mr Riat in fact relied upon it in entering the guarantees. The Bank asserts, quite apart from its contention that Mr Riat has failed to make out his case on misrepresentation, that Mr Riat affirmed the guarantee subsequent to signing it and must be taken to have waived any right to rescind that might otherwise have existed.
Mr Cakebread relies upon Mahon v FBN (UK) Bank Ltd [2011] EWHC 1432 (Ch) 76 -78 in support of the proposition that a representation as to a bank’s interest in particular areas of activity or sectors may amount to a misrepresentation entitling a guarantor to rescind the guarantee.
I accept in principle that a statement by a bank or other financial institution that it wanted to increase its exposure in a particular business sector may, if untrue, be capable of providing the basis for a claim in misrepresentation. Examples of that might be where the bank’s policy was, contrary to its representation, to reduce lending in that business sector or where in fact the lending was not core business or was limited to particular geographical areas.
Mr Riat was adamant that he had been told by Mr Singh and also by Mr Sushil Kumar that the Bank wanted to increase its involvement in the property investment sector. Mr Singh has not given evidence. Mr Kumar did give evidence and maintained that not only did he never make this representation himself but he would not do so because in his view that was information that should remain internal to the Bank and not be disclosed to customers or potential customers. I prefer the evidence of Mr Kumar to that of Mr Riat in that I do not think it likely that Mr Kumar would have made such a statement. Such a representation did not appear to be required by Mr Riat from Mr Kumar and it was certainly not recorded in any correspondence between them. I do however consider that it is likely that Mr Singh, a personal acquaintance of Mr Riat, made such a statement in encouraging Mr Riat to do business with the Bank and to discuss matters further with Mr Kumar. To that extent I accept Mr Riat’s evidence.
The Re-Amended Defence and Counterclaim do not state why the representation is said to be untrue. Unhelpfully when pressed by the Bank in a Request for Further Information dated 15 November 2011 to provide full details of all facts and matters relied upon as tending to indicate that the alleged representation was untrue, the response was that this was not a request for further information but a request for evidence.
In his witness statement dated 16 December 2013 at paragraph 13 Mr Riat set out his position:
Mr Singh specifically told me that Mr Sushil Kumar, Manager of the Claimant was looking for clients like me who had a substantial property portfolio, both personal and business, to become clients of the Claimant. Mr Singh further told me that he had been given clear instructions to source high value Asian business people including people involved in the property development sector in order to expand its involvement in that sector. Mr Singh has said to me that my name was mentioned to him by Mr Kumar as a prospective client and hence I had been invited, along with my wife, for the function at Wembley. (underlining added)
Mr Cakebread readily accepted that the burden of proving the untruthfulness of the statement was on Mr Riat. In order to discharge that burden Mr Cakebread placed his primary reliance upon the policy document disclosed by the Bank and which appears at 3/385, the salient part of which reads:
“Real Estate Sector advances may be considered by the Centre subject to various stipulations approved by the Board in its Meeting held on 18/11/1999 for the Real Estate Sector Advances including Hotels, Motels etc and amended thereafter from time to time. Any fresh financing will be done on a very selective basis and preferable to existing customers for purchase of properties for their own use. The Chief Executive will be adopting a very cautious approach while considering any fresh finance to Real Estate Sector and ensure that the following stipulations are adhered to-
(a) Not more than 25% of the total advances at a centre should be concentrated in any one sector. However, for the Real Estate Sector advances the ceiling is 15% of the Total Advances of the Centre.”
Mr Cakebread’s argument, as I have understood it, is that it can be properly inferred that the Bank did not intend to increase its exposure in the Real Estate Sector:
(1) there is a lower ceiling for Real Estate Sector contained in this internal Bank policy document when compared with other sectors
(2) the fact that the policy document and the other documents disclosed do not expressly state that the Bank intended to increase its exposure to the Real Estate Sector
(3) the policy document provides a preference for customers who purchase properties for their own use
(4) the Banks witnesses namely Mr Gupta and Mr Kumar said in evidence that the Bank wanted to increase the Bank’s exposure in all sectors and this is inconsistent with the representation relied upon
(5) in a schedule that Mr Cakebread introduced himself into evidence, based upon figures provided by the Bank, it was clear that overall lending by the Bank’s London main office reduced in the period 30 November 2005 to 31 January 2006. It was also clear that the amount advanced in the Real Estate sector, whilst actual loans increased over that period, if one included those in the pipeline, there was an increase between 30 November 2005 to 31 December 2005 but a dip between 31 December 2005 to 31 January 2006.
I do not accept Mr Cakebread’s submissions. The policy document referred to merely identified the overall limits to the exposure of the Bank. It is clear that whereas the policy provided a limit of 15% of the total advances for the centre in question in respect of the Real Estate Sector the actual percentage for the Bank’s London main office, including those in the pipeline, rose from 9.9% in November 2005 to 12.8% by the end of January 2006. Therefore in respect of a statement made in October 2005 there was ample headroom whereby the Bank could increase its exposure to the Real Estate Market and still comply with the ceiling imposed by the Bank’s policy document.
Furthermore not only do I find that there was headroom that would enable the Bank to increase its exposure to the Real Estate Sector at the relevant time but I find that all of the evidence points to that being exactly what the Bank was aiming to do:
(1) in the Schedule which Mr Cakebread himself produced it shows that the total amount of exposure at the main office in the Real Estate Sector rose from £60.436 million as at 30 November 2005 to £68.287 million as at 31 January 2006. When compared with the total amount of actual advances as at that date at the main office that is an increase from 8.05% to 11.42%.
(2) in the evidence of Mr Gupta and Mr Sushil Kumar they informed the court that at that time the Bank was looking to increase its exposure in the Real Estate Sector as it was with all sectors. At one point it was suggested on behalf of Mr Riat that expansion in all sectors was not consistent with saying the Bank wanted to particularly expand in the Real Estate Sector. There is nothing in such a point. The representation allegedly relied upon by Mr Riat was that the Bank wanted to increase its exposure to the Real Estate Sector not that the Bank want to increase its exposure in that sector above other sectors.
(3) in the Memorandum for Chief Executive (3/479) it is stated at page 5 thereof that the London branch would see the redemption of IMD linked loans of $105 million in December 2005 and “we have been on the look out for local advances secured by mortgage of properties.” This makes it clear that following redemption of the IMD linked loans that the main office would have an increased ability to lend to local customers where there was security by mortgage of properties and it was actively seeking to do so.
(4) Finally, at several points in the evidence Mr Riat was asked why he considered the representation to be false. He appeared to rather fazed by the question:
Q. So what makes you say that what Mr Singh told you about the bank’s wish to expand its business in the property sector was untrue? Why have you alleged that? A. Sorry, I didn’t say it is untrue. That is my statement, that the bank wanted to expand their business in the property sector.
I refer to the transcript at Day 4 page 111 line 7 to page 112 line 12.
It is correct to say that the policy document contained a preference for those who were existing customers to purchase properties for their own use however that preference does not render untrue the statement relied upon. The Bank might still have wished to increase its exposure to the Real Estate Sector whilst having a preference for existing customers who wanted to buy their own homes and I find that it did so intend.
In my judgment the statement which is likely to have been made only by Mr Singh was not untrue. It represented the clear understanding of the desire by the Bank or at least the Bank’s main office to increase its exposure to the Real Estate Sector.
Even if I had found that the representation was untrue I would not have found that it was negligent to have made such a statement. No particulars of negligence are set out in the Re-Amended Defence and Counterclaim. Mr Cakebread seeks to rely upon the Bank’s policy document to make out a case in negligence on the basis that the policy document was not followed. That does not follow. First there was no evidence that Mr Singh should have been familiar with the policy document. Secondly, Mr Singh’s understanding was likely to be the same as Mr Kumar’s understanding namely that the Bank’s intention was to increase exposure in the Real Estate Sector as with all other sectors and this view was shared by the then Chief Executive Mr Gupta who was responsible for sanctioning such lending. Mr Riat’s case in demonstrating that the statement, if untrue, was made negligently did not begin to get off the ground.
It is not necessary for me to consider reliance but in my judgment such a representation is more than a mere puff and is capable in principle of being relied upon. However in my opinion this is not a representation which the Company or Mr Riat actually relied upon. It was clear that Mr Singh was about to retire and it was also clear to Mr Riat that the personnel dealing with such loans was not Mr Singh but Mr Kumar and Mr Gupta. The fact that, as I have found, Mr Kumar did not make such a statement and Mr Riat did not ask Mr Kumar to confirm what he had been told by Mr Singh leads me conclude that the statement was not relied upon. Mr Riat and the Company were focussed on the key terms namely the loan to value ratio and the interest rate for the loan in question.
Likewise I do not need to consider the issue of causation. However, lest I be wrong, if the representation had been untrue and had been relied upon to any extent in my judgment I find that the Company would have entered the facility agreements in any event and Mr Riat would have entered the guarantees in any event. The key points of interest for Mr Riat were, as I shall expand upon below, the interest rate available and the loan to value ratio. Any particular intention by the Bank to expand in the Real Estate Sector was, on the evidence before me, of no importance to the Company or Mr Riat.
The defence based upon misrepresentation fails. Mr Riat has failed to discharge the burden of proving that the representation was false and in any event that it was said negligently. I also find that the statement, that was probably made only by Mr Singh, was not relied upon by Mr Riat given Mr Singh’s role in the Bank. I also conclude that the Company would have entered the facility agreements and Mr Riat would have entered both guarantees in any event.
Part 6: Economic Duress
There was no dispute as to the relevant principles in respect of economic duress. It is well settled that duress is not a tort and is only actionable in the sense that a party who has been a victim of duress can commence proceedings to set the agreement aside: The Universe Sentinel [1982] 2 All ER 67 at 76g-h.
One of the defining features of economic duress is that it involves illegitimate pressure meaning that it is without any commercial or similar justification. Illegitimate pressure must be distinguished from the rough and tumble of normal commercial bargaining and will depend upon a consideration of all of the circumstances in any given case.
In Carillion Construction Ltd v Felix (UK) Ltd [2001] B.L.R. 1; 74 Con. L.R. 144, Dyson, J cited the passage from his own judgment in DSND Subsea Ltd (formerly DSND Oceantech Ltd) v Petroleum Geo Services ASA [2000] BLR 530 at §113:
“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: see Universal Tankships of Monrovia v ITWF [1983] AC 336,400B-E, and The Evia Luck [1992] 2 AC 152, 165G. 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 has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.”
The party asserting duress carries the burden of proving causation, and must prove that the duress was a “significant cause” inducing that party to enter into the agreement: DSDN Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530 following Dimskal Shipping Co SA v International Transport Workers Federation [1992] 1 AC 152 at 165G.
Mr Riat’s case on economic duress in respect of the first guarantee is as follows. The Bank’s representatives did not mention the requirement of him providing a personal guarantee in respect of the first facility until 14 December 2005 by which time the relationship with Natwest was terminated, it was too late for the Company to seek out alternative lenders who would not require a personal guarantee and in any event the Company was under pressure to complete on the purchase of two properties namely 63A St Stephens and 723 Bath Road.
Much of the trial was taken up with examination concerning whether there was any mention of a personal guarantee by the Bank’s representatives at the party on 17 October 2005 or at the meeting on 15 November 2005. Mr Kumar gave evidence that he mentioned a personal guarantee would be required at the party on 17 October in his discussions with Mr Riat. Mr Riat is adamant that no such discussion took place on 17 October at what was a social event, albeit it was also a networking event, with many other people present. Although the evidence is finely balanced in my judgment there was at least some reference by Mr Kumar to a personal guarantee at the party and also on some date subsequent to it but prior to the meeting on 15 November. The letter of 11 November referred to the need for a Statement of Assets and Liabilities from Mr Riat and enclosed the form for him to complete. It is unlikely that this would have been sent to Mr Riat without at least some explanation as to why it was required. I prefer Mr Kumar’s evidence in this regard.
In any event I find that there was a discussion about the personal guarantee on 15 November 2005 because Mr Kumar was well aware that there was one document that he had requested be provided to him and which had not in fact been provided, the Statement of Assets and Liabilities. Mr Kumar was an experienced manager at the Bank. The requirement of a personal guarantee was standard practice under the Bank’s policies unless there was a good reason to waive the requirement. Mr Riat maintained in his evidence that because Mr Kumar did not make a note at the time that there was a requirement for a personal guarantee this was evidence that there was no such mention of a guarantee. He contrasted this with the situation in respect of the second guarantee when Mr Kumar did make a handwritten note of the requirement for a guarantee. On the balance of probabilities I find that Mr Kumar did in fact state at the meeting on 15 November that Mr Riat would need to provide a personal guarantee. The absence of a note of this being mentioned by Mr Kumar at this meeting was indicative that Mr Kumar did not consider at that time that it would be such an issue for Mr Riat. Clearly by the time the second guarantee came to be discussed in 2006 the Bank was aware that Mr Riat had been reluctant to provide the first guarantee, hence it was more cautious and kept a better note of the discussions.
I am also satisfied that Mr Riat, irrespective of Mr Kumar mentioning the personal guarantee, knew the implications of being sent a Statement of Assets and Liabilities form not only on 11 November 2005 but also again on 21 November 2005 and that it was to provide evidence that he could provide a worthwhile personal guarantee to support the Company’s application:
(1) Mr Riat was reasonably punctual in returning the other documents that had been requested by the Bank. His delay in returning the Statement of Assets and Liabilities after two requests were made was, in my judgment, because of his reluctance to enter into a personal guarantee. For him to be reluctant to return the forms he had to be aware of the reason why the Bank wanted detailed information about his personal properties including current valuation and indebtedness;
(2) Mr Riat is an intelligent man. He was an experienced businessman and a qualified structural engineer. He accepted in evidence that he knew that a personal guarantee meant that the properties in his personal name would be at risk but said he did not know the full implications of a guarantee. If he was unclear as to why he had been asked for the information about his personal assets and liabilities he could have inquired of the Bank why it was necessary but he made no such enquiry. The reason he made no inquiry is that he knew very well that the Bank wanted a personal guarantee.
In his letter of 14 December Mr Riat said “Further to our various meetings and negotiations, after careful consideration I regret to inform you that I cannot offer the bank any personal guarantees. This was not mentioned at our earlier meetings”. In my judgment this at least supports the recollection of Mr Kumar that at the meeting on 15 November 2005 the need for a personal guarantee was discussed. The decision not to provide a guarantee relayed by Mr Riat in the letter of 14 December was based upon “various meetings and negotiations” and contrasts those with “our earlier meetings.”
Furthermore when Mr Gupta spoke to Mr Riat on the telephone on 14 December and explained that a personal guarantee was essential otherwise the Bank would not proceed with the loan there was no strong protest from Mr Riat. True it is he was very reluctant to provide a personal guarantee and relayed that to Mr Gupta but on any showing this was a short telephone call during which he agreed to provide the personal guarantee. According to Mr Gupta the call lasted a few minutes and according to Mr Riat it lasted about 15 minutes. On either version the personal guarantee did not feature as a major issue again and there was no letter of complaint even after Mr Riat obtained independent legal advice which certified that legal advice had been given prior to signing the first guarantee and that the solicitor was satisfied that Mr Riat has provided the guarantee of his own free will and without pressure.
I also take into account that in August 2006 Mr Riat signed another personal guarantee to secure the second facility for the Company. There was no suggestion of any protest or any reluctance in respect of entering that guarantee. Mr Riat maintained that he felt he had no option but to enter the second guarantee because the Company had already entered the first facility. That is not true as he could have maintained the facility with the existing lender. There was no proper explanation as to why the second guarantee should have been objected to any less than the first guarantee. In my judgment the reason there was no opposition to the second guarantee was because Mr Riat simply accepted it was the Bank’s standard procedure. The Company however had the option to go elsewhere for its re-financing or remaining where it was.
I reject the defence of economic duress in this case for the following reasons:
(1) Mr Riat was informed by Mr Kumar of the need for a personal guarantee by the time of the meeting on 15 November 2005 at the latest and most likely prior to that date. This was almost two months before Mr Riat signed the guarantee on 10 January 2006 giving him enough time to continue discussions with other banks;
(2) Mr Riat knew when he had been asked to complete a Statement of Assets and Liabilities in the letter of 11 November 2005 in respect of his own finances that this was to demonstrate that he could provide a personal guarantee and he knew that the Bank wanted a personal guarantee. I reject any suggestion by Riat that he did not know that this was the reason for the Bank’s request;
(3) the Company had the ability to obtain re-financing elsewhere. In his evidence Mr Riat gave evidence as to how he was being approached by other institutions even up to one week prior to completion with the Bank. In the letter of 14 December 2005 Mr Riat does not suggest that he has no other option but stated “If you decide to go ahead please call me at the earliest.” In early January Mr Riat has received indicative terms from Handelsbanken. He did not pursue those terms because he preferred the terms offered by the Bank even with a personal guarantee;
(4) Mr Riat received independent legal advice from John Ryan a partner in Bennett & Ryan who provided a certificate to the Bank in respect of Mr Riat signing the first guarantee “I am of the opinion that he appeared to me to understand my advice and executed the Security Documents on his free will without any undue influence/duress and that he has understood the contents of the Security Documents being entered into by him voluntarily knowing that in the default by the borrower as defined in the Letter he is personally liable for all indebtedness to the bank and the properties maybe sold.” There was no letter of protest at the time the first guarantee was signed. Given the provision of legal advice it is properly to be inferred that, if there was duress, Mr Riat would either not have proceeded with the transaction on behalf of the Company or there would have been a letter setting out the position.
In my judgment Mr Riat was not placed under any significant pressure by the Bank let alone illegitimate pressure. The requirement of a personal guarantee is not unusual in the context of corporate lending. The need for a personal guarantee had been brought to Mr Riat’s attention by 15 November 2005 at the latest and most likely at an earlier date. The evidence shows that he had other options for refinancing with other institutions and had sufficient time to obtain independent legal advice before signing the guarantee, which opportunity he availed himself of.
The overwhelming evidence in this case is that the most important motivation for Mr Riat choosing the Bank for refinancing was that it was prepared to provide a 75/25 loan to value ratio on the Bremic Hotel which would enable some further funds to be released to enable the purchase of other property. Mr Riat accepted that the loan to value ratio on offer was very attractive as was the interest rate. I note in particular Mr Riat’s evidence on Day 4 page 65 line 21 to page 67 line 2.
One of the factors relied upon by Mr Riat in suggesting he was under great pressure was that the Company needed to complete the purchase of two other properties from the monies that would be made available through the refinance with the Bank. One was 63A St Stephens and the other was 723 Bath Road. The property at 63A St Stephens did not complete until March 2006. The property at 723 Bath Road completed in August 2006. I am not at all satisfied on the evidence before me that the Company or Mr Riat were under any significant pressure in respect of completion on these two properties. I have not been shown any communications or documents to show vendor’s exerting any pressure on Mr Riat let alone any pressure of which the Bank was made aware. The Bank was certainly not responsible for any such pressure that did exist.
Furthermore I find that even if the Bank had not mentioned the need for a personal guarantee until 14 December that could not be described as illegitimate pressure which could give rise to economic duress. On 14 December the Bank was still in the course of negotiating with Mr Riat. The Bank was not obliged to advance any monies and Mr Riat was not obliged to accept any loan from the Bank. The full terms of the loan had yet to be determined. Mr Riat relies upon the Memorandum at 3/485 in which it is stated by the bank’s personnel that “Having regard to the poor net worth of the company, we persuaded Mr Riat to offer his personal guarantee.” The Memorandum also referred to the Dun and Bradstreet Report that identified the Company as a “higher than average risk”. Mr Riat’s reliance upon this part of the Memorandum to show a volte face by the Bank is misplaced because a personal guarantee was standard practice for the Bank in any event. Furthermore in such circumstances even if the need for a personal guarantee had not been mentioned until 14 December the Bank was fully entitled, apart from anything else, on the basis of the financial information available to insist upon such a guarantee given the risk identified in respect of the Company. Such a request could not be said to be illegitimate or to be without commercial justification. There was no concluded agreement and the Bank was free to walk away from the negotiations as was Mr Riat also free to walk away.
Finally, in my judgment Mr Riat has delayed far too long in seeking to set aside the first guarantee for economic duress. The guarantee was entered into on 10 January 2005 and the claim to set it aside was first raised in the draft Amended Defence and Counterclaim served on 18 July 2011. During that time the loans to the Company have been rescheduled through negotiations between the Bank and the Company acting by its director Mr Riat whilst Mr Riat would at all times have been aware that the first guarantee existed and was relied upon by the Bank. In my judgment whilst the period of time in which a victim of economic duress must apply to set aside an agreement will vary depending on the circumstances, in the present case there was no proper excuse for the delay and Mr Riat would, had I found that there had been economic duress, be taken to have lost that right to have it set aside by reason of delay.
Part 7: Conclusion
For the reasons set out herein I find for the Bank on the claim. The counterclaim is dismissed.
There will be judgment for the Bank for the amounts due under the first and second guarantees. In the absence of agreement between the parties I will hear further submissions in respect of the terms of the order, the precise amount of the judgment including accrued interest as well all issues of costs and any consequential or further orders that are sought. I ask that Counsel liaise to agree the draft order in so far as possible.
O’Sullivan v. Weisz
[2005] IEHC 74 (=
JUDGMENT delivered by FINNEGAN P. on the 18th day of March 2005.
This is a motion by the defendant seeking the following reliefs –
“(a) Vacating the lis pendens registered by the plaintiff in this action on the 3rd February, 2004 on the grounds that the proceedings had been brought and pursued in bad faith.
(b) The costs of the application.”
The facts giving rise to the present proceedings appear from the Affidavits filed in the matter of which there are four by the Defendant and two by the Plaintiff and the exhibits thereto.
The Plaintiff who is a farmer engaged in a number of transactions in which he borrowed monies. The first of these was with the Wise Finance Company in respect of an advance of IR£100,000 on foot of a commitment letter dated the 11th August, 1997. The actual sum advanced was IR£80,000. The copy of the commitment letter available to me has copied poorly but as I understand the position the deduction of IR£20,000 is accounted for by the deduction of a commitment fee and prepayment of the instalments of IR£2,000 per month for the seventh to twelfth month of the agreement. The loan was secured on three folios, folio 18746, folio 18848 and folio 27377F of the Register County Tipperary. The Plaintiff retained a solicitor in relation to the loan transaction. The Plaintiff failed to make repayment in accordance with the terms of the loan and proceedings for possession were instituted against him. He consulted a different solicitor in relation to these proceedings. On the 24th July, 2000 the defendant obtained an order for possession on consent together with an order for costs but with a stay on those orders for three months. That order remains in place.
Over the months following that judgment the plaintiff made attempts to obtain alternative finance. Early in 2001 he entered into negotiations with one Tony O’Meara which resulted in terms being agreed but not reduced to writing and signed. Under these terms Mr O’Meara was to purchase the lands in folios 18746 and 27377F and 18848 of the Register County Tipperary for the sum of IR£165,000. Further the Plaintiff was given an option to repurchase the lands within thirty days of the date of the contract for IR£195,000 or within three hundred and sixty five days at the price of IR£206,000.
Mr O’Meara did not proceed with the transaction. Mr O’Meara withdrew from the proposed agreement and the defendant was told of this on the 3rd August, 2001. The defendant then told the plaintiff that he personally would be willing to enter into such an agreement with him and this was in fact done on the 8th August 2001. Again the Plaintiff instructed a solicitor in relation to this transaction. The agreement which was signed between the Plaintiff and the defendant differed from that proposed between the plaintiff and Mr O’Meara in that the period for the first option was increased to sixty days. At the expiration of the sixty day period the sale to the defendant was completed by correspondence between solicitors in November and December, 2002.
The Plaintiff then instructed a different solicitor and on the 12th December, 2002 proceedings were instituted by him naming the defendant herein and the Wise Finance Company Limited as Defendants and seeking by way of relief rescission of the agreement for sale between the Plaintiff and the Defendant and an order vacating the High Court order for possession. These proceedings were compromised. At the date of the compromise the Defendant had entered into an agreement to sell two of the folios to a Mr Tighe. The terms of the compromise were that the proceedings should be discontinued and the lis pendens vacated and that the third Folio, Folio 18848 County Tipperary should be sold to the Plaintiff for the sum of €50,000 the sale to be closed within the calendar year 2003 but subject to interest being paid at 1% per month after 31st December, 2003 the sale could be closed up to the 31st December, 2004.
While the compromise was proceeding the Defendant arranged further facilities to be provided to the Plaintiff in the amount of €60,000 secured on lands in Folio 12165 of the Register County Tipperary by a company Secured Property Loans Limited.
It would appear that at all times the Plaintiff was anxious to raise finance elsewhere at a lower rate of interest and discharge his indebtedness but he failed in his endeavours to do so.
The case which the Plaintiff makes in his Statement of Claim can be summarised as follows –
The Defendant is a Director of Wise Finance Company Limited and Secured Property Loans Limited. In 1997 the Plaintiff borrowed IR£100,000 from Wise Finance Company Limited secured by a charge on his lands. He defaulted in repayment and proceedings were instituted against him and in which an Order for possession of the lands charged was obtained on consent on the 24th July 2000. On the 8th August 2001 the Plaintiff entered into an agreement with the Defendant to sell to him the charged lands for IR£165,000 the lands at that time having a value of some IR£500,000 the Plaintiff being given the option to repurchase the lands and which have now expired. Under the terms of the agreement of the 8th August 2001 the Plaintiff was obliged to pay stamp duty, land registry fees, solicitors fees and brokers fees which total IR£13,550: in order to do this he obtained a loan from Secured Property Loans Limited secured on the lands in Folio 12165 of the Register County Tipperary. The Plaintiff then issued the proceedings which were the subject matter of a settlement agreement reached in January 2003.
The Plaintiff claims that the contract of the 8th August 2001 was entered into by him as a result of duress or undue influence of the Defendant or that in the alternative it constituted an unconscionable bargain. Further the settlement entered into in January 2003 was likewise entered into as a result of duress or undue influence and represents an unconscionable bargain. The relief sought accordingly relates to the contract of the 8th August 2001 and the settlement of January 2003. In relation to the Order for possession obtained by Wise Finance Company Limited relief against the same in terms of having it set aside is not sought but the Plaintiff seeks to restrain proceedings on foot of the Order for possession pending the outcome of the present proceedings.
A judgment given or an order made by consent may in a fresh action brought for that purpose be set aside on any ground which would invalidate a compromise not contained in a judgment or order: Weilding v Sanderson (1897) 2 CH 534, Hickman v Berens (1895) 2 CH 638. Thus a compromise may be set aside on the ground that it was illegal as against public policy, or obtained by fraud, or misrepresentation, or non disclosure, or was concluded under a mutual mistake of fact. Specifically a compromise can be set aside on the ground that it was obtained by duress: Cumming v Ince (1847) 11 Q.B. 112. Thus the compromise and the agreement sought to be set aside by the Plaintiff in these proceedings can be set aside on the grounds of duress. Duress can encompass economic duress. A compromise gains no additional status by being embodies in an order or by being made a Rule of Court.
Counsel for the Defendant drew my attention to the decision of the Court of Appeal in Binder v Alachouzos 1972 2 All ER 189 and dicta of Phillimore LJ therein. In that case the Court refused to set aside a compromise of an action which had been freely negotiated between the parties on the advice of experienced Counsel and solicitors on both sides. Phillimore J. stated that the Court ought to be very slow to look behind an agreement reached in such circumstances. However I am satisfied that this dicta relates to the attitude which the Court should adopt on an action taken to set aside a compromise but falls far short of saying that the Court ought never set aside such a compromise.
I do not propose to comment on the strength of the Plaintiff’s case as I do not consider that to be relevant on the present application. However I am satisfied that the Plaintiff’s case as pleaded is one that could succeed. In these circumstances it ought not to be struck out as an abuse of process as being a case disclosing no reasonable cause of action.
In the ordinary course to compromise proceedings and then instituted fresh proceedings seeking substantially the same relief or in the alternative raising matters which ought properly to have been raised in the compromise proceedings could lead to a successful application to strike out the proceedings as an abuse of process. In this regard see Carroll v Law Society of Ireland Unreported Kelly J.* In this case however the Plaintiff contends that the compromise was procured by duress, undue influence or in the alternative represents an unconscionable bargain and to this extent there remains the possibility that the compromise will be set aside. In these circumstances the present case can be distinguished from Carroll v Law Society of Ireland and I am satisfied that it would be inappropriate to strike out these proceedings as an abuse of process.
Finally I have been informed by Counsel that there is pending before the Master a motion to add further parties to these proceedings namely the Wise Finance Company Limited, Secured Property Loans Limited, Home Funding Corporation Limited and also the purchasers from the present Defendant of two of the Folios in issue between the Plaintiff and the Defendant. This Motion stands adjourned before the Master pending determination of this application. That Motion should be re-entered before the Master as quickly as possible so that these proceedings can be progressed. It is in the interest neither of the Plaintiff nor the Defendant that there should be further delay. To ensure that these proceedings are determined as promptly as possible I propose assigning a Judge to case manage the same to whom all applications in the matter hereafter shall be made.
*Delivered the 2nd May 2001. Counsels’ Note.
Approved:
Finnegan P.