Law Case Study

Contracts Voidable based on Economic Duress

            Economic duress is a ground for setting aside a contract. Universe Tankships of Monrovia v ITWF [1983] provides that an important element of economic duress is the presence of the compulsion of the will or economic pressure. However, this is difficult to prove in actual cases. Thus, the case provides guidance in determining acceptable pressure by directing the courts to look into the nature of the pressure based on the means used and the demand made based on the end sought. North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd. [1979] provides the lack of consideration as another important element justifying the setting aside of a contract. The case involved a contract to build a tanker but there was no agreement on foreign currency adjustments. Due to exchange rate fluctuations, the shipbuilder asked for an additional amount with a corresponding letters of credit, which the buyer paid under protest. Eight months after the tanker was built, the buyer asked for a refund of the excess amount paid.  The court held that there was economic duress there being a threat to break the contract if there was no payment. However, the buyer forfeited the right to claim a refund because eight months has already passed and the lapse of the period is deemed as an affirmation of the contract to pay an additional amount. The decision in Pao On v Lau Yiu Long [1980] held that the threat to break the contract does not constitute economic duress because the plaintiff agreed to pay more in order to avoid litigation. The case shows the difficulty in determining whether an action constitutes economic duress. The case provides that economic duress is a question of fact.

            Based on the facts given, there was economic duress because of the threat by the builder to break the contract if there was no additional payment. The plaintiff paid reluctantly to avoid delays in finishing the building. The plaintiff has reasonable grounds to claim a refund and damages on the ground of economic duress. However, there was a consideration for the additional price, which is the increase in the letters of credit. Thus, the action is justified by the presence of economic duress due to the threat to break the contract but not based on the lack of consideration.

Credit:ivythesis.typepad.com