Samson and Tara Candle Contract

Introduction

This essay responds to a situation which relates to possible application of economic duress. A brief description of facts is provided here to give the context and background of this essay. The facts of the scenario relate to a contract of deliveries of candles to be made by Samson to Tara for specialty candles for the pre-Christmas trade for £1,000. Samson failed to make a number of deliveries, for which he blamed a minor heart attack and rise in petrol prices 300%. He asked for increase in price to £3,000 and reduction in the number of deliveries by 40%, else he would not be able to make deliveries. Tara agreed as she felt she had no choice at this stage. The principal issue that this essay addresses is whether Tara has a claim of economic duress against Samson.

Economic duress relates to a pressure asserted or threats made by one party to the contract that they will not perform the contract with the other party unless the terms of the contact are varied in their favour. Duress is an important category of cause for vitiation of contract between two parties. The principle of economic duress is a relatively new development in contract law. The application of commercial pressure to bring a party to the contract to agree to new conditions that are favourable to the party exerting the pressure is a consideration that may make the court set aside a contract as vitiated due to application of economic duress. Therefore, a situation which involves the application of commercial pressure by one party against the other can render the contract void because the law places a restriction on the performance of economic privilege by contracting parties.

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It is also pertinent to note the significance of freedom of contract, as this is one of the core principles of contract law. The principle of freedom of contract is a classical principle of the contract law, which provides that the parties to the contract are guided by their free will and reciprocal bargains when agreeing to contractual rights and obligations, and there should be least interference with the freedom of parties. Freedom of contract is one of the goals of the court, and the courts do ensure that contracts are not interfered with unnecessarily in order to preserve freedom of parties. However, freedom of contract principle is not applicable where one party to the contract has not been able to exercise their free will due to the application of coercion or duress by the other party. There are two elements that form the core of the economic duress application. The first is the application of illegitimate economic pressure by the other party to the contract. The second is the evidence that "but for" illegitimate economic pressure, the claimant would have denied entering into the contract.

This essay will consider the elements of economic duress in context of the case scenario involving Tara and Samson.

Application of Economic Duress

For the purpose of application of economic duress, there are five conditions that must be proved by the claimant for the purpose of establishing economic duress. These five conditions are:

Pressure was exerted on the contracting party. The pressure was illegitimate. The pressure induced the claimant to enter the contract. The claimant had no real choice but to enter the contract. The claimant protested at the time or shortly after the contract was made. In the recent case of Kolmar Group AG, the court decided on the remedies available to a party to a contract where the other party refused to comply with a contract unless the terms of the contract were changed in its favour. This case is significant because it shows that in the current commercial recessionary climate, parties to the contract must be careful not to exert pressure that is illegitimate commercial pressure for forcing the other party to agree to conditions that the other party would not have agreed to but for the pressure exerted.

The first issue in this case scenario is whether pressure was exerted on Tara. Economic duress was first introduced in the case of Simeon and Sibotre, wherein the court had held that economic pressure could lead to the vitiation of contract between parties if it was shown by the claimant that such economic pressure has led to the coercion of the will of the party. In North Ocean Shipping, economic due process was established for the purpose of setting aside a contract where the defendants had demanded an increase in consideration by 10 percent due to the similar increase in the value of the Dollar. In Pao on, the court asked four questions for the purpose of determining whether there was economic duress exerted on the claimant. The first question was whether the claimant protest against the new demands of the defendant. The second was whether there were any available courses of action for the claimant. The third was whether the claimant had been advised independently. The fourth was whether they took steps to avoid the coercion. In The Universe Sentinel, clarification was provided on economic duress by Lord Scarman who held that main question is not lack of will of the claimant, but the intentional submission to the demands of the defendant due to the claimant’s realisation that there is no other practical choice available to him but to submit to this will. This

point is essential to the current situation with Tara, because she submitted to the demands of Samson, knowing that there was no other choice but to submit to the demands. Lord Hoffman’s dicta in R v Attorney General for England and Wales, is illuminating on the issue of exertion of pressure. In this case, Lord Hoffmann recognised the existence of two principal elements in economic duress, the first being extreme pressure and the second illegal pressure. Pressure itself is defined as compulsory acceptance to the contracting party. In Cumming v Ince, evidence of pressure was held to be an important first step towards establishing economic duress. In this case, a private mental asylum inmate was made to sign away the title to her property under the threat that her committal order would not be lifted otherwise. The fact that the claimant protested against such demands was considered to be the evidence of pressure in the case. However, as per the judgment of Lord Scarman in The Universe Sentinel, the important question is not whether the claimant protested against the demands or not but whether the claimant thought that there was no other practical choice available to but to submit to this demand. Similarly, the recent case of Kolmar Group AG, also provides that what is important for establishing economic duress is whether the claimant had a choice, and not the absence of protest on the part of the claimant. Therefore, the fact that Tara did not protest against Samson’s demands is not significant to deciding whether pressure existed for her to submit to the demands; rather what is important is whether Tara had no other practical choice in the matter but to submit to the demand made by Samson.

A contract can be set aside where there is evidence of coercion which amounts to pressure. The important consideration would be whether there was pressure on the claimant, for which she needs to prove that there was no other practical option available to her other than to submit to the demands being made by Samson. Samson’s failure to make a number of deliveries between February to December is a significant point in the matter. In December, Tara was under pressure to ensure that her Christmas trade did not suffer due to non-delivery of the candles.

Based on the authorities discussed in this section there is a possibility that Tara acted under pressure exerted on her by Samson. If this is proved in the court, the consequence would be to entitle Tara to avoid the agreement and obtain a refund from Samson.

In R v Attorney General for England and Wales, it was held by Lord Hoffman that the legitimacy of the pressure exerted on the claimant has to be examined from two aspects. The first aspect relates to the nature of the pressure and the second aspect relates to the nature of the demand of the defendant. It was also held that in general contexts, the threat of any form of unlawful action is illegitimate. However, this is not to say that a lawful threat would make the pressure illegitimate.

In Stilk v Myrick, the court refused to uphold the validity of consideration increased by the captain of a ship under the pressure created by the sailors that they would otherwise desert the ship. The court held that the sailors were bound by the agreement they entered into in the first place. In Atlas Express Ltd v Kafco, the claimant was pressured into accepting the demands of the defendant as the former had no alternative choice of transport; and had to accept the demands of the defendant in order to perform his contract with Woolworth. The court in this case held that the claimant was extremely overwhelmed by urgent situation, which led him to accept the demands of the defendant, which amounted to illegitimate pressure. Therefore, even legal acts can be unethical if these create an extreme situation for the claimant.

In a more recent case of Progress Bulk Carriers v. Tube City, the court held that there is a distinction between economic duress and the normal “rough and tumble” of commercial life and bargaining. Nevertheless, the court held that even if sometimes acts of the defendant are lawful, but they create extreme circumstances for the defendant, this would amount to economic duress. For this to happen, causation and illegitimate pressure should be shown by the claimant. In this case, illegitimate pressure was defined as having the following characteristics. First, that the defendant has acted in bad faith. Second, that the claimant was left with no other realistic practical alternative and therefore, submitted to the pressure exerted by the defendant. Third, that the claimant made some protest. Fourth, the claimant affirmed and sought to rely on the contract. An important element of economic duress that was pointed out in this case, and which has relevance to the present case of Tara, is that the defendant’s acts were considered illegitimate because of the repudiatory breach, the threat of which forced the claimants to accept the settlement proposal made by the defendant and to which the claimants had no other realistic practical alternative. The same situation is also found in the present case as Samson has asserted repudiatory breach in case Tara does not agree to pay the increased amount that Samson is now claiming. This can be considered to be illegitimate in light of the authorities discussed in this section because Tara was left with no reasonable alternative in case of repudiation of contract by Samson. Therefore, faced with this extreme circumstance so close to the date of the Christmas, she was forced to agree to the conditions laid down by Samson. The fact of repudiatory breach is very significant in this case and may be considered relevant to establishing the illegitimacy of the pressure exerted by Samson on Tara.

Applying the principles of these cases to Samson and Tara’s case, economic duress which is legally enforceable is highly possible in the present case.

Issue Three

The third issue is whether the pressure exerted by Samson induced Tara to enter the contract.

Dyson J in DSND Subsea Ltd v Petroleum Geo Services ASA, held that pressure exerted by the defendant must be such that it results in compulsion on the part of the claimant to agree to the terms and conditions laid down by the defendant or such pressure must be the significant cause for the claimant to enter the modifications into the contract. However, Dyson warned on the importance of being able to distinguish between illegitimate pressure and the ‘rough and tumble’ of commercial exchanges.

Similar guidelines were laid down by the court in Carillion Construction Ltd v Felix. The Carillion Construction case is also relevant to the current scenario as the facts of the case show that the defendant threatened to breach the contract unless the claimant agreed to pay over and above the amount agreed to in the first place. This is similar to the current scenario, where Samson refused to make the deliveries unless Tara agreed to pay three times the amount agreed on earlier. In Carillion Construction case, the court held that because the defendant told the claimant that the work would cease unless the claimant agreed to pay more money, there was a threat to breach the contract on the part of the defendant; this meant that there was an illegitimate pressure that was applied to make the claimant give in to the demands of the defendant. On the question as to whether pressure is exerted over the claimant, consideration is given to the link between the demands of the defendant and the action of the claimant in giving in to the demands for lack of another alternative. As per the judgment of the court in Carillion Construction, under such circumstances, there is pressure exerted on the claimant.

Considering the principles laid down in the cases discussed in this section, it may be noted that there is a possibility that Tara was pressurised into submitting to the demands of Samson for paying three times more money than was earlier agreed to between them. That there was pressure can also be assessed from the fact that Samson refused to honour the contract unless Tara paid more money. Therefore, Samson was threatening to breach the contract in the event Tara failed to pay more. This amounts to pressure in the light of the authorities on this issue as discussed in this section.

The fourth issue is whether Tara had no real choice but to enter into the changed conditions in the terms of the contract. In DSND Subsea Ltd v Petroleum Geo Services ASA, the court held that the pressure that is exerted on the defendant must result in lack of practical choice for the claimant which is illegitimate, and a significant cause for the claimant agreeing to the conditions of the defendant. In the present case scenario, Tara had to make the candles available in time for pre-Christmas trade. As the date for the trading was drawing near, Tara was constrained to pay more to Samson because there was no alternative available to her at this time. Therefore, it can be said that Tara had no real choice but to enter into the contract with Samson.

The fifth issue is whether Tara protested at the time or shortly after the contract was made. It may be noted that this issue is important because this is an argument that can be made by Samson to counter the claim of economic duress by Tara. In the earlier jurisprudence, as seen in the case of Pao on, evidence of protest by claimant was held to be central to ascertaining economic duress. However, this is no longer the case as this section will show.

Although Tara did not protest at the time or shortly after the contract was made with Samson, the jurisprudence on this issue as laid down by some recent authorities, reflect that the fact of protest by the claimant is not essential to establishing economic duress. Two authorities may be mentioned here. In Universe Sentinel, the court held that the important question is not whether the claimant protested against the demands but whether he thought that there was no other practical choice available to him. In Kolmar Group AG, the issue of whether the claimant protested against the demands of the defendant, were held to be irrelevant if there was evidence that the claimant had no other choice but to give in to the demands of the defendant.

Considering the authorities on this issue, it may be reiterated that Tara’s lack of protest is not relevant to establishing economic duress in this case, if Tara can show that she was left with no choice but to comply with the conditions laid down by Samson for the performance of contract on his side. As Samson refused to perform the contract unless Tara paid more money, and this placed Tara under extreme circumstances, she may still be able to prove economic duress if she can show that she did not protest due to the absence of reasonable alternatives.

The remedies available to Tara in case of economic duress are rescission of contract and restitution of extra payment made. Rescission seeks to put the party in the position it was in before the contract by allowing the party to avoid the contract. The rescission of the contract leads to the obligation of the parties to return the monies, or properties exchanged. Rescission on the ground of economic duress may also mean that only the additional terms (extra payment) are rescinded and restitution of extra payment can be ordered.

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Conclusion

Based on the discussions above and the authorities considered in the above sections, Tara has a strong case for economic duress against Samson. Tara can claim that she acted in duress because Samson put her in extreme circumstances with his assertion that she either accept the new terms of contract or he shall not make the deliveries to her. Tara was therefore put in a difficult situation out of which she had no other reasonable alternative or option. Therefore, she agreed to pay more money than was earlier agreed to between them. There are two reasons why Tara can claim that the pressure put on her by Samson was illegitimate. First, Samson threatened to breach the contract unless she paid more. Second, she had no other reasonably suitable option but to agree to the conditions put forth by Samson. If Samson argues that Tara did not protest at the time or shortly after, Tara can still claim economic duress because recent authorities discussed in this essay put less emphasis on protest by the claimant and more on the consideration for whether there were other reasonable options available to the claimant. In case the claimant can prove that there were no other reasonable options available to them, the courts generally consider this to be economic duress. Therefore, after considering the authorities, it may be reiterated that Tara can claim economic duress against Samson.

List of Cases

  • Adam Opel GmbH v Mitras Automotive Ltd [2007] EWHC 3205 (QB).
  • Atlas Express Ltd v Kafco (Importers and Distributors Ltd) (1989) QB 833.
  • Adam Opel GmbH v Mitras Automotive Ltd [2007] EWHC 3205 (QB).
  • Barclays Bank plc v O’ Brien (1993) 4 All ER 417.
  • Carillion Construction Ltd v Felix (Ltd) [2001] BLR 1.
  • Cumming v Ince (1847) 11 Q.B. 112.
  • DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530.
  • Kolmar Group AG v Traxpo Enterprises PVT Limited [2010] EWHC 113 (Comm).
  • North Ocean Shipping v Hyundai Construction (The Atlantic Baron) [1979] QB 705.
  • Occidental Worldwide Investment v Skibs (The Sibeon & The Sibotre) [1976] 1 Lloyds Rep 293.
  • Pao on v Lau Yiu Long [1979] 3 All ER 65.
  • Progress Bulk Carriers Limited v Tube City IMS LLC [2012] EWHC 273 (Comm).
  • R v Attorney General for England and Wales [2003] UKPC 22.
  • Stilk v Myrick (1809) 170 EK 1168. The Universe Sentinel [1983] 1AC 366. Thorne v Motor Trade Association [1937] AC 797.

Books

  • Burrows A, A Casebook on Contract (Bloomsbury 2018). Stone R and Devenney J, Text, Cases and Materials on Contract Law (Routledge 2017).
  • Journals

  • Phillips J, ‘Protecting Those in a Disadvantageous Negotiating Position: Unconscionable Bargains as a Unifying Doctrine’ (2010) 45 Wake Forest L. Rev. 837.

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