Duress And Force In Contract Law

Contract law elucidates the obligations of parties involved in the contract process. Contract law in Australia involves two branches of jurisdiction: the decisions derived from case law and legislation of statutes and Acts of Parliament. A contract cannot be formed if there is a factor that interferes with a promise or agreement. This factor is called a vitiating element and causes the contract to become voidable or void, in which the innocent party have the option to rescind the contract (voidable) or to revert it back to the beginning, as if it never existed (void). There are four vitiating elements that affect the validity of a contract: mistake, misrepresentation, illegality, inequality between the parties (including duress, undue influence, and unconscionable or unfair conduct).

Inequality between parties occurs when one party has considerable power over the other in the form of threats, violence, and position of influence. This cancels the validity of a contract due to a lack of genuine consent or voluntary agreement from the innocent party.

Duress (in a contract) is a practice of inequality where a person is forced (through threats, coercion or extreme persuasion) to agree to the terms of a contract. A contract that ‘has been executed under circumstances of pressure on the part of the person who executes it, the court will set it aside’.1 If the innocent person agreed to the contract without the use of force, the party that made the threat is still liable based on the belief that the threat had an effect on the innocent person unless proved otherwise.2 Therefore, the contract is set aside (voidable). It must be taken to account that the force to compel the creation of the contract must be unlawful. For example, if the party was threatened but given sufficient time and warning to recover the terms of the contract, the contract would not be voidable since there is still a valid promise to complete.3

Duress and force is captured in the Competition and Consumer Act (No 3) 2010 (Cth) where ‘a person must not use physical force, or undue harassment or coercion, in connection with: the supply or possible supply of goods or services; or the payment for goods or services; or the sale or grant, or the possible sale or grant, of an interest in land; or the payment for an interest in land.’

Undue influence occurs when a person is unable to freely employ rational and independent reasoning. This inequality roots from abuse of confidence and trust between the parties involved. Contracts agreed under undue influence cannot be void, but is voidable by the innocent party. In the case of dependence on the other party where a relationship is present, the contract will be set aside on the basis that it was a result of undue pressure.4 The contract is voidable due to lack of genuine consent unless the party who benefited from the contract is able to provide evidence that the contract was free from influence. However, in cases with an ascendant party (e.g. a solicitor), as observed in Westmelton Pty Ltd v Archer and Schulman,5 the agreement is voidable if the ‘victim’ is coerced into forming the contract due to the confidence placed on the other person.

1 Ormes v Beadel (1860) 2 Giff 166; 45 ERR 649, cited in Thomson Reuters

2 Barton v Armstrong (1976) AC 104, Lord Wilberforce and Lord Simon of Glaisdale commented that there is no evidence that the contract was not agreed to due to the threats.

3 Scolio Pty Ltd v Cote (1992) 6 WAR 475, despite the threat to have the amount repaid, the contract could not be set aside because the amount was actually owing to the other party.

4 Johnson v Buttress (1936) 56 CLR 113, Starke J stated that Buttress depended on Johnson and so it could not be concluded with certainty that Buttress underwent the transaction free from undue pressure.

5 Westmelton (Vic) Pty Ltd v Archer and Schulman (1982) VR 205, the ascendant party was a solicitor who did not advise the clients to seek legal advice before declaring the contract.

In the case of unconscionable contracts, one party exploits a special disability or disadvantage of the ‘victim’ to pressure them into making an agreement. The circumstances of disability include ‘...poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary’.6 Louth v Diprose7 supports Competition and Consumer Act (No 3) 2010 (Cth) where ‘the person must not, in trade or commerce, in connection with the supply or possible supply of goods or services to another person, engage in conduct that is, in all the circumstances, unconscionable.’ Thus, similarly to undue influences, once a special disability or disadvantage has been recognised in the case, the person benefited from the deal must be able to show the equality for both parties, or it will be deemed voidable due to an absence of voluntary agreement.

6 Blomley v Ryan (1956) HCA 81 at 9.

7 Louth v Diprose (1998) 72 ALJR 1525. D exploited P’s disadvantage to manipulate him through unconscionable conduct.