Legal Case Summary
Pao On v Lau Yiu Long [1980] AC 614
Summary: When past consideration is good consideration.
Facts
The plaintiffs (P) owned the shares of a private company which owned a building that the defendants (D) wanted to buy. The defendants were majority shareholders in a public company. P agreed to sell their shares in the private company to D so that D could acquire the building. In return P would get shares in the public company. Fearing a drop in share value of the public company would result, P and D made another agreement that P would not sell their shares for a while. However, P realized that D might profit from this agreement and demanded that this second agreement be replaced with one in which P was indemnified for any fall in share value but might also benefit from any rise in share value. Fearing that not agreeing to this would delay the main contract, D agreed. The share value did drop, and P sought to rely on the indemnity contract. D refused to comply with this, and the case reached the Privy Council.
Issues
The defendants claimed that the consideration for the indemnity agreement was past consideration and had only been agreed to under duress.
Decision/Outcome
The court found for the plaintiffs. Applying the exception to the doctrine of past consideration in Lampleigh v Braithwaite (1615) Hob 105 Lord Scarman said that an act done before a promise was made was good consideration for that promise if it was done at the promisor’s request and the parties understood the act was to be paid for at a later date, and the payment or benefit would have been enforceable had it been promised in advance.
Updated 20 March 2026
This case summary remains legally accurate. Pao On v Lau Yiu Long [1980] AC 614 continues to be good law in England and Wales, and the three-part test for past consideration derived from Lampleigh v Braithwaite (1615) as articulated by Lord Scarman remains the authoritative statement of the exception to the past consideration rule. No subsequent statutory change or appellate decision has materially altered this principle. The case is still widely cited in contract law textbooks and by the courts. Readers should note that the article does not address the duress aspect of the case in any depth; the Privy Council’s treatment of economic duress in this case is also frequently cited as an important authority on that separate doctrine, and students researching economic duress should consider that dimension of the judgment alongside the consideration issues discussed here.
