INTRODUCTION

VALID & ENFORCEABLE CONTRACTS

A Contract is Valid and Enforceable if:-

(1) All ingredients of formation are present i.e. there is

(i) Offer & acceptance (agreement)

(ii) Certainty of terms (iii) Consideration (iv) Intention to create legal relations (v) Capacity to contract;

AND

(2) All vitiating factors are absent i.e. there is no

(i) duress/coercion (ii) undue influence (iii) misrepresentation (iv) mistake (v) illegality.

UNENFORCEABLE CONTRACTS

A contract is unenforceable if it is

(1) VOID ab initio due to Mistake; or

(2) VOIDABLE due to duress/coercion, or undue influence, or misrepresentation, and if it is

rescinded by the innocent party;

(3) DEFECTIVE due to incapacity; or

(4) DEFECTIVE due to illegality; or

(5) a contract for guarantee that is not evidenced in writing and not signed; or

(6) where the limitation period for enforcing the contract has expired.

VOID CONTRACTS

VOID – 2 meanings

(1) Nullity (void ab initio); no contract comes into being therefore unenforceable.

(2) Unenforceable under situations (2) to (6) in previous slide (see also Malaysian Contracts
Act 1950, s. 2).

 Mistake – no contract comes into being; but courts will assist in restoring parties to
their original positions

 Voidable contracts that have been rescinded – contract comes to an end; courts will
assist in restoring parties to their original positions
  Illegality – courts will not, generally, assist in enforcing or restoring parties to their
original positions

 Restraint of Trade clauses (void in Malaysian Law unless one of the exceptions applies);
in English Law – valid if reasonable, unenforceable if not)

VOIDABLE CONTRACTS

Voidable contracts:

(1) Are valid but can be set aside (voidable) at the option of innocent party;

(2) Are valid until rescinded;

(3) Become unenforceable, but only, if and when innocent party (i) rescinds or (ii) sets up the
vitiating factor as a defence

Rescission as a remedy for voidable contracts

Rescission (setting aside) of a valid contract is available but only to the innocent party in cases of:

(a) Duress (Coercion)

(b) Undue Influence

(c) Misrepresentation

Rescission means that the contract is set aside at the option of the innocent party

 for all purposes

 retrospectively (ab initio) and prospectively

 with the aim of restoring the parties to their original positions

 and right to damages for breach of contract is lost.

Rescission due to breach of contract

Another context in which the word ‘rescission’ is used:

 ‘Rescission’ sometimes refers to the rightful termination of a contract by the innocent party
because of breach of contract by the other party.
 ‘Rescission’ in this sense involves termination of the contract prospectively and allowing the
innocent party to claim damages for breach of contract. This type of rescission will be dealt
with under “Remedies for breach of contract”.

Mode of Rescission of Voidable Contracts

 Rescission does not occur automatically.

 Requires a positive act of
o either giving notice of rescission to the other party
 o or bringing legal proceedings for a court order for rescission.
 Although in Islington LBC v UCKAC [2006] EWCA Civ 340, Court of Appeal suggests that a court
order for rescission must be obtained the better view is that notification suffices even though
court orders no doubt are useful in many situations.

 Car Universal and Finance v Caldwell [1965] 1 QB 525, CA

On 2 Jan C sold his car to N who “paid” by cheque which was dishonoured on 13 Jan. C did not know
N’s whereabouts and immediately informed the police and the Automobile Association seeking their
help to recover the car.

Sometime after 13 Jan, N sold the car to M, and thereafter the car changed hands several times until
Car and Universal Finance bought it in good faith.

C sought to recover the car from Car and Universal Finance

Issue: Had C rescinded contract with N on 13 Jan? If yes, then he could recover the car; if not, he
could not.

Generally an election to rescind a contract must be communicated to the other party.

Exceptionally, if the wrongful party renders communication with himself impracticable,

communication is not essential to rescission.

In such circumstances election to rescind is sufficiently exercised if the innocent party at once, on
discovering the fraud, takes all possible steps to regain the goods, even though he cannot find the
rogue nor communicate with him.

Title to the car remained vested in C since he had by his actions rescinded contract with N on 13
Jan. C could recover it.

General Bars to Rescission i.e. when right to rescind is lost

(1) Affirmation of the contract by the innocent party

(2) Bona fide purchaser for value acquires subject matter of contract before rescission

(3) Delay: lapse of time (laches) between knowledge of vitiating factor and seeking to rescind

(4) Where restitutio in integrum is not possible i.e. when it is not possible to restore the parties to their
original position
DURESS: ENGLISH LAW
Treitel (13th ed):
“The consent of a contract[ing] party may have been obtained by some form of pressure which
the law regards as improper. The victim of such pressure may be entitled to relief under the
common law rules of duress, and under the equitable rules of undue influence.”
Burrows, Restatement of the English Law of Contract:
“A contract is voidable where a party to the contract (‘the claimant’) was induced to enter into
it by an illegitimate threat (‘duress’) of the other contracting party or, in certain circumstances,
of a third party.”
Effect of Duress
Choices available to victim of duress:
(1) AFFIRM (i.e. continue with) the contract or
(2) RESCIND (i.e. terminate/set aside/unwind) the contract or
(3) when sued on the contract, SET UP DURESS AS A DEFENCE.
Generally, when a contract is thus rescinded, the court will seek to restore the parties to their
original position as best as possible.
• Contract remains valid until rescinded by the innocent party. Thus bona fide purchasers
for value without notice of the vitiating factor may acquire good title to the subject-
matter of the contract through the party guilty of duress.
• But if the victim chooses not to affirm the contract, the guilty party will not be able to
enforce the contract if the victim sets up duress as a defence to any claim on the
contract.
• Right to rescission is lost upon affirmation, or if the other bars to rescission apply.

Why are contracts induced by duress voidable?

Because:
• The victim did not consent to contract as his will was overborne by the duress: the
“overborne will” theory; or
• Although victim did genuinely consent, he only did so because of improper pressure put
on him by the other party: the “illegitimate pressure” theory.
(i) Overborne Will
 Seen from the point of view of the victim
Focus is on the validity of the victim’s consent
Contract is said to be voidable because the person denying validity of the contract (victim)
did not consent freely when entering into it because of duress.
England is moving away from this theory but not Malaysia (see S. 10(1) and S.14(a) CA
1950).
(ii) Illegitimate Pressure
Here the focus is on the actions/behaviour of the guilty party (i.e. the person exerting the
duress and who seeks to enforce the contract).
He is said to be guilty of a wrongdoing regarded as improper at law thereby rendering the
contract voidable at the option of the victim.

Procedural unfairness, not substantive unfairness

• Unfairness of terms of contract induced by duress and sought to be rescinded is
IRRELEVANT.
• The contract procured by duress is voidable by the innocent party even if the terms
of that contract are fair.
• Law of duress is concerned only with the unfairness of the method used in inducing
entry into the contract.

Three Principal Forms of Duress

• Duress of the person
• Duress of goods
• Economic duress

DURESS of THE PERSON

 This arises in cases of actual or threatened physical violence or unlawful constraint
directed at a contracting party or employees or persons for whom he is responsible or
his family members.
 Barton v Armstrong [1976] AC 104, PC
[An illustration of duress due to illegitimate pressure.]
 To be able to avoid the contract on grounds of duress of the person, the victim must
show a causal link between the alleged duress and the entry into the contract sought to
be set aside.
 But the duress needs only to be ‘a’ cause and not the ‘sole’ or the ‘but for’ cause of
entry into contract.
 Armstrong and Barton were shareholders in a company. Armstrong had loaned some
money to the company, which had not been repaid.
 Armstrong threatened to kill Barton and his wife if Barton did not sign a deed to make
arrangements for the company to repay the loan and to buy Armstrong’s shares in the
company.
 At trial, the facts showed that B had signed the deed, not only because of the threats
but also for sound commercial reasons.
Issue:
 to be able to avoid the deed on the basis of duress, did Barton have to show that he
would not have executed the deed “but for” the threats i.e. must the duress be the only
reason why the innocent party entered into the contract?
Held
 For a contract to be voidable the pressure must be one of a kind which the law does not
regard as legitimate e.g. fraud, abuse of relation of confidence, undue influence, duress
or coercion.
 Thus, first, the innocent party must show that some illegitimate means of persuasion
was used on him to enter into the agreement.
 Next the innocent party must establish the relationship between the illegitimate means
used and the action taken (i.e. entry into the contract). (causal link)
Per Lord Cross
 So “…if Armstrong’s threats were ‘a’ reason for Barton’s executing the deed he is
entitled to relief even though he might well have entered into the contract if Armstrong
had not uttered threats to induce him to do so.”
 The onus was on Armstrong (the wrongdoing party) to show that his threats
“contributed nothing to Barton’s decision to sign.”
Per Lord Wilberforce
 “…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, [to
negate consent] the pressure must be one of a kind which the law does not regard as
legitimate.”
 “…the first step required of the [victim] is to show some illegitimate means of
persuasion was used…The next necessary step would be to establish the relationship
[i.e. the causal link] between the illegitimate means used and the action taken.”

DURESS OF GOODS
Traditional Position of Common Law:
(1) Threats in relation to goods are insufficient to render an agreement [to make payment]
voidable for duress: Skeate v Beale (1841) 11 Ad & E 983
(2) But money already paid under an agreement reached due to duress to goods could be
recovered: Astley v Reynolds (1731) 2 Str 915

 Skeate v Beale (1841) 11 Ad & E 983

• P wrongfully distrained D’s goods for arrears of rent.
• To avoid his goods from being sold off, D agreed to pay the arrears by way of
instalments.
• P released the goods from seizure.
• D subsequently failed to make payment as promised.
• P sued D on this agreement.
• D argued that the agreement to pay the arrears was voidable because of duress i.e. that
although the seizure was wrongful, P was nevertheless threatening to sell D’s distrained
goods.
• Held: P’s threats in relation to the goods were insufficient to render the agreement
voidable, and D was bound by the agreement.

 Astley v Reynolds (1731) 2 Str 915

• P pawned goods with D.
• D wrongfully refused redemption of the goods unless P made payment in excess of the
interest chargeable legally.
 • P paid the extra sum to redeem his goods and later sought recovery of the excess
[arguing that it was paid pursuant to a contract voidable for duress of goods]
• Held: P was entitled to recover the money paid under duress of goods.

Modern Position – Duress of goods may make contract voidable

 The ‘Siboen’ and The ‘Sibotre’ [1976] 1 Lloyds Rep 293, HC.
Per Kerr J (obiter):

◦ “If I should be compelled to sign a…contract…under an imminent threat of

having my house burnt down or a valuable picture slashed though without any
threat of physical violence to anyone, I do not think the law should uphold the
agreement.”

 The ‘Evia Luck’ [1992] 2 AC 152, HL

Per Lord Goff:
• Since the The Siboen and The Sibotre, Skeate v Beale is no longer good law (approving
Kerr J’s obiter dictum).
• Further “…economic pressure may be sufficient to amount to duress…[if the economic
pressure is] illegitimate and has constituted a significant cause inducing the [claimant]
to enter into the relevant contract.”

ECONOMIC DURESS
Economic duress arises usually when one party applies economic pressure on the other party
(i) either to enter into a contract;
(ii) or by threatening to break an existing contract unless the other party agrees to its
variation or compromise. Actual or threatened breach of contract is a civil wrong, but
common law, until recently, did not recognise such a threat as sufficient to make a
variation of a contract thereby induced voidable.

 The ‘Siboen’ and The ‘Sibotre’ [1976] 1 Lloyd’s Rep 293, HC

• Economic duress was first recognised as a form of operative duress in this case which
involved variation of existing contracts.
 • Charterers of 2 ships threatened to terminate the charters if the ship owner did not
agree to lower the hire rates [they also falsely stated that they would go bankrupt if
they were to pay the originally agreed hire rates]
• Ship owner therefore had 2 choices – either
(i) terminate the charters and sue charterers for breach of contract or
(ii) vary the charters by agreeing to lower the rates sought by the charterers.
• However, the shipowner would have suffered huge losses if the charters were
terminated. So he agreed to the lower rates sought by charterers.
• Subsequently, the shipowner sought to avoid the varied agreement to charge lower
rates for fraud and/or duress and to recover charges according to the originally agreed
rates.
Held: no economic duress, only ordinary commercial pressure
 Threatened breach of contract may amount to (economic) duress rendering the
variation voidable.
 However, on the facts, the ship owner “was acting under…only [ordinary] commercial
pressure” and on the facts, there was nothing “which could in law be regarded as a
coercion of his will so as to vitiate his consent…[accordingly] the plea of duress fails.”
 But, the varied contract was “void” (sic) for fraud (fraudulent misrepresentation). [Note:
properly speaking the varied contract was voidable for fraud]

 The ‘Atlantic Baron’ [1979] QB 705, HC

 Shipbuilders threatened to break an existing contract with ship owners for building The
‘Atlantic Baron’ if the ship owners did not agree to a 10% increase in the contract price.
 Ship owners feared refusal to pay additional amount would delay completion and they
would thereby lose a lucrative charter agreement with a third party and therefore
agreed to make the additional payment. When the ship was duly completed the ship
owners made the additional payment without any protest.
 8 months after paying the additional amount the ship owners sought its recovery on
grounds of duress.
Held
• Duress could arise as much by economic duress as by threats of physical violence.
• Pressure of this nature (economic pressure) could amount to duress.
 • Essence of duress is the “compulsion of the will”.
• Here the ship owners’ will had been overborne by the threats when they AGREED to
make the additional payment.
• However, the ship owners’ claim was dismissed because
(i) the ship owners did not protest when MAKING PAYMENT. At that time the threats
were no longer real and
(ii) there was a delay in bringing the action.
• The court regarded these 2 factor as indicating that the contract had been affirmed.
Per Mocatta J
• “First,…the recovery of money paid under duress other than to the person is [NOT]
necessarily limited to duress to goods…Secondly, …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 ‘economic duress’. Thirdly, if there has been such a form of duress
leading to a contract…that contract is a voidable one which can be avoided and the
excess money paid under it recovered.”

 Pao On v Lau Yiu Long [1980] AC 614, PC

• P threatened not to proceed with sale of shares to D under an existing contract if D did
not agree to provide a guarantee that D would not resell the shares within a year below
a certain price.
• D could have brought an action against P for breach of contract. Instead, to avoid the
uncertainties of litigation, D executed such a guarantee.
• Subsequently P sought to enforce the guarantee and D then resisted P’s claim on the
basis that the guarantee was voidable for (economic) duress.
Held
 Ordinary commercial pressure does not amount to duress.
 Duress requires “coercion of the will that vitiates consent” i.e. agreement must have
been involuntary.
There are 4 matters to be considered in deciding “whether there was a coercion of the will such
that there was no true consent”.
(i) did innocent party protest before agreeing?
 (ii) did he have an alternative course of action?
(iii) did he have access to independent advice?
(iv) whether after entering the contract did he take any steps to avoid the contract?

Per Lord Scarman

• “…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 contract entered into was not a voluntary
act.”
Note
• Whether the economic pressure amounts to ordinary commercial pressure or economic
duress is a question of fact to be determined by the court based on the circumstances of
the case.

 The ‘Universe Sentinel’ [1983] 1 AC 306, HL

• Focus shifted, from “coercion of the will” only to also considering
(i) legitimacy of the pressure applied and
(ii) the lack of practical choice available to the victim.
 Ship ‘blacklisted’ by International Transport Workers’ Federation (ITWF).
 ITWF agreed to lift the blacklisting if ship owners entered into 2 collective agreements
and made a payment towards welfare fund administered by ITWF.
 Ship owners made payment and later sought to recover such payment on grounds of
duress.
Held (3:2): ITWF liable to repay as there was economic duress
Ship owners had made payments under duress. There are two ways of showing duress:
(i) traditional approach – proof of pressure amounting to compulsion of will of
victim (whether ITWF’s pressure coerced ship owner’s will)
(ii) modern approach – focus on legitimacy of the pressure applied (whether ITWF’s
pressure was illegitimate)
Per Lord Diplock
 “The rationale [for holding the contract voidable for duress] is that his apparent consent
was induced by pressure…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.”
 “The remedy to which economic duress gives rise is not an action for damages but an
action for restitution of property or money exacted under such duress and avoidance of
any contract that has been induced by it…”
Per Lord Scarman
• There are “two elements in the wrong of duress: (1) pressure amounting to compulsion
of the will of the victim; and (2) the illegitimacy of the pressure exerted.
• There must be pressure, the practical effect of which is compulsion or absence of
choice.
• Compulsion is variously described…as coercion or the vitiation of consent. The classic
case of duress is…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.”
• “The real issue in this appeal is, therefore, as to the second element in the wrong of
duress: was the pressure applied by the ITF in the circumstances of this case one which
the law recognises 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 Evia Luck [1992] 2 AC 152, HL

 Ship owners made extra payments to ITWF to avoid blacklisting. Subsequently the ship
owners sought recovery on grounds of duress.
Held: Per Lord Goff

◦ “…economic pressure may be sufficient to amount to duress…[if] the economic pressure

may be characterised as illegitimate and has constituted a significant cause inducing the
plaintiff to enter into the relevant contract”

◦ “…it is [not] helpful…to speak of the plaintiff's will having been coerced.”
  DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530
Per Dyson J:
• ‘131. 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...
• 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.”

 R v AG for England and Wales [2003] UKPC 22, PC

• R, an SAS soldier, entered into a confidentiality agreement with the Ministry of Defence
(MOD).
• After leaving service R, in breach of the confidentiality agreement, wanted to publish
certain events that had occurred while he served.
• MOD sought an injunction to restrain breach of the confidentiality agreement
• R argued that the confidentiality agreement was voidable on grounds inter alia of
duress. [He also raised ‘undue influence’.]
• He argued that he had been ordered to sign the agreement failing which he would be
“returned to his unit”, a kind of punishment leading to exclusion from the social life of
the regiment and loss of its higher rates of pay
Held: No Duress Per Lord Hoffmann
• [Citing The Universe Sentinel] “…two elements in the wrong of duress. One…pressure
amounting to compulsion of the will of the victim and the second…the illegitimacy of the
pressure.
Compulsion of the will
• R says that to offer him the alternative of being returned to unit, which was regarded in
the SAS as a public humiliation, was compulsion of his will. It left him no practical
alternative. Their Lordships are content to assume that this was the case. [First element
assumed to be proven].
Legitimacy of the pressure
• The legitimacy of the pressure must be examined from two aspects: first, the nature of
the pressure and secondly, the nature of the demand which the pressure is applied to
support…Generally speaking the threat of any form of unlawful action will be regarded
as illegitimate. On the other hand, the fact that the threat is lawful does not necessarily
make the pressure legitimate.
• In this case, the threat was lawful…[because] the Crown was entitled at its discretion to
transfer any member to the SAS to another unit.
• …the MOD was reasonably entitled to regard anyone unwilling to accept the obligation
of confidentiality as unsuitable for the SAS. Thus the threat was lawful and the demand
supported by the threat could be justified.”

 B&S Contracts v Victor Green Publications [1984] ICR 419, CA

• C informed D that it was unable to carry on with contract to build exhibition stands for D
(less than a week before the exhibition was due to open) because it lacked funds to pay
back wages to its workers.
• D then paid the back wages and later deducted it from the contract sum payable to C. C
brought this claim to recover the deducted sum.
Held: economic duress
• C had made a veiled threat to D’s economic interests.
• D had no practical alternative but to pay the back wages to C’s workers (although these
were legally payable by C not D) against their will.
• D was therefore entitled to deduct the sum so paid and C could not claim the deducted
sum.

 CTN Cash and Carry Ltd v Gallaher [1994] 4 All ER 714, CA

 D supplied goods on consignment basis to P on credit terms.
  D invoiced P for goods under a genuine (but mistaken) belief that P was liable to pay for
those goods.
 When P refused to pay, D threatened to withdraw P’s credit facilities for future
consignments.
 P made payment on the disputed invoice & then sought recovery on grounds of having
made the payment under duress.
Held: No Duress
• D was entitled in law to refuse to enter into or grant credit facilities to P for future
transactions.
• D’s demand for payment of the invoice, coupled with the threat to withdraw credit, was
neither a breach of contract nor a tort.
• D had exerted commercial pressure on P in order to obtain payment of a sum which
they bona fide considered due to them.
• D’s motive in threatening withdrawal of credit facilities was commercial self-interest and
was not illegitimate.
• Note: P brought its claim only under duress (might have succeeded if it had brought a
claim for restitution of unjust enrichment)

 Huyton SA v Peter Cremer GmBH [1999] 1 Lloyd’s Rep 620, HC

 Dispute between H and C was compromised, and C agreed not to refer its claim to
arbitration.
 But, later C in breach of the compromise agreement sought to refer its claim to
arbitration.
 H brought action against C for declaration and injunction to restrain C from making the
referral pursuant to the compromise agreement.
 C contended that it had entered into the compromise agreement under duress.
Held: no duress
 Economic duress required
(i) illegitimate pressure which
(ii) constituted a significant cause inducing the other party to act as it did
  Even if there had been illegitimate pressure, the defendant's claim would have failed on
the ground that there was no sufficient deflection of will or no sufficiently significant
causal link between such pressure and the agreement.

REMEDIES FOR DURESS

• The only remedy available for the victim of duress is rescission of the contract (and
consequential restitution e.g. recovery of money paid). The right to rescission is subject
to the usual bars.
• Damages are not available for duress, even where the contract is not rescinded.
However, in such situations, the innocent party may raise duress as a defence.
COERCION: MALAYSIAN LAW
Consent and Free Consent
 An agreement is a contract only if inter alia it is “made by the free consent” of the
parties [S. 10(1) CA 1950]
 2 or more persons are said to consent when they agree upon the same thing in the same
sense [S. 13 CA 1950] – i.e. there must be consensus ad idem.
 Consent is said to be free when it is not caused by inter alia coercion [S. 14 (a)CA 1950]
as defined in S. 15.
(all contracts are agreements, but not all agreements are contracts)
If S. 13 applies:
• S. 13 tells us that there is no “consent” if parties do not agree to the same thing in the
same sense
• In such a situation, there can be no contract at all i.e. no contract will come into
existence.
• However, in cases of coercion, the parties would have agreed on the same thing in the
same sense i.e. there is consent within the meaning of s.13. Thus an agreement will
come into existence.
• But since the consent is not free consent in cases of coercion, the agreement that
comes into existence is voidable at the option of the party whose consent was not free.
-consent is not free so voidable according to courts (CASE LAW) (follow this)
-if there is coercion s14 says void under s10(1)

Coercion: S. 15 CA 1950
“Coercion” is the (1) committing, or threatening to commit any act forbidden by the Penal
Code, or the (2) unlawful detaining or threatening to detain, any property, to the prejudice of
any person whatever, with the intention of causing any person to enter into an agreement.

 Does not cover economic duress- so go to eng law

 2 limbs: prove that it comes under either,
 prejudice:detriment

Elements of ‘Coercion’
 (1) Coercive act (limbs: one of the ones in penal code/unlawful detention of goods)

(2) Effect of the act: prejudice to any person

(3) Mental state of person exercising coercion : intention to cause entry into the agreement

(4) Causation: coercion must cause entry into the agreement

Firstly, there are 2 broad categories of acts which constitute coercion:

 “Committing, or threatening to commit any act forbidden by the Penal Code” (1st limb)
• Coercion is wider than Common Law duress to the person because of wide
range of offences covered in Penal Code
• Coercion is narrower than Common Law duress because offences outside the
Penal Code, tortious and other civil wrongs are not covered.
Note Explanation to S. 15 – “It is immaterial whether the Penal Code is or is not in force
in the place where the coercion is employed”.
Refer to the Illustration to S. 15 for an example as to how the Explanation works.

 “Unlawfully detaining or threatening to detain any property” (2 nd limb)

• Coercion is wider than Common Law duress because duress to goods is
expressly recognized.
• Coercion by a third party to may also render an agreement voidable because S.
15 does not state that the person committing the coercive acts must be a party
to the agreement thereby induced. (-1st Difference! Third party can coerce too, but
not English- in English law must be a party to the contract)

Secondly, the coercion must be “to the prejudice of any person”

(i) The word “prejudice” suggests there must be some detriment to the innocent party,
implying that, perhaps, there must also be substantive unfairness.
In contrast, there is no requirement of prejudice for Common Law duress – the focus is
on procedural unfairness, not substantive unfairness. (to know whether prejudice or
not: to see if one person gains or other does not: look at the terms of the
contract------- 2nd difference!)
(ii) The prejudice may be to “any” person. Does this cover situations where a third party
suffers the prejudice? Or does “any” person refer only to the other party to the
 contract? No case law to clarify this issue. (better view should be like the eng law,
parties to the contract even though literal meaning covers third party as well)
Thirdly, there must be an “intention of causing any person to enter into an agreement”.
Such intention is not a necessary ingredient at Common Law (de facto causation
suffices), although such a state of mind will most probably exist anyway. (3rd Difference! –
In eng, intention to cause duress is not considered)

Fourthly, as with Common Law, the coercion must cause the innocent party to enter into the
agreement. (Same- causal link! ‘a reason/ or the main reason- no case law to prove this’ ‘a reason’)

Effect of Coercion
Affirm, Rescind, Defence
• S. 2(i) CA 1950: “an agreement which is enforceable…at the option of one [party]…but
not at the option of the other…is a voidable contract”.
• S. 19 (1) CA 1950: “When consent to an agreement is CAUSED by coercion…the
agreement is a contract VOIDABLE at the OPTION of the party whose consent was so
caused.” (S14 and s10(1) is inconsistent with s19)
• This is the same as the equitable remedy of rescission available for duress in English
Law.
• Therefore, the same bars to rescission will apply.
Affirmation of the contract by the innocent party

Bona fide purchaser for value acquires subject matter of contract before rescission

Delay: lapse of time (laches) between knowledge of vitiating factor and seeking to rescind

Where restitutio in integrum is not possible i.e. when it is not possible to restore the parties to their original
position

aim of duress/coercion: restitution! To restore parties to their original position

 Utiriam Sebastian a/l Pillai v Stevenson Erutynathan a/l Leo [2009] 5 AMR 846, HC
• US and SE were the only shareholders and directors in a private company that owned a
piece of land as well as a 3-storey shop lot.
• Their relationship deteriorated. They negotiated over several months to resolve their
dispute regarding ownership of the land, the shop lot and the shares in the company.
• During the negotiations SE’s lawyer repeatedly
 (i) accused US of financial wrongdoing in the affairs of the company, and also
(ii) threatened to report him to the police and have him arrested for the alleged
wrongdoing.
• On one occasion there were also 2 policemen waiting outside the restaurant where they
were negotiating ostensibly to arrest US.
• SE’s lawyer also claimed to be working for a firm called Shafee & Co and that he would
get Mr. Shafee, described as a “big gun lawyer with big contacts”, to use his influence
to have US arrested if US did not sign a settlement agreement with SE.
• Eventually, the parties signed a settlement agreement and a supplementary settlement
agreement in June and July 1997 respectively. The terms of the agreements were
grossly disadvantageous and blatantly unfair to US.
• After signing the 2 agreements, US repeatedly complained to his own lawyer about SE’s
lawyer’s threats, and informed his lawyer that he wanted to terminate the agreements.
• US’ lawyer advised him to first complete an audit of the accounts of the company so
that it would be clear that he (US) was not guilty of any wrongdoing and therefore there
would be no danger of him (US) being arrested, and only then to take steps to terminate
the agreements
• The completed audit showed that US had not committed any wrongdoing. As he was no
longer under any danger of being arrested, US sent a letter in October 1997 to
terminate the agreements.
• The main issue before the court was whether the agreements were voidable for
coercion. (look at the 4 elements to answer the Q)
Held
• “[16] Section 15 of [the Contracts Act 1950] defines coercion as the committing or
threatening to commit any act forbidden by the Penal Code … with the intention of
causing any person to enter into an agreement.
• [17] Section 503 of [the Penal Code] provides for the offence of criminal intimidation.
Criminal intimidation occurs when a person threatens another with any injury to his
person … with intent to cause alarm to that person or to cause that person to do any act
which he is not legally bound to do …”
• “[26] [US] was under coercion when the settlement agreement was signed…there is no
other reasonable or logical explanation as to why [US] signed the settlement agreement
which is so grossly to his disadvantage…Plainly and obviously he was under threat to do
so…no sane person acting of his own free will would have signed the settlement
agreement which contain those unfavourable terms.”
 • “[37] “…[US] cannot be faulted if his then solicitor advised him not to lodge a police
report. What is material to the issue of coercion is whether there was a threat at the
time [US] signed the settlement agreement.
1)first limb proven
2)prejudicial to the plaintiff
3)intention: yes!
4)causal: yes!
So coercion satisfied

With regard to US’ delay in sending the letter terminating the agreements:
• “ [41] What is important is that [US] took steps to eliminate the threat and then sent the
letter of demand on October 15, 1997.” (Delay was reasonable as it was due to the
audit)

Effects of Rescission - restoring parties to their original positions

(i) when one party rescinds a contract, the other party is excused from further
performance and the rescinding party must restore any benefit received under voidable
contract (S. 65 CA)
(ii) When an agreement is discovered to be void [unenforceable] or a contract becomes void
[unenforceable] any party who receives any advantage under the contract must restore
any advantage received or make compensation (S. 66 CA).
Same as English law
The rescinding party: the innocent party
S66: third parties too! Either give back or make compensation for it
Only mentions void contracts, what about voidable contracts? Look at case law
BOTH these apply to void/voidable contracts

S76 of CA1950
• Note: the term ‘rescission’ also refers to the act of terminating a contract a contract as a
result of the other party’s breach of contract. In such cases the rescinding party is
 entitled to compensation for any damage sustained through non-fulfilment of the
contract (S. 76 CA).
• Clearly, S.76 does not apply to voidable contracts; it applies in situations where a
contract has been rescinded for breach.

S.66 CA applies to voidable contracts that have been rescinded

• S. 66 refers expressly to an agreement “discovered to be void” and a contract which
“becomes void”. But there is no express mention of “voidable contracts” in S. 66.

 Yong Mok Hin v United Malay States Sugar Industries [1967] 2 MLJ 9, FC (not a case of
coercion):
Obiter: S.66 “would include voidable contracts which become void by rescission”
• Thus the effect of S.66 is that both parties to the contract [voidable because of duress or
other vitiating factor] must restore any advantage received under the contract or make
compensation for such advantage.
• S. 66 thus is a provision that seeks to achieve restitutio in integrum.

 Satgurprasad v Har Narain Das 1932 IA 147, PC

• The words “when a contract becomes void” are “sufficient to cover the case of a
voidable contract which had been avoided.”

Coercion under S. 73 CA 1950

• S. 73: “A person to whom money has been paid, or anything delivered…under coercion,
must repay or return it.”
• “Coercion” in S. 73 has a wider meaning than “coercion” in S. 15. (Under s73 must be paid-
no need to prove limb 1 or limb 2/ or need to prove the 4 elements)

 Chin Nam Bee Development S/B v Tai Kim Choo [1988] 2 MLJ 117, HC
• TKC signed a sale and purchase agreement with CNB for purchase of house. Later CNB
threatened to cancel TKC’s booking if TKC did not pay an extra RM4,000.
 • TKC paid the extra sum and then sought to recover it on grounds of coercion relying on
S. 73 CA instead of S.15 since CNB’s actions did not amount to coercion under S. 15.
• Issue: Is the meaning of coercion in S. 73 CA different from that in S. 15 CA?
Held: TKC entitled to refund under s. 73
• “… "coercion" in the context of Section 73 of the Act should be given its ordinary and
general meaning since there is nothing under section 15 which says that the word
"coercion" should [have the same meaning] throughout the Act.”
• This view is supported by Illustration (b) to S. 73 which relates to a refund of money paid
under coercion when the parties are not in a contractual relation.

Economic Duress under S. 15 CA??

• Conflicting High Court authorities on whether s. 15 covers economic duress.
(not expressly mentioned)
 Perlis Plantations Bhd v Mohammad Abdullah Ang [1988] 1 CLJ 670, HC:
“…our Contracts Act does not provide for any form of coercion other than as defined by section
15.” (Per VC George J)
But some later authorities appear to recognise the doctrine of economic duress in principle
(although on the facts, economic duress was not established).

 Teck Guan Trading v Hydrotek Engineering [1996] 4 MLJ 331, HC

[High Court tacitly recognized Economic Duress as a vitiating factor, but it was not proven on
the facts]
 Teck Guan (P) had agreed to supply iron bars to Hydrotek (D). However, D then
disputed the price charged by P. As a result, P threatened not to supply the bars.
 D needed the bars for its business to meet its commitments to its customers and did not
have any time to look for alternative suppliers.
 D then issued a letter agreeing to pay the higher price demanded by P.
 P supplied the bars but D paid P only the lower price.
 P sued D for the balance, and D raised the defence of coercion and economic
‘blackmail’.
(Not satisfied Elements of economic duress: nothing mentioned- look at the English case Pa On
Cannot even go under s73)
(no time to look for other suppliers, iron bars didn’t fall under 2nd limb because thye were not his
property)
Held: (i) No Coercion under S.15
• There are two ways of committing ‘coercion' under s 15 CA.
• Party contending coercion must say what offence had been committed under the Penal
Code [under the 1st limb of S. 15]…on the facts of the case, no offence under the Code
had been revealed
• Further, P’s refusal to supply goods at the lower rate did not amount to unlawful
detention of property [under the 2nd limb of S. 15] as P was exercising its legal right over
its own property.

Held (ii) – also, no economic duress

• This was a transaction in the ordinary course of business between parties dealing at
arms' length.
• “[There was no] coercion because [D’s] agreement to the [increased] price was an
exercise of [D’s] free will.”
• The judge referred to the guidelines in Pao On v Lau Yiu Long [1980] AC 614 in reaching
his decision.
(Refer to English law because not recognized in statute, so still can use economic duress)

 Mohd Fariq Subramaniam v Naza Motor [1998] 6 MLJ 193, HC

• P had rented a taxi from D at an agreed daily rental.
• Subsequently P signed a variation agreement containing a new term giving D the right to
repossess his taxi if he failed to pay the agreed daily rental to D.
• P sought to invalidate the variation agreement on grounds of economic duress.
• Held (without any reference to S.15): On the facts, there was no evidence of coercion of
P’s will which vitiated his consent i.e. no economic duress.
Per James Foong J
Citing Pao On v Lau Yiu Long
• “The principle to be applied…is an enquiry into whether the person alleged to be coerced
did or did not protest; whether at the material time he did or did not have an alternative
cause of action open to him such as an adequate legal remedy; a remedy that he was
independently advised; and whether after entering the contract he took steps to avoid
it.”

 OCBC Securities (Melaka) Sdn Bhd v Koh Kee Huat [2004] 2 MLJ 110
Per Low Hop Bing J
(a) our courts are slow in invoking the concept of duress as defined in s 15 or to import the
concept of economic duress unless there is positive evidence to that effect, which must
satisfy the guidelines given by the Privy Council in Pao On & Ors v Lau Yiu Long & Ors
(1980) AC 614;
(b) the defence of duress or economic duress must be such so as to vitiate free consent in
order to render the contract voidable;