DURESS and BREACH OF CONTRACT

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Duress is the use of illegitimate pressure to force a party into a contract, where that party had no reasonable alternative but to submit. A contract made under duress is voidable, such that the party forced to enter into the contract may seek to have the contract set aside by a court.

The concept of duress in Canadian contract law has been shaped by a number of important cases, largely at the appellate court level. While many of the foundational principles come from English law, Canada's appellate courts have developed a distinct test for applying the doctrine, particularly in the context of economic duress. Here are some of the leading cases that have shaped the law on duress in Canada:

A. Greater Fredericton Airport Authority Inc. v. NAV CANADA (New Brunswick Court of Appeal, 2008)

This particular court decision is arguably the most influential modern Canadian case on the doctrine of economic duress. The New Brunswick Court of Appeal's decision laid out a clear and widely-adopted test for when a post-contractual modification can be set aside due to duress.

The case involved a dispute over who should pay for a new navigational system. NAV CANADA, which had a monopoly on the service, threatened to withhold its services unless the Airport Authority agreed to pay for it, even though the Authority was not contractually obligated to do so. The Authority agreed "under protest" but later refused to pay.

The court held that for a claim of economic duress to succeed, the party alleging it must prove:

• The promise was extracted under pressure. This pressure must be more than the usual give and take of commercial negotiations.

• The pressure was "illegitimate." This is the key element, and the court will look at whether the threatening party acted in good faith, and whether the demand was a reasonable one. The victim had no other reasonable alternative.

• The victim must show they had no viable choice but to agree to the new terms, such as being unable to find another supplier or a timely remedy from the courts.

This case is highly significant for its clear articulation of the two-part test, which has been applied by courts across Canada.

B. Stott v. Merit Investment Corp. (Ontario Court of Appeal, 1988)

This appellate court decision is foundational for its explanation of what constitutes "illegitimate pressure" and a lack of a "realistic alternative." The case involved a stockbroker who, after making a large trading error, was forced to sign an agreement accepting personal liability for the loss. His employer used the threat of immediate dismissal and ruining his career to coerce him into signing.

The court's decision emphasized that duress is about the "coercion of the will" and that a person under duress has "no realistic alternative." The Ontario Court of Appeal also highlighted that a party's failure to protest at the time or their subsequent actions in affirming the contract could weaken a claim of duress.

C. Pao On v. Lau Yiu Long (Privy Council, 1979)

Although a decision of the Privy Council (which was the final court of appeal for many Commonwealth countries, including Hong Kong), this case has been highly influential in Canada. It's often cited for its articulation of the factors courts should consider when determining if a contract was made under duress, specifically:

• Did the person claiming duress protest at the time?

• Did they have an alternative course of action, such as an adequate legal remedy?

• Were they independently advised?

• After entering the contract, did they take steps to avoid it?

These factors, first clearly set out in Pao On, are still regularly used by Canadian courts when analyzing a claim of duress.

For knowledgeable and experienced legal representation in negotiating, drafting and reviewing business contracts, and where circumstances warrant, enforcing, or otherwise dealing with interpretation of, contracts, we welcome you to contact our law firm by email at Chris@NeufeldLegal.com or by telephone at 403-400-4092 / 905-616-8864.

 

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