Pao on v Lau Yiu Long  [1979] 3 All ER 65 Privy Council

The claimant had threatened not to complete the main contract for the purchase of shares unless subsidiary agreements were met including a guarantee and an indemnity. The defendant was anxious to complete the main contract as there had been a public announcement of the aquisition of shares and did not want to undermine public confidence in the company and the consequent affect on share prices. The defendant could have sued for specific performance of the agreement but this would have delayed matters and damaged the company's reputation. The defendant had taken legal advice on all these matters before agreeing to the guarantee and indemnity. The claimant then sought to enforce the guarantee and the defendant sought to have the agreement set aside for economic duress.

Held: There was no economic duress. The Privy Council identified 4 factors to consider in assessing whether economic duress was present:

Did the person claiming to be coerced protest?
Did that person have any other available course of action?
Were they independently advised?
After entering into the contract, did they take steps to avoid it?

In the present case the defendant did not protest at the time. He also could have enforced the contract of sale through specific performance and thus had another avenue of redress available to him. He had taken legal advice and took no steps to avoid the agreement prior to the claimant seeking to enforce the guarantee. Therefore no economic duress could be established. It was simply commercial pressure far short of duress.

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