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Crescendo Management Pty Ltd v Westpac Banking Coporation

Court of Appeal (NSW) (1988) 19 NSWLR 40

Overview

Foreclosure sale signThis case considered the appropriate test for determining whether a contract can be avoided as a result of economic duress.

The Court rejected the 'overbearing of the will' theory of duress, instead focussing on whether pressure applied could be considered 'illegitimate'. Although categories are not closed, pressure will be illegitimate it it consists of unlawful threats or unconscionable conduct (page 45). To enable termination on the basis of economic duress the illegitimate pressure must be at least one reason for the party entering into the contract (the onus will rest on the person applying the pressure to demonstrate that it did not induce the contract).

In this case there was illegitimate pressure but it did not induce the contract.

 

Facts

Hilbrink was a director of two companies. 

The Hilbrinks sold their family home and purchased another as part of a relocation. Proceeds of $31,268.38 were received by Westpac as a result of this transaction. Hilbrink requested that 50% of those proceeds be transferred to his wife's account. Instead, the bank disbused $3,500 to pay out two other accounts of Mr Hilbrink and refused to release the balance unless Hilbrink and his wife executed security documents in the bank's favour to secure indebtedness Upward Publishing Co Pty Ltd, of which Mr Hilbrink was a director. These documents included a mortgage by Crescendo Management.

Crescendo Management executed the mortage and subsequently the money was released. Evidence suggested that there was no reluctance on the part of Mr Hilbrink or anyone from Crescendo management to executing the mortgage.

A question arose about whether or not the mortgage by Crescendo Management had been executed under economic duress.

Trial

Yeldman J

There was no duress. Guarantees were in default and the the bank was entitled to retain the money in the way that it did.

The allegation of economic duress basically is that the Bank declined to release the sum of about $27,000 which it retained from the proceeds of the sale of the Oyster Bay property unless there was executed a number of documents specified in a letter dated 21 July 1977, signed by ... the manager at Mortdale, one of which was an appropriate mortgage. I have no doubt, however, that the agreement by the defendant to execute that mortgage and its execution were in no way tainted by any duress on the part of the Bank. It may be, as Mr Hilbrink says in evidence, that he was reluctant to sign it as a director of the defendant, but that is far from saying that there was in law any economic duress which would warrant the setting aside of the mortgage. The Bank in my opinion was entitled to retain the sum of $27,000 referred to because of guarantees executed by Mr Hilbrink ... and which were at that time in default to the Bank.

The fact that Mrs Hilbrink was not a guarantor is, in my opinion, of no moment. The whole of the sale price of the property at Oyster Bay was jointly and severally owned by the vendors. The Bank sought to retain it. … In my opinion there is simply no substance in the defence relied upon which only appears to have been raised some six years after the event when the present ejectment proceedings were brought.

Court of Appeal

Samuels JA

Agreed with McHugh JA that the pressure exerted by Wespac 'played no part in the execution of the mortgage' (page 41).

Mahoney JA

Agreed with Justice McHugh.

McHugh JA

McHugh JA (with whom other members agreed) rejected the 'overbearing of the will theory of duress' and set out the 'proper approach' (that of 'illegitimate pressure') in the following passage:

[45] The rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate: Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 at 384 per Lord Diplock. ... In the same case Lord Scarman declared (at 400) that the authorities show that there are two elements in the realm of duress: (a) pressure amounting to compulsion of the will of the victim and (b) the illegitimacy of the pressure exerted. ...

The reference in Universe Tankships ... to compulsion "of the will" of the victim is unfortunate. ... if the true basis of duress is that the will is overborne, a contract entered into under duress should be void. Yet the accepted doctrine is that the contract is merely voidable.

In my opinion the overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well [46] what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.

...

It is unnecessary, however, for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement. Once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement: Barton v Armstrong (at 633; 120) per Lord Cross.

Here Westpac had no right to withhold money. The pressure could then be said to be illegitimate.

However, the illegitimate pressure did not induce the contract (no objections were raised by the parties when executing the mortgage) and therefore the contract could not be avoided.

[46] In the present case, the assertion by Westpac that it would detain the whole of the sum of $27,000 until various documents were executed was improper and constituted an unlawful detention of Mrs Hilbrink's half interest in the proceeds of the sale of the Oyster Bay property. ... Westpac had no right to retain the moneys which represented Mrs Hilbrink's interest in the fund. Moreover, I do not think that Westpac was entitled to deal with the moneys owing to Mr Hilbrink in the way in which it did. ...

[47] Although the pressure applied by Westpac to Mr and Mrs Hilbrink was unlawful, I am of opinion that it played no part in the execution of the mortgage which had occurred before the pressure was applied