Pao On V Lau Yiu Long

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''Pao On v. Lau Yiu Long'' UKPC 17
is a 979
UKPC 17
is a Court of Appeal of Hong Kong decided by the Judicial Committee of the Privy Council">contract law appeal case from the

Court of Appeal of Hong Kong decided by the Judicial Committee of the Privy Council, concerning Consideration (law)">consideration Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in '' Currie v Misa'' declar ...

and duress in English law">duress Coercion () is compelling a party to act in an involuntary manner by the use of threats, including threats to use force against a party. It involves a set of forceful actions which violate the free will of an individual in order to induce a desi ...

. It is relevant for English contract law.

Facts

Fu Chip Investment Co. Ltd., a newly formed public company, majority owned by Lau Yiu Long and his younger brother Benjamin (the defendants), wished to buy a building called "Wing On", owned by Tsuen Wan Shing On Estate Co. Ltd. ("Shing On"), whose majority shareholder was Pao On and family (the claimants). Instead of simply selling the building for cash, Lau and Pao did a swap deal for the shares in their companies. Shing On would get 4.2m $1

shares In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...

in Fu Chip, and Fu Chip bought all the shares of Shing On. Fu Chip bought all the shares in Shing On, and Pao received as payment 4.2m shares in Fu Chip (worth $2.50 for each $1 share). To ensure the share price of Fu Chip suffered no shock, Pao agreed not to sell 60% of the shares for at least one year. Also, in case the share price dropped in that year, Lau agreed to buy 60% of the shares back from Pao at $2.50. But then Pao realised, if the share price rose over $2.50 in the year, the price would stay fixed and he would not get the gains. So he demanded that instead of that, Lau would merely indemnify Pao if the share price fell below $2.50. Pao made clear that unless he got this "guarantee agreement", he would not complete the main contract. It was signed on 4 May 1973. But as it turned out the shares did slump in value. Pao tried to enforce the guarantee agreement. Lau argued the guarantee agreement was not valid (1) because there was no consideration, only in the past and under a pre-existing duty, and (2) because it was a contract procured under duress.

Judgment

Lord Scarman, giving the Privy Council’s advice, first disposed of the question about past consideration, because a promise to perform a pre-existing contractual obligation to a third party can sometimes be good consideration. The question of whether consideration can be invalidated ‘if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a dominating bargaining position’ was rejected because ‘where businessmen are negotiating at arm’s length it is unnecessary for the achievement of justice’. On the idea of past consideration, Lord Scarman said this: On the point of duress, Lord Scarman held the following.

980 Year 980 ( CMLXXX) was a leap year starting on Thursday (link will display the full calendar) of the Julian calendar. Events By place Europe * Peace is concluded between Emperor Otto II (the Red) and King Lothair III (or Lothair IV) a ...

AC 614, 635 This was commercial pressure and no more, since the company really just wanted to avoid adverse publicity. For a general doctrine of economic duress, it must be shown ‘the victim’s consent to the contract was not a voluntary act on his part… provided always that the basis of such recognition is that it must amount to a coercion of will, which vitiates consent.’

Notes

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References

*PS Atiyah, 'Economic Duress and the Overborne Will' (1982) 98 LQR 197 *D Tiplady, 'Concepts of Duress' (1983) 99 LQR 188 *PS Atiyah, 'Duress and the Overborne Will Again' (1983) 99 LQR 353 English enforceability case law English consideration case law English duress case law English unconscionability case law Judicial Committee of the Privy Council cases on appeal from Hong Kong 1980 in case law 1980 in Hong Kong 1980 in British law

Facts

Judgment

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References