Doing 'Practical Justice' for Duress in Contract Law: The Halpern Case, Summaries of Contract Law

Download Doing 'Practical Justice' for Duress in Contract Law: The Halpern Case and more Summaries Contract Law in PDF only on Docsity! DOING “PRACTICAL JUSTICE” FOR DURESS 253 * Chancellor’s Professor and Professor of Law, Carleton University, Ottawa. Member of the Bars of Ontario and Nova Scotia. 1 John Swan, Canadian Contract Law (Markham: LexisNexis, 2006) at 76. 2 This distinction is drawn in the Restatement (Second) of the Law of Contracts § 176 (1979). 3 An early Canadian case is somewhat similar in relation to farm equipment allowed to deteriorate: Sager v. Manitoba Windmill (1914), 6 W.W.R. 265 (Sask. Sup. Ct.), aff’d (1914) 7 W.W.R. 1213 (S.C.C.). 4 Halpern v. Halpern (No. 2), [2006] EWHC 1728 (Comm), [2007] Q.B. 88 [Halpern No. 2]. 5 Erlanger v. New Sombrero Phosphate, [1878] 3 App. Cas. 1218 at 1278-79, Blackburn L.J. [Erlanger]. 6 Halpern v. Halpern (Nos. 1 and 2), [2007] EWCA Civ 291, [2008] 1 Q.B. 195 [Halpern Nos. 1 and 2]. 7 See ibid. at para. 41. DOING “PRACTICAL JUSTICE” FOR DURESS IN CONTRACT LAW M.H. OGILVIE* Cases of duress in contract law are few and far between. Most are concerned with improper threats or taking advantage of a weaker party to procure a contract rather than with actual physical threats of the “[y]our money or your life”1 variety, which are more likely to be controlled by the criminal law.2 A recent decision on a preliminary issue of law in relation to duress in the English Court of Appeal answered an interesting question that appears never to have been raised in earlier cases3 about duress, that is, whether rescission of a contract can be granted where restitution is impossible because one of the parties has destroyed documents relating to the contract as required by the contract so that they could not be restored. The trial judge found that rescission could not be granted and that no other remedy was available in the common law for duress,4 but the Court of Appeal reversed that finding by assimilating the fact situation with those in which equity has done “practical justice,” thereby further fusing the common law and equity relating to duress and undue influence, and possibly also fraud as well.5 The facts of this highly complex case, which also involved conflict of laws, mistake, frustration, and uncertainty have yet to be resolved at trial, but the Court of Appeal entertained two preliminary questions of law, duress, and conflict of laws before sending the case to trial. This comment is focused on the duress point. Halpern6 was concerned with an inheritance dispute within an Orthodox Jewish family in which the claimants and defendants were, respectively, one son and grandson and four other sons and a daughter of the deceased parents. In accordance with Jewish law and custom, the dispute was referred to a Beth Din that sat in Switzerland and England. Prior to a decision, the parties entered into a compromise that included cl. 4, requiring all documents relating to the agreement to be destroyed or handed over to the defendants.7 The documents were allegedly destroyed and the complainants argued that the reason for this provision was to hide a fraud from the British tax authorities. A different Beth Din sitting in New York had previously awarded the sister the whole of the estate valued at £4 million and the compromise provided that the complainants should receive £2.4 million, however, the value of the estates of the deceased mother and father were said to be £210,000 and £309,945, respectively, in the Beth Din dispute in Switzerland. The defendant brother, who signed the compromise on behalf of the other defendants, alleged he had done so under duress consisting of an insistence by one of the rabbis of the Zurich Beth Din that each defendant would have to swear a ritual oath, with the knowledge that this oath could not be sworn by an observant Jew, or pay a £250,000 penalty as required by Jewish law. To avoid this, he signed the compromise that the complainants sought to enforce. The complainants said they 254 ALBERTA LAW REVIEW (2009) 47:1 8 Halpern v. Halpern, [2006] EWHC 603 (Comm), [2006] 2 All E.R. (Comm.) 251. 9 Halpern No. 2, supra note 4. 10 On appeal, Waller L.J. dealt with the conflict issue and Carnwath L.J. dealt with the duress issue. All three justices were unanimous on both issues. 11 Halpern Nos. 1 and 2, supra note 6 at paras. 59-60. 12 Ibid. at para. 57. 13 Western Bank of Scotland v. Addie, [1867] L.R. 1 Sc. & Div. 145 (H.L.). 14 Erlanger, supra note 5 at 1278-79. See also O’Sullivan v. Management Agency and Music Ltd., [1985] 1 Q.B. 428 at 458, Dunn L.J.; Kupchak v. Dayson Holdings Ltd. (1965), 53 D.L.R. (2d) 482 (B.C.C.A.). had destroyed the documents as required by cl. 4, so that restitution was impossible. Thus, the complainants argued that since restitution was impossible, the defence of duress failed and the compromise remained valid and enforceable, with the effect of transferring £2.4 million to the complainants. The issues of the applicable law and duress were dealt with by different trial judges who found, respectively, that either English or Swiss law, but not Jewish law, was applicable,8 and that there could be no rescission for duress.9 The English Court of Appeal confirmed the law of the compromise, but suggested that if duress was to be found at the trial there could be a remedy although the destruction of the documents made restitution, including substantial restitution, impossible.10 Speaking for the Court on the duress issue, Carnwath L.J. noted that determining the abstract legal question may be of uncertain value until the relevant facts are found, particularly which documents have been destroyed, but regarded its resolution as important from a purely doctrinal perspective because the decision of the trial judge was required to be corrected if wrong.11 He further noted at the outset that, in the view of the trial judge, although the documents were destroyed by the claimants, the defendants benefited from their destruction.12 Superficially this may be so, but by arguing successfully that the compromise was avoided for duress, the defendants would retain the entire estate as awarded by the New York Beth Din, while a successful argument by the complainants that there was no duress or that a finding of duress would not result in a remedy because restitution was not available would result in the enforcement of the compromise to the claimants’ benefit. The important fact was the destruction, not which party complied with its contractual duty to destroy. The narrow, novel issue was whether rescission for duress could be refused because restitution could not be made. Throughout the discussion of the requirements of rescission for duress at common law, the Court contrasted the common law availability of rescission for fraud, in which restitution is a requisite,13 and equitable rescission for undue influence, which is subject to the more flexible criterion of “practical justice” as set out by Blackburn L.J. in Erlanger: [A] Court of Equity could not give damages, and, unless it can rescind the contract, can give no relief. And, on the other hand, it can give accounts of profits, and make allowance for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract.14