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Contracts - 'Sham' Contract

Contracts - Duress

S.A. v. A.A. (Ont CA, 2017)

In this case the Court of Appeal briefly canvasses the law of duress as it applies to setting aside a contract:
[26] The law will not lightly set aside contracts reached by parties having contractual capacity: John D. McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law, 2012), at p. 378. Duress is one basis upon which an otherwise valid contract can be rendered unenforceable.

[27] This court set out the test in Hill v. Forbes, 2007 ONCA 443 (CanLII), 225 O.A.C. 74, at para. 12, citing the earlier case of Stott v. Merit Investment Corp (1988), 1988 CanLII 192 (ON CA), 63 O.R. (2d) 545, 1988 CarswellOnt 887 (C.A.), at para. 48 (WL Can):
But not all pressure, economic or otherwise, is recognized as constituting duress. It must be a pressure which the law does not regard as legitimate and it must be applied to such a degree as to amount to "a coercion of the will", to use an expression found in English authorities, or it must place the party to whom the pressure is directed in a position where he has no "realistic alternative" but to submit to it, to adopt the suggestion of Professor Waddams (S.M. Waddams, The Law of Contract (2nd ed., 1984), at p. 376 et seq.). Duress has the effect of vitiating consent and an agreement obtained through duress is voidable at the instance of the party subjected to the duress unless by another agreement or through conduct, either express or implied, he affirms the impugned contract at a time when he is no longer the victim of duress.
[28] Another formulation of the test applicable to economic duress, taken from the Pao On v. Lau Yiu, [1979] 3 All E.R. 65 (P.C.), and cited in Stott, at para. 49 (WL Can), is: “the victim must have entered the contract against his will, must have had no alternative course open to him, and must have been confronted with coercive acts by the party exerting the pressure”.

[29] Where duress is alleged, the contractual obligations often demonstrate some element of unusual advantage favouring the party with the dominant power.
Additionally, it stated the law of 'sham' contracts as follows:
[36] The most commonly cited definition of the sham doctrine is that of Lord Diplock in Snook v. London & West Riding Investments Ltd., [1967] 1 All E.R. 518 (C.A.). He stated, at p. 528, that a sham means:
[A]cts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties the legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create… [F]or acts or documents to be a "sham", with whatever legal consequences follow from this, all parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.
[37] This definition of a sham has been cited many times by all levels of Canadian courts, including the Supreme Court of Canada. In Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536, 1984 CarswellNat 222, at para. 51 (WL Can), Estey J. described the element of “deceit” as being at the heart of the sham doctrine. In discussing the required level of deceit in Antle v. Canada, 2010 FCA 280 (CanLII), 413 N.R. 128, at para. 20, Noël J.A. held that it suffices that the parties to a transaction present it as being different from what they know it to be. The majority of cases involving the sham doctrine arise in the tax context, but the doctrine has been used in appropriate cases to strike down mortgages: see Moghimi v. Dashi, 2016 ONSC 2580 (CanLII).


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