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Contracts - Duress. Kawartha Capital Corp. v. 1723766 Ontario Limited
In Kawartha Capital Corp. v. 1723766 Ontario Limited (Ont CA, 2020) the Court of Appeal sets out a test for economic duress:[11] For a party to establish economic duress, it must show two things: first, that it was subjected to pressure applied to such an extent that there was no choice but to submit, and second, that the pressure applied was illegitimate. On the first prong of the test, the court considers four factors:(a) Did the party protest at the time the contract was entered into?
(b) Was there an effective alternative course open to the party alleging coercion?
(c) Did the party receive independent legal advice?
(d) After entering into the contract, did the party take steps to avoid it? If the party alleging duress satisfies those four factors, it must go on to satisfy the second prong, by showing that the pressure exerted was illegitimate: Techform Products Ltd. v. Wolda (2001), 2001 CanLII 8604 (ON CA), 56 O.R. (3d) 1 (C.A.), at paras. 31-34, leave to appeal refused, [2001] S.C.C.A. No. 603. . S.A. v. A.A.
In S.A. v. A.A. (Ont CA, 2017) 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.
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