Business And Corporations Law: Woordside Energy Ltd.

Consider the following situations and indicate whether consideration is present and whether Jack has an enforceable agreement:

In the present situation, Jane is the promisor and Jack is the promisee. Jane has offered the car to Jack, to which Jack has also agreed. Even when the elements of valid contract i.e. offer and acceptance are present, this situation lacks consideration. Jane has not mentioned any consideration for the promise to give Lotus Super 7 sports car to Jack. 

Consideration is an essential part of a contract without which the contract may be termed as void. It is pertinent for the promisor to receive some amount of consideration in return if the price. In other words, it can be said that consideration is the price paid for the promise. As per the common law, a promisee must give some consideration for the promise it receives, for such a contract to be valid and binding between the promisor and the promisee. (Caffrey, 1991)

Further, in Placer Development Ltd. Commonwealth [(1969) 121 CLR 353], the court held that if either of the parties to the contract have an option to choose to which extent they should perform or if there is any ambiguity in determining consideration to be paid for the promise, then it shall not be considered as valid consideration and thus there shall not be any valid contract between the parties.

Also, the promisor must specify the consideration in return of promise either directly or indirectly. The promisee cannot ponder on any aspect and consider it to be the consideration in return of the promise. It is necessary for the consideration to be legal; irrespective of it being of monetary value or non-monetary value. (Vermeesch & Lindgren, 1971)

Since, in the present case Jane has not determined the price for her promise i.e. to give car to Jack, this constitutes invalid consideration. Further, it cannot be said that from the circumstances of the case the consideration could be determined because Jane was going overseas so she would sell her car at market price. Consideration is not something, which promisee can ponder over and determine but it must come from the promisor. In the present case, promisor has not agreed to any price as the amount of consideration and thus there is no valid consideration.

In the present case, Jane has offered to sell his car at a price of $25000, which is also the market value of this car and the same has been agreed between both the parties. The elements of offer, acceptance and consideration are clearly established between the parties.

In terms of law, consideration is merely the price paid in return of the promise made to the other party. Such a price, which consists consideration must be of some value but is not always required to be monetary. Consideration also includes vesting of right, benefit or interest. (Shtein & Lindgren, 1973)

For consideration to be valid it must be in some form as stipulated by the promisor in favor of the promise. Consideration is the amount that the promisor asks from the promisee to fulfill the promise between them. (Clarke, 2013)

The price for the car i.e. $25000 is the consideration in the present situation. This is a valid consideration since it is legal and has a distinct value in the eyes of law and is also enforceable before law. This is a real consideration agreed between the parties and thus constitutes valid and binding consideration.

In the present situation, Jean has offered Jack to sell her car at $2500. This is a monetary amount, which is legal and has a value in the eyes of law.

Consideration is also defined as a measure of intent between the parties, which is used in establishing legally binding obligations and rights between such parties.  As long as there is a value of consideration, the courts shall not intervene and ponder over the question of adequacy of such consideration. It is pertinent for consideration to have some value but it is irrelevant of how much the value is actually. However, to this general rule of consideration, these are the following two exceptions: (Clarke, 2013)

Deeds or documents under seal- where there are deeds or any documents under seal, then consideration is not mandatory to form a binding contract.

Doctrine of promissory estoppel- this doctrine ensures enforcement of promises in such situations where otherwise it would be inequitable to do so. However, it is not a strict exception to consideration and thus cannot be strictly substituted in place of consideration.

As mentioned above, the law is clear on the point that consideration is the price, which the promisor demands in return of the promise made. In respect to consideration, price is defined in a broad sense, which means that it is not necessary for the price to be determined in terms of monetary value. In Carlill v. Carbolic Smoke Ball Co., it was held that it is necessary that the consideration follows from the promisor and should move to the promisee.

For consideration to be valid, it is integral that it should not be illegal or in a manner that seeks to violate any law in force. The consideration irrespective of what is it must be legally enforceable before the law. The nature of consideration was discussed in Chappell v. Nestle, wherein it was expressed that even if the promisor stipulates a mere ‘peppercorn’ as consideration, it would be considered valid.

Further, consideration must be such that has a value in the eyes of law. Consideration must exist in reality and should be capable of being transfer from the promisee to the promisor in lieu of the promise between them. Consideration cannot be any illusionary undertaking between the parties. (Fitzroy Legal Serive, 2015)

It is of no significance that the market price of the car is $25000, but the consideration fixed in $2500. The price stipulated for the car by Jane is $2500 and the same is accepted by Jack. Thus, it forms valid consideration between the parties because all essential elements of consideration are present in it.

In the present case, the main issue is that the buyer’s position to perform in the contract between the parties was weakened and the shipbuilder exerted wrongful use of economic pressure. This situation gives rise to economic duress. In lieu of devaluating currency, the shipbuilder demanded an extra price for the country or otherwise threatened to stop the work. On the other hand, the buyer has already entered into contracts on the basis of its contract with the shipbuilder and was required to deliver the tanker to other party. However, another issue in the present case is that even after delivery of tanker, the buyer failed to commence the legal action until a long period of nine months. Thus, now the main issue becomes whether buyer can claim the benefits of economic duress after a period of nine months.

When one party takes the position of dominant party and therefore threatens to not perform in the contract until and unless certain economic conditions are not fulfilled then it constitutes economic duress. However, to prove such economic duress it is pertinent that the weaker party had no other option available rather than fulfilling the condition of the dominant party.  In case of economic duress, the contract becomes voidable at the end of the weaker party and thus damages can be claimed by such party, which had to act under economic duress of the dominant party. (Stewart, 1984)

The doctrine of economic duress states that if one party applies illegitimate pressure on the other party to perform then the contract becomes voidable. In Electrcity Generation Corporation t/as Verve Energy v. Woordside Energy Ltd. [2013] WA SCA 36, the Western Australian Court of Appeal held that refusing to supply additional gas and thereby forcing the other party indirectly to enter in short-term gas sale agreement, results into pressure and constitutes economic duress, wherein the contract shall be considered as voidable (Bant, 2014). In such situation, the party, which was forced to enter into contract, may claim damages before the court of law. Thus, it is pertinent for parties to consider the factor of economic duress along with good faith, when any variations are negotiated in respect to the contract. (Cahif & Bordignon, 2013)

In Maskell v. Horner and Skeate v. Beale, if an agreement is made under duress it cannot be termed as void. However, when there is a threat that the contract shall be rescinded and it leads to payment of valuable consideration then such contract becomes voidable so that it can be avoided and any amount of excess money can be recovered from the dominating party.

Another significant principle of the contract law is the duty of the buyer to act immediately upon delivery in case any of the rights of the buyer are violated while fulfilling the contractual obligations. It is the utmost duty of the buyer to not delay in bringing the case of economic duress before the courts so that the contract can be deemed as voidable and therefore damages granted to the weaker party. Thus, a party who sleeps over his rights cannot claim such rights after a considerable period of time. The party, whose right is violated must act diligently towards it and should not make any delays in approaching the court of law.    

Further, in North Ocean Shipping v. Hyundai Construction (The Atlantic Baron) [1979] QB 705, the defendants threatened the claimants that the contract would not be completed until they are made good of the profits suffered due to devaluation of currency. Considering future obligations of the claimant with other parties in respect to the same contract, the claimant agreed to payment of additional price. However, in this case the claimants bought the issue before the courts of law after a period of eight months of the delivery of ship. Thus, the court held that the contract was voidable due to economic duress and the claimants would have a right to damages under such contract, however the claimants took long to approach the contract, this implies that they have affirmed the contract and therefore the right to rescind the contract was lost.

In the current situation, the consideration demanded for continuing the contract constitutes good consideration to the amount of US3$ million. Further, the buyer had already contracted other parties in regards to the tanker, which was to be delivered by the shipbuilder. Thus, the buyer had to sell the tanker and required delivery as schedules in the original agreement between them. Here the buyer did not have any right to reject the new variation introduced by the shipbuilder and had to pay the additional consideration so as to avoid future loss of business and reputation. It can be clearly concluded that the buyer was bound by the shipbuilder and was under the economic duress to perform he additional variation in the contract. Such economic duress lead the contract to be voidable at the end of the buyer, whereby giving the option to the buyer to either rescind the contract or claim damages of additional consideration or do both these options before the court. However, it was pertinent for the buyer to bring such action before the courts of law within a considerable period of time. Bringing action after a period of nine months does not constitute considerable period and thereby restricts the right of the buyer to enforce doctrine of economic duress in his favor.

Thus, it can be finally concluded that still enforce the doctrine of economic duress, the buyer should bring strong proofs as to why and how it was disabled to approach the court within a considerable period of time and thereby explain the court the reasons as to why it took the buyer good nine months to enforce its rights. In the present situation, it would be highly difficult for the buyer to establish rights after a period of nine months and this aspect is clearly explained in the Atlantic Baron Case. However, if the buyer would have approached the court without making such delay, then it would have the right as granted under the doctrine of economic duress to recover damages suffered by paying additional consideration to the shipbuilder.

Placer Development Ltd. Commonwealth [(1969) 121 CLR 353],

Carlill v. Carbolic Smoke Ball Co [1983] 1 QB 256

Chappell v. Nestle [1960] AC 87

Electrcity Generation Corporation t/as Verve Energy v. Woordside Energy Ltd. [2013] WA SCA 36

Maskell v. Horner [1915] 3 KB 106

Skeate v. Beale [1840] 11 AD& E 983

North Ocean Shipping v. Hyundai Construction (The Atlantic Baron) [1979] QB 705

Bant, E., 2014. An Opportunity Saved: Duress in the High Court of Australia: Verve Energy. [Online] Available at: https://blogs.unimelb.edu.au/opinionsonhigh/2014/03/12/bant-verve-energy/ [Accessed 16 July 2016].

Caffrey, B.A., 1991. Guidebook to Contract Law in Australia. Australia: CCH Australia.

Cahif, A. & Bordignon, L., 2013. Australia: Economic duress: be careful how you act when you hold all the power under a contract. [Online] Available at: https://www.mondaq.com/australia/x/257210/Contract+Law/Economic+duress+be+careful+how+you+act+when+you+hold+all+the+power+under+a+contract [Accessed 16 July 2016].

Clarke, J., 2013. Consideration. [Online] Available at: https://www.australiancontractlaw.com/law/formation-consideration.html [Accessed 16 July 2016].

Clarke, J., 2013. Formation of Contract. [Online] Available at: https://www.australiancontractlaw.com/law/formation.html [Accessed 16 July 2016].

Fitzroy Legal Serive, 2015. The Law Handbook – Victoria’s most trusted practical guide to the law since 1977. [Online] Available at: https://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/ [Accessed 16 July 2016].

Shtein, B.J.L. & Lindgren, K.E., 1973. An introduction to Business Law. The Law Book Company Limited.

Stewart, A., 1984. Economic Duress- Legal Regulation of Commercial Pressure. Melbourne University Law Review, 14, pp.410-41.

Vermeesch, R.B. & Lindgren, K.E., 1971. Business Law of Australia. Butterworths.