Contract 101 – Coercion in Contract

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What is coercion in relation to contract

There are two definitions of the word “coercion” under the Contracts Act 1950 (the Act):

  1. Section 15 of the Act defines coercion as the act of committing, or threatening to commit any act forbidden by the Penal Code, or the unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
  2. “Coercion” under section 73 of the Act, as noted by the court, is used in its general and ordinary sense as an English word. What it means is this, the word is not constrained by the definition given by section 15 of the Act, and can be defined in every way possible so long as it is in line with the meaning of the word.

Why is there a difference in the definition?

The reason there is a difference, as noted by Justice Eusoff Chin in Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors1, is this:

  1. The Contracts Act 1950 is divided into ten (10) parts. Part III deals with “Of Contracts, Voidable Contracts And Void Agreements”, which contains section 15 of the Act.
  2. In order to raise coercion under section 15, of the Act, the element of consent (i.e. parties freely consented to the contract) must be available/ not available to a party.
  3. As compared to Part III of the Act, Part VI of the Act, deals with matters described as “Of Certain Relations Resembling Those Created By Contract” i.e. agreements which resemble a contract2, which contains section 73 of the Act.
  4. Nowhere under section 2, nor anywhere in part III and part VI of the act stated that the meaning of the word “coercion” must be uniform across the board.
  5. As both sections deal with different scenarios, it would be difficult if the word “coercion” is to be given the same meaning in both of the sections of the Act.
  6. Therefore, the word “coercion” in the context of Section 73 of the Act should be given its ordinary and general meaning since there is nothing under section 15 which says that the word “coercion” should apply throughout the Act. The definition of “coercion” in section 15 should only apply for the purpose contained in section 14, as Section 14 of the Act specifically says so.

The law in relation to this topic

1) Factors in determining coercion under Section 15 of the Act

The court in Pao On v Lau Yiu Long3 held as follows:

“In determining whether there was coercion in contract of will such that there was no true consent, it is material to inquire whether, at the time he was allegedly coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or he did not have an alternative course open to him such as adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it.”

From the statement above, there are several (but non-exhaustive) factors that a court can take into account, when deciding whether a party was coerced into entering a contract, namely:

  1. Whether the said party protested;
  2. Whether the said party had a choice to not enter into the contract;
  3. Whether the said party sought independent advice before entering the contract; or
  4. Whether the said party took steps to not perform the contract.

2) Factors in determining coercion in contract under Section 73 of the Act

There are three factors in determining whether there is coercion under section 73 of the Act:

  1. Is the money paid by one party to another/ Did one party deliver the item(s) to another party?;
  2. Was the money paid/ item(s) delivered under coercion?; and
  3. Is it a coercion scenario (does it fit under a general definition of coercion)?

All three factors must be satisfied before an act is considered an act of coercion.

The available remedies

  1. Coercion under section 15 of the Act – the agreement/ contract voidable at the option of the party whose consent obtained by coercion i.e. the party whose consent obtained by coercion can annul the contract.
  2. Coercion under section 73 of the Act – A person to whom money has been paid, or anything delivered under coercion, must repay or return it.

1. [1988] 2 MLJ 117.
An example of an agreement which resembles a contract can be seen in the illustration (b) of section 73 of the Act:

“A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.”
3. [1980] A.C. 614.