Pao On v Lau Yiu Long [1980]

Court: Privy Council

Facts: In Pao On v Lau Yiu Long [1979] UKPC 17, Fu Chip Investment Co Ltd (owned by Lau Yiu Long) agreed to purchase shares from Tsuen Wan Shing On Estate Co Ltd (owned by Pao On) through a share exchange rather than a cash transaction. Pao On agreed to retain 60% of the shares for one year to stabilize the share price. Lau Yiu Long promised to repurchase shares at a fixed price if the share price fell below $2.50. Later, Pao On sought to amend this arrangement to an indemnity in case of a price drop. Lau Yiu Long contested the validity of the amended agreement, arguing lack of consideration and duress.

Issue: Whether the promise to indemnify Pao On was supported by valid consideration and whether it was made under duress.

Held: The Privy Council ruled in favor of Pao On. It found that the promise was supported by valid consideration and that the pressure applied did not amount to duress.

Key Judicial Statement: Lord Scarman clarified that an act performed before a promise is made can constitute good consideration if it was done at the promisor’s request and both parties understood it would be rewarded. Commercial pressure alone does not constitute duress unless it involves coercion of the will.

💡 Leveluplaw: This case reaffirms that past acts can constitute valid consideration if performed at the request of the promisor and with the expectation of reward. It also establishes that economic duress requires more than mere commercial pressure; it must involve coercion of will that vitiates consent. This case highlights the importance of understanding the nuances of consideration and the criteria for economic duress in commercial contracts.