Pao On v Lau Yiu Long
| Pao On v Lau Yiu Long | |
|---|---|
 |
|
| Court | Privy Council |
| Full case name | Pao On and others v Lau Yiu Long and another |
| Decided | 9 April 1979 |
| Citation(s) | [1979] UKPC 17, [1980] AC 614, [1979] HKLR 225 |
| Case opinions | |
| Lord Scarman | |
| Court membership | |
| Judge(s) sitting | Lord Scarman |
| Keywords | |
| Consideration, economic duress, commercial pressure | |
Pao On v Lau Yiu Long [1979] UKPC 17 is a contract law appeal case from the Court of Appeal of Hong Kong decided by the Privy Council, concerning duress. It is relevant for English contract law.
Fu Chip Investment Co Ltd, a newly formed public company, majority owned by Lau Yiu Long and his younger brother Benjamin (the defendants), wished to buy a building called "Wing On", owned by Tsuen Wan Shing On Estate Co. Ltd. ("Shing On"), whose majority shareholder was Pao On and family (the claimants). Instead of simply selling the building for cash, Lau and Pao did a swap deal for the shares in their companies. Shing On would get 4.2m $1 shares in Fu Chip, and Fu Chip bought all the shares of Shing On. Fu Chip bought all the shares in Shing On, and Pao received as payment 4.2m shares in Fu Chip (worth $2.50 for each $1 share). To ensure the share price of Fu Chip suffered no shock, Pao agreed to not sell 60% of the shares for at least one year. Also, in case the share price dropped in that year, Lau agreed to buy 60% of the shares back from Pao at $2.50. But then Pao realised, if the share price rose over $2.50 in the year, the price would stay fixed and he would not get the gains. So he demanded that instead of that, Lau would merely indemnify Pao if the share price fell below $2.50. Pao made clear that unless he got this "guarantee agreement", he would not complete the main contract. It was signed on 4 May 1973. But as it turned out the shares did slump in value. Pao tried to enforce the guarantee agreement. Lau argued the guarantee agreement was not valid (1) because there was no consideration, only in the past and under a pre-existing duty, and (2) because it was a contract procured by duress.
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