The doctrine of duress is well established in English Law and allows a party to the contract to set aside the terms of an agreement by showing evidence that pressure or force from the other party was put on them (against person or property) when the agreement was formed. The party subjected to the duress claims they had no choice but to enter the agreement.
Economic duress is a relatively new development but is of increasing importance with notable consequences for parties entering into commercial agreements.
The Courts now acknowledge that, in addition to threats against a person or their property, the threat of economic could also force a party to sign an agreement. This undue commercial pressure is known as economic duress and allows the innocent party to rescind the Contract.
Prior to the concept of economic duress being recognized, the position in law was protected by the doctrine of consideration. Consideration is the price one party pays for another’s promise. The rule is that consideration must be sufficient but need not be adequate. It was recognized that, where one party had already contracted to perform a duty, the original duty wasn’t sufficient consideration for a promise of more money. The leading case is Stilk v Myrick (1809) KB 317 where seamen could not claim an additional share of wages of those who deserted as they had not given further consideration for the promise of those extra wages – they were already bound by an existing duty to serve as fully as possible on the ship. The logic behind the reasoning is that a person entering into a contract who is in a very strong bargaining position may insist upon further payment to perform an existing duty, and the other party to the contract may have no choice but to agree. This possibility of extortion can be seen in Harris v Watson (REF2), where it was held that as a matter of public policy, sailors could not be allowed in times of danger to insist upon further payment to perform existing duties.
However, it has not always been held that a promise of further payment can’t be enforced in relation to an existing duty. In Williams v Roffey Brothers (REF3), B paid an additional amount to A to perform an existing contractual obligation, because B knew that the original figure promised to A was too low and that A would not be able to complete his work which would be commercially detrimental to B. There was held to be practical benefits to B in doing this which served as the consideration for the additional payment. There was no suggestion of duress on A’s part (e.g, a threat to break his contract) and in fact, the suggestion of extra payment came from B (or B’s surveyor).
Arguably, in Stilk v Myrick, the owner of the ship also had a practical benefit as his ship was returned safely (and there was no duress claimed), so it’s difficult to reconcile the two cases. The Lords, whilst insisting Williams v Rofey Brothers doesn’t contravene the decision in Stilk v Myrick, argue that the case may have been decided differently today, and Trietel carefully summarizes that the decision in Williams applies, although is less relevant because of the developing concept of duress (REF4).
Williams v Rofey wasn’t applied in Re Selectamove (REF5) as the Court considered there would always be a practical benefit to a Creditor where a debt is repaid by installments. The practical benefit can’t be treated as consideration because the Debtor owes the money anyway, and it’s only if the Creditor receives an additional benefit that Williams v Rofey will apply (Folkes v Beer (1894) 9 App Cas 605 REF6 – although this is again difficult to reconcile).
The effect of these cases is that, where goods and services are supplied, reasonable re-negotiations are possible where there’s a practical benefit derived and there’s no duress. Economic duress is therefore clearly a proposition which helps decide which re-negotiations are reasonable.
Economic duress needs to be distinguished from legitimate commercial pressure. Threats to take business elsewhere, to withdraw discounts or to sell/buy from competitors are legitimate commercial pressures and not economic duress.
Pao On v Lau Yiu Long (1980) AC 614 (REF7) established that for economic duress to apply the payment made or contract entered into by the innocent party must not have been done voluntarily. Also, the pressure upon that party to enter the contract must be illegitimate. Economic duress is, therefore, improper illegitimate threats that amount to compulsion to enter into a contract or absence of choice. In Atlas Express Ltd v Kafko (REF8), Atlas threatened Kafko that no futher deliveries would be made unless Kafko increased the amount paid to Atlas. This threatened Kafko’s position with Woolworths and Kafko had no choice but to agree to Atlas’s demands. Such duress must be a significant cause of the person entering into the Contract, not just a reason (Huyton v Crèmer (1999) 1 Lloyd’s Rep 620 REF9). Further, the threat amounting to economic duress will usually (but not necessarily) be unlawful (CTN Cash & Carry Ltd v Gallagher (1994) 4 All ER 714).
Pao On established a number of criteria that assisted in the test for economic duress. These included an assessment of whether the person alleging duress protested at the time, whether he’d an alternative course of dealing such as a legal remedy, whether he took independent advice and how quickly after entering into the contract he took steps to avoid it. In relation to the latter point, North Ocean Shipping Co v Hyundai Construction Co (The Atlantic Baron) 1979 isn’t able because, whilst economic duress was clearly present, the innocent party affirmed the Contract by lapse of time, accordingly barring rescission.
The effect of economic duress on a Contract is that it’s voidable. This means that it’s perfectly valid until avoided (rescinded) by the innocent party, but the innocent party may choose to affirm. The Contract can’t be avoided if it’s barred by affirmation, delay, where it’s impossible to return the parties to their original positions, and where the subject of the Contract (eg. Goods) has been sold to an innocent third party. (76)
In conclusion, it has been seen that whilst duress has been recognized in English Law, economic duress was a newcomer and such problems were partly protected by the doctrine of consideration which didn’t allow further promises without consideration to be enforced, and so protected innocent parties from extortion and undue pressure where bargaining powers were not equal. This was clearly not satisfactory as, as can be seen from cases such as Williams v Roffey, practical benefits are deemed as sufficient consideration for further promises and clearly this position could be took advantage of. There appears to be a fine line between what is seen as strong commercial negotiation, and imposing economic duress to obtain a strong and financially favourable contractual position, but this seems better protected by the recognition of the possibility of economic duress than by arguments over sufficient and past consideration not being adequate.
References:
1. Stilk v Myrick (1809) KB 317 in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) p.234, Sweet & Maxwell, London
2. Harris v Watson discussed in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) p.233 and p.235, Sweet & Maxwell, London
3. Williams v Roffey Brothers & Nicholls (Contractors Ltd) in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) p.236, Sweet & Maxwell, London
4. Treitel, The Law of Contract, 10th Edition, 1999, Sweet & Maxwell pp.88-92 in Reading 8: Resource Book 2 W300: Law – Agreements Rights and Responsibilities (2003), Open University, Milton Keynes
5. Re Selectamove (1995) CA 1 WLR 474 in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) pp.240-241, Sweet & Maxwell, London
6. Folkes v Beer (1894) 9 App Cas 605 in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) p.245, Sweet & Maxwell, London
7. Pao On v Lau Yiu Long (1980) AC 614 in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) from pg 233, Sweet & Maxwell, London
8. Atlas Express Ltd v Kafko (1989) QB 833 in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) from p.672, Sweet & Maxwell, London
9. Huyton v Crèmer (1999) 1 Lloyd’s Rep 620 REF9).
10. CTN Cash & Carry Ltd v Gallagher (1994) 4 All ER 714 in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) from p.675, Sweet & Maxwell, London
11. North Ocean Shipping Co v Hyundai Construction Co (The Atlantic Baron) 1979 QB 705 in Smith, J. C. – Smith & Thomas A Casebook on Contract (11th Edition) from p.241, Sweet & Maxwell, London