duress in contract law essay

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• > Volume 56 Issue 2
• > Contracting under Pressure: A Theory of Duress

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Contracting under pressure: a theory of duress.

Published online by Cambridge University Press:  16 January 2009

In certain circumstances the fact that an agreement is made under pressure is sufficient reason to invalidate what would otherwise be a good contract. The rules providing for invalidation in such cases are found in the textbooks under the headings of duress and, to a less extent, undue influence and unconscionability. That the existence of pressure sometimes is and should be sufficient to invalidate a contract is not controversial. Few would argue that a contract entered at gunpoint ought to be enforced and the law is clear that such agreements are not enforceable. What is less clear are the principle(s) that underlie such decisions and the proper scope or reach of those principles. These questions are important for both the theory and practice of contract law. Theoretically, because any adequate account of contract law—a doctrine that in the orthodox understanding holds out the ideal of freedom as a core value—must explain that part of the lawin which individual freedom is most directly at issue. Practically, because the recognition in English courts over the last twenty-five years that the defence of duress may be invoked in situations other than threats to a person or even threats to a person's goods (in short, the acceptance of “economic duress”), together with the recent near-elimination of the rule that a promise to perform an existing duty is not good consideration, has meant that courts are regularly required to consider how far the scope of duress should extend.

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1. Williams v. Roffey Brothers and Nicholls (Contractors) Ltd. [1991] 1 Q.B.I.

2. References in this article to “plaintiffs” and “defendants” and to “plaintiff-based” and “defendantbased” are to be understood in the sense stipulated above, i.e. , the plaintiff is the party seeking enforcement of the contract. Of course, owing to the complexities of litigation it is not always the actual plaintiff in a contract case who is seeking enforcement of the contract.

3. “1983” 1 A.C. 366, 400. See also, e.g. , Cartwright , J. , Unequal Bargaining ( Oxford 1991 ) p. 155 . Google Scholar The American position is the same: Section 175(1) of the Restatement of Contracts (2d) states that duress is shown if “a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative”

4. The distinction between a plaintiff-based concern for wrongdoing and a defendant-based concern for autonomy is in some respects similar to a distinction employed by Birks , P. and Chin , N.Y. in “On the Nature of Undue Influence” in J. Beatson § Friedmann , D. (eds), Good Faith and Fault in Contract Law ( Oxford 1995 ) Google Scholar . In their brief discussion of duress, however, Birks and Chin suggest that the issue in pressure cases is that of the legitimacy of the pressure (although they go on to say, strangely in my view, that invalidity for illegitimate pressure is, in my terminology, defendant-based). See also Birks , P. “The Travails of Duress” 1990 ] L.M.C.L.Q. 342 . Google Scholar

5. Fried , C. , Contract as Promise ( London 1981 ), Google Scholar ch. 7.

6. The principle is clearly stated in the American case of Riggs v. Palmer 115 HY 506, 511 22 NE 188, 190 (1889): “all laws as well as all contracts may be controlled in their operation and effect by general, fundamental maxims of the common law. No one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime.” See also, e.g., St. John Shipping Corporation v. Joseph Rank Ltd. [1957] 1 Q.B. 267, 292.

7. See Lamond , G , “Coercion, Threats, and the Puzzle of Blackmail” in A. Simester § Smith , A.T.H. (eds.), Harm and Culpability ( Oxford 1996 ); Google Scholar Raz , J. , The Morality of Freedom ( Oxford 1986 ) 36 Google Scholar . I am indebted to Lamond for his sensitive discussion of threats (and of blackmail).Some authors, including Lamond, hold that a threat need not include a conditional request to do something. I am not inclined to this view, but will not press the point since for my purposes it is sufficient if conditional requests can be part of a threat.

8. See Nozick , R. , “Coercion” in Philosophy, Science and Method: Essays in Honour of Ernest Nagel ( New York 1969 ); Google Scholar also, Beatson , J. , “Duress, Restitution and Contract Modification” in The Use and Abuse of Unjust Enrichment ( Oxford 1990 ), pp. 118 – 122 . Google Scholar

9. Thus Atlas Express Ltd. v. Kafco Ltd [1989] Q.B. 833 and D. § C. Builders Ltd. v. Rees [1966] 2 Q.B. 617, involved threats, whereas Williams v. Roffey Brothers and Nicholls (Contractors) Ltd. [1991] 1 Q.B. 1 arguably did not.

10. If such cases were common, the courts' task in renegotiation cases would be extremely difficult. Fortunately, in nearly all cases where an optional breach is “predicted” the speaker knows that breach is unwelcome and is hoping to induce a renegotiation.

11. Contrary to the view advanced in, e.g., Burrows , A. , The Law of Restitution ( London 1993 ), pp. 164 , 179 –82; Google Scholar Beatson, op. cit. note 8, at p. 129; Farnsworth , E.A. , Contracts ( Boston 1990 ), p. 261 ; Restatement of Contracts (2d) s. 176(l)(d). Google Scholar

12. Halston , R. , “Opportunism, Economic Duress, and Contractual Modifications” [1991] Google Scholar 107 L.Q.R. 649, 662; Farnsworth, op. cit. note 11, at p. 276; H. Mather. “Contract Modification under Duress” (1982) 33 South Carolina L.R. 615; Burrows, op. cit. note 11, at p. 181; Restatement of Contracts (2d), s. 89(a); Uniform Commercial Code s. 2–209(1).

13. Halston, op. cit. note 11, at p. 55; Mather, op. cit. note 11, at pp. 624–6.

14. Smith , S.A. , “Performance, Punishment, and the Nature of Contractual Obligation” ( 1997 ) Google Scholar 60 MLR. 360, 373.

15. See, e.g., Graenberg v. Aetna Ins. Co. 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P 2d 1032 (1973); Diamond, “The Tort of Bad Faith Breach of Contract: When, If At All, Should It Be Extended Beyond Insurance Transactions” (1981) 64 Marqueue L.R. 425.

16. As noted in The Alev [1989] 1 Lloyd's Rep. 138, 142 & 145.

17. Note that a threat to infringe another person's rights is not always wrongful. One example is where the threat is made in order to avert worse wrongdoing. Thus it is not wrong to threaten a person holding a third person at gunpoint with the destruction of his house unless he lets his victim go. Such threats are of marginal relevance to contract law and are not discussed further.

18. For a similar view, see Fried, op. cil. note 5, at p. 97.

19. The Universe Sentinel [1983” A.C. 366, 401; The Evia Luck [1990] 1 Lloyd's Rep. 319, 339; Thome v. Motor Trade Association [1939] A.C. 797. 801; CNT Cash & Carry Ltd. v. Gallagher Ltd. [1994] 4 All E.R. 714, 718. The Restatement of Contracts (1st) is clear that lawful and wrongful are distinct: “Acts or threats cannot constitute duress unless they are wrongful & But Acts may be wrongful within the meaning of this rule though they are not criminal or tortious or in violation of a contractual duty.” Some older English authorities held that duress required a threat to do an unlawful act ( Hardie and Lane Ltd v. Chilton [1928] 2 K.B. 306; Mayor of Bradford v. Pickles [1895] A.C. 587), but this requirement could be evaded by finding that the pressure constituted undue influence: Williams v. Bayley (1866) L.R. 1 H.L. 200; Mutual Finance Co. Ltd. v. Wetton & Sons Ltd. [1937] 2 K.B. 389. It should not be supposed that all undue influence cases, or even all cases of actual undue influence, are pressure cases. The essence of undue influence is surrender of judgment. Pressure may, but need not, accompany such a surrender. On lawful threats generally, see Dawson , J. , “Economic Duress—An Essay in Perspective” ( 1947 ) Google Scholar 45 Michigan L.R. 253; Dalzell , J. , “Duress by Economic Pressure” ( 1942 ) Google Scholar 20 N.C.L.R 341; Hale , R. “Bargaining, Duress and Economic Liberty” ( 1943 ) Google Scholar 43 Columbia L.R. 603; Dawson , J. , “Duress Through Civil Litigation” ( 1974 ) Google Scholar 45 Michigan L.R. 571 & 679; Sutton , R. , “Duress by Economic Pressure” ( 1974 ) Google Scholar 20 McGill L.J. 554; Rafferty , N. , “Wrongful Pressure in a Finding of Duress” ( 1980 ) Google Scholar 43 Alberta L.R. 431; Beatson, op. cit. note 8, at p. 133.

20. An approach taken by Lord Diplock in The Universe Sentinel [1983] A.C. 366, 385.

21. In the second half of this article, where the consent principle is discussed, it is suggested that in many cases involving a “threat” to refuse to contract cases the contract should be invalidated. The reason for invalidity, however, is not the threat itself, but the lack of reasonable alternatives available to the plaintiff.

22. Thus Hale's view that every contract is entered under a threat—the threat not to contract—is rejected: R. Hale, “Coercion and Distribution in a Supposedly Non-Coercive State” (1923) 38 Political Science Quarterly , 470.

23. In CNTCash & Carry Ltd. v. Gallagher Ltd [1994] 4 All E.R. 714 a plea of duress on the basis of such behaviour (a threat to withdraw credit facilities) was denied, although the Court of Appeal appeared to allow that in a non-commercial case the defence might have succeeded. In an American case, Hochman v. Zigler's Inc. 139 N.J. Eq. 139, 50 A. 2d 97 (1946), the court invalidated a contract between a landlord and tenant where the landlord had induced the tenant to find a buyer for the tenant's business and then threatened not to go through with a new lease except on revised terms. For a general discussion of why it may be wrong, in certain circumstances, to refuse to contract after inducing an assumption to the contrary, and of the Australian authorities in support of this proposition, see Spence , M. , “Australian Estoppel and the Protection of Reliance” ([ 1997 ] Google Scholar 11 Journal of Contract Law I.). Fortunately, it is not normally necessary in a duress case to determine whether letting a person down in this way is wrongful since, as we shall see, a defence based on such a claim, if successful, will typically also support a no consent defence.

24. For this reason, blackmail is a misleading example to use in support of the view that wrongful threats need not involve a threat to do an unlawful action (see, e.g., Scarman , Lord , The Universe Sentinel [1983] Google Scholar A.C. 366, 401). The reason that blackmail is wrong has nothing to do with the wrongfulness of the threatened action, whereas in the standard case of a wrongful threat to do a lawful action it is precisely the wrongfulness of the threatened action that makes the threat lawful: see Beatson, op. cit. note 8, at p. 133.

25. Theft Act 1968 s. 21(1).

26. Lamond, op. cit. note 7, at p. 216. On other possible justifications for blackmail see Lindgren , J. , “Unravelling the Paradox of Blackmail”.( 1984 ) 84 Google Scholar Columbia L.R. 670.

27. Thus it might be held, for example, that a weak form of blackmail is committed where a landowner who has no reason to want a well on his land threatens to sink a well unless a neighbour dependent on the flow of underground water pays him a sum of money (an argument arguably not accepted in Mayor of Bradford v. Pickles [1895] A.C. 587). The American case of Wolf v. Mar lion Corporation 154 A.2d 625 (1959) supports this approach. Duress was found where a person contractually obliged to purchase a house threatened to resell the house to an undesirable purchaser unless his deposit was returned.

28. R. Wright, “Causation in Tort Law” (1985) 73 California L.R. 1735; building on Hart , H.L.A. & Honoré , A. , Causation in the Law ( Oxford 1959 ), p. 106 . Google Scholar

29. It is interesting, therefore, that in a case involving just such a threat, Barton v. Armstrong [1976] A.C. 104, 121, Lord Wilberforce appeared to adopt a NESS standard of causation. His Lordship stated that, in order to prove duress, Barton's threat to kill need only be “a” reason for Armstrong entering the contract, adding, significantly, that the possibility that a “contract would have been made even if there had been no threats” was not fatal to a defence of duress.

30. This is especially likely if the plaintiff does not think that non-performance is a breach: E. Macdonald, “Duress by Threatened Breach of Contract” [1989] J. B. L. 460, 473. For a contrary view see Birks , P. , An Introduction to the Law of Restitution ( Oxford 1985 ), p. 183 . Google Scholar

31. Pau On v. Lau Yiu Long [1980] A.C. 614, 635; The Universe Sentinel [1983] A.C. 366, 400; R. Goff & Jones , G. , Law of Restitution 2d ed. ( London 1978 ), pp. 178 – 186 ; Google Scholar Halston, op. cit. note 12, at p. 671. Beatson's contrary view (op. cit. note 8, at p. 123), that the existence of alternative remedies goes to the essence of duress is, however, not entirely rejected. If the alternatives open to a “threatened” party are such that the party is truly indifferent as to whether the threat is carried out then arguably there is no question about causation because no threat has even be made. To make a threat, a person must propose to do something that is unwelcome to the victim. The distinction is a fine one, thus it is fortunate that the result is the same whether we say that no threat was made or that a threat was made but was inoperative. It should also be noted that, as explained below, in respect of the no consent defence the existence of reasonable alternatives clearly goes to the essence of the defence.

32. Pau On v. Lau Yiu Long [1980] A.C. 614, 635.

33. For an excellent discussion of this issue see Beatson, op. cil. note 8.

40. In particular, the policy in favour of compromises and payments made under process of law does not apply if the party threatening to sue (or prosecute) knew the claim to be groundless: see Beatson, op. cil. note 8, at pp. 97–106.

35. For a contrary view, see Nixon v. Furphy (1925) 25 N.S.W. 151, 158.

36. [1976] A.C. 104. See the discussion of Barton above in note 29.

37. See, e.g., Pau On v. Lau Yiu Long [1980] A.C. 614, 636; The Siboen [1967] 1 Lloyd's Rep. 293, 335; Hennessy v. Craigmyle [1986] I.C.R. 461, 468; The Atlantic Baron [1978] 3 All E.R. 1171, 1183; B & S Contract and Designs v. Victor Green Publications [ 1984] I. C. R. 419, 428; The Universe Sentinel [1983] A.C. 366, 383; The Alev [1989] 1 Lloyd's Rep. 138, 145.

38. See cases cited in note 61 below.

39. The way in which freedom is important to contract law is, however, widely disputed. The most important difference is between a subjective and an objective conception of the relationship between free choice and contractual obligation. On a subjective view, if a promise is not made freely then it cannot create a contract. According to this view, when courts enforce contracts in which the defendant's freedom was impaired but the impairment was not known to the plaintiff (e.g., the defendant was influenced by a third party) they are applying non-contractual principles. On an objective view, freedom is of derivative importance in establishing contractual obligation. According to this view, lack of consent only invalidates a contract where the lack of consent is known to the plaintiff. The debate is fundamental to the nature of contractual obligation, but outside the scope of this article. See also the text accompanying note 76 below.

40. See cases cited above in note 37.

41. See, e.g.. Hale, op. cit. note 22, at pp. 476–477; Hale , R. , “Bargaining, Duress and Economic Liberty” ( 1943 ) Google Scholar Columbia L.R. 603; Atiyah , P. , “Economic Duress and the Overborne Will” ( 1982 ) Google Scholar 98 L.Q.R. 197; Halston, op. cit. note 12, at pp. 612–613; Kronman , A. , “Contract Law and Distributive Justice” ( 1980 ) Google Scholar 89 Yale L.J. 472; Bigwood , R. , “Coercion in Contract: The Theoretical Constructs of Duress” ( 1996 ) Google Scholar U.T.L.J. 201; DPP v. Lynch [1975] A.C. 653, 680, 695, 710; Crescendo Management Ply. Lid. v. Weslpac Banking (1988) 19 N.S.W.L.R. 40, 46.

42. See, e.g., Atiyah, Ibid. ; Kronman, Ibid. , at 478; Trebilcock , M. , The Limits of Freedom of Contract ( Toronto 1993 ), p. 79. Google Scholar

43. Hale, op. cit. note 22; Llewellyn , K. “What Price Contract” ( 1931 ) Google Scholar Yale L.J. 704, 728; Patterson , D. , “Compulsory Contracts in the Crystal Ball” ( 1943 ) 43 Google Scholar Columbia L.R. 731,741; Dalzell , J. , “Duress by Economic Pressure”, pp. 238 – 239 ; Google Scholar Dawson, op. cit. note 43, at pp. 266–267; Coote , B. , “Duress by Threatened Breach of Contract” [ 1980 ] Google Scholar C.L.J. 40, 45; Halston, op. cit. note 12, at p. 665.

44. See, e.g., Fried, op. cit. note 5.

45. See, e.g., Posner , R. , Economic Analysis of Law 4th ed. ( Boston 1992 ), p. 113 . Google Scholar

46. See, e.g., Kronman, op. cit. note 41, at p. 480.

47. See, e.g., Dawson, op. cit. note 43, at p. 287.

48. Kronman, op. dt. note 41.

49. See Lucy , W. , “Contract as a Mechanism of Distributive Justice” ( 1989 ) Google Scholar 9 O.J.L.S. 132, 137.

50. Weinrib , E. , The Idea of Private Law ( Cambridge, MA 1995 ), Google Scholar chs. 1 & 2.

51. One question raised by this test is how “alternatives” are distinguished from “unrelated options”. It seems clear that where a ship is in danger of sinking and there is a sole rescuer available and willing to contract for a rescue, the options of sinking or contracting are alternatives. On the other hand, a telex sent to the ship making the captain an offer to buy his car does not present an alternative to allowing the ship to sink. The question of how to distinguish alternatives from unrelated options raises complex theoretical issues, but does not appear to have been relevant in actual cases and is not discussed in this article.

52. See Lucy, op. cit. note 49, at p. 39; Hart , H.L.A. , Punishment and Responsibility ( Oxford 1970 ), p. 152 Google Scholar . Judicial endorsements of this test include Pau On v. Lau Yiu Long [1980] A.C. 614, 635; The Universe Sentinel [1983] A.C. 366, 400; The Alev [1989] 1 Lloyd's Rep 138, 145; B & S Contract and Designs v. Victor Green Publications [1984] I.C.R 419, 426 & 428; The Atlantic Baron [1978] 3 All E.R. 1171, 1175.

53. See Lamond, op. cit. note 7, at p. 226. For a different view see Wertheimer , A. , Coercion ( Princeton 1987 ), p. 10 . Google Scholar

54. See note 39 above and text accompanying note 76 below.

55. The suggestion is less radical than it may appear. For reasons explained below, compromises and payments under process of law should only be invalidated if the terms are unfair.

56. On the economic torts generally, see Cane , P. , Tort Law and Economic Interests ( Oxford 1991 ). CrossRef Google Scholar On blackmail, see Smith , A.T.H. , The Law of Theft 7th ed. ( London 1993 ). Google Scholar

57. See, e.g., Williams v. Bayley (1866) L.R. 1 H.L. 200; Mutual Finance Ltd. v. John Wetton and Sons Ltd. [1937] 2 K.B. 389.

58. See, e.g., Norreys v. Zeffert [1939] 2 All E.R. 187.

59. “Arguably” because it might be argued that as contractual liability is strict, so too liability for indicating an intention to breach should be strict.

60. The distinction between wrongful threats and necessity is a fine one. As we saw in discussing wrongdoing, a refusal to contract might in certain circumstances be construed as a threat. However, although the distinction between wrongful threats and necessity is relevant to assessing wrongdoing, it is not relevant when applying the consent principle. It does not matter why the defendant has no alternative.

61. In this respect, it is interesting that it is in those duress cases where wrongdoing was less clearly evident (mainly economic duress cases) that English courts appear to have employed the stricter but-for test of causation: see, e.g. Pau On v. Lau Yiu Long [1980] A.C. 614, 635; The Siboen [1967] 1 Lloyd's Rep. 293, 336. Contrast Barton v. Armstrong [1976] A.C. 104, where wrongdoing was clearly evident and the weaker NESS test was endorsed.

62. For a more detailed explanation of the notion of free choice applied here and its connection with responsibility, see Frankfurt , H. , The Importance of What We Care About ( Cambridge 1988 ) CrossRef Google Scholar , chs. 1,2,3,4,8.

63. A person has an autonomous life if, to adopt Raz's words, he is “the author of his own life”. A mere lack of alternatives does not always preclude a person from getting what he wants in life (his only options may be the option he wants anyway), but it will prevent that person from directing the course of his life, that is, from achieving an autonomous life: Raz, op. cit. note 7, at ch. 14.

64. See Frankfurt, op. cit. note 62.

65. A person being tortured, for example, may think that he should not reveal a secret yet be unable to resist the pressure to reveal. On the distinction between pressure which forces someone to act against their best judgment and pressure which is a factor in a person's best judgment, see Lamond op. cit. note 7, at p. 218.

66. The Alev [1989] 1 Lloyd's Rep. 138, 1175.

67. Ibid. at p. 1175; Pau On v. Lau Yiu Long [1980] A.C. 614, 636.

68. Atlas Express Ltd. v. Kafco Ltd. [1989] Q.B. 833.

69. Thus I broadly agree with the approach outlined in Tiplady , D. , “Concepts of Duress” ( 1983 ) 99 Google Scholar L.Q.R. 188 and disagree with Atiyah , P. , “Economic Duress and the Overborne Will” ( 1982 ) 98 L.Q.R. 197 . Google Scholar

70. This example is similar to the facts of Barton v. Armstrong [1976] A.C. 104. The difference between the tests of causation required by the wrongdoing principle and the autonomy principle helps to explain the differing decisions in Barton reached by the Court of Appeal of New South Wales and the Privy Council.

71. I discuss the concept of a fair price in greater detail in Smith , S.A. , “In Defence of Substantive Fairness” ( 1996 ) 112 L.Q.R. 138 . Google Scholar

72. Reference is made here and elsewhere to “fair” terms, but it should be emphasised that, ultimately, it is not the fairness of contract terms, but their acceptability to the plaintiff that matters. The question is: Would the plaintiff have been willing to sign the contract even if he had had a range of sellers? In practice contract terms are acceptable if they are fair. In some situations, for example a contract involving a unique good, it may not be possible to determine a fair price and thus a court must ask directly whether the terms offered would have been, absent pressure, acceptable to the particular plaintiff.

73. See Whish , R. , Competition Law ( London 1993 ) Google Scholar . A similar observation was made by, and helps to explain the decision of, Steyn LJ in CNT Cash & Carry Ltd. v. Gallagher Ltd. [1994] 4 All E.R. 714, 717 (wherein a distributor with a monopoly over the sale of popular brands of cigarettes refused to extend credit to a buyer). Two other cases involving standard monopolies in which the courts refused to find duress may also be explicable on this basis: Eric Grapp v. Petroleum Board [1949] W.N. 180; Smith v. Charlick (William) Ltd. (1924) 34 C.L.R. 38.

74. Smith, op. cit. note 71.

75. On the distinction between standard monopolies and situational monopolies and why courts are better equipped to assess the validity of contracts involving the latter, see Trebilcock, op. cit. note 42, atch.4.

76. This issue is discussed briefly in note 39 above.

77. Where there is an available market, the provision of a service, such as rescuing a ship, can plausibly be valued at the cost of the service, i.e., its market value. The ship may be worth more than the cost of the service, but the value of the service to the owner is, arguably, his cost of obtaining that service from someone else in the market. But where there is no available market, as in the necessity cases, it is less obvious how to value the respective losses and benefits: Birks, op. cit. note 30, at pp. 109–140, 304–308; Beatson , J. , “Benefit, Reliance and the Structure of Unjust Enrichment” ( 1987 ) 40C.L.P. 71. Google Scholar

78. See McBride , N. , “A Fifth Common Law Obligation” ( 1994 ) 14 Legal Studies 35, 40 . Google Scholar

79. See McBride, Ibid. at pp. 40–43.

80. See, e.g., William Lacey (Hounslow) Lid. v. Davis [1957] 1 W.L.R. 932; Leigh v. Dickson (1884) 15 Q.B.D. 60; and other cases cited in McBride, op. cil. note 78 at pp. 40–13.

81. On consumer surplus, see Harris, Ogus & Phillips, “Contract Remedies and the Consumer Surplus” (1979) 95 L.Q.R. 581. The importance of consumer surplus in assessing damages for breach of contract was recently recognised explicitly in Ruxley Electronics & Construction Ltd v. Forsyth [1995] 3 W.L.R. 118.

82. Note that the possibility of a “seller's deficit” poses problems for a restitutionary claim as it appears to drive a wedge between the plaintiffs loss and the defendant's benefit. My own view is that for this and other reasons a reliance based claim is more appropriate in cases like that of the rescued ship.

83. Note that if all necessitous contracts were held to be invalid, then restitutionary and reliance based responses would in practice lead to broadly similar results to those that are reached by applying the causation requirement.

84. [1983] A.C. 366, 400.

85. See cases cited in note 52 above.

86. Other examples include the rules regarding innocent misrepresentation and undue influence. On [innocent] undue influence, see Birks & Chin, op. cil. note 4.

87. Thus in Akerblom v. Price (1885) 7 Q.B.D. 129, 132–133, Brelt L.J. held that “If the parties have made an agreement, the court will enforce it, unless it be manifestly unfair and unjust”. See also The Medina (1876) 1 P.D. 272, affd (1876) 2 P.D. 5; The Port Caledonia and the Anna [1903] P. 184.

88. But see United Slates v. Bethlehem Steel Corp 315 US 289, 330 (1942), where Justice Frankfurter, in a powerful dissent, held that a situation where the plaintiff had no choice but to pay the defendant monopolist an extortionate price for vital war supplies was “strikingly analogous” to the salvage and rescue cases. The majority, upholding the contract, did not so much disagree with Frankfurter's principle, as with his conclusion that the plaintiff had no alternatives.

89. See, e.g., Dawson, op. cit. note 43; Hale, op. cit. note 22; Aliyah , P. , “Contract and Fair Exchange” in Essays on Contract ( Oxford 1986 ). Google Scholar

90. Restatement of Contracts (2d) s. 89(a). See also Uniform Commercial Code, s. 2–209(1) read in conjunction with s. 2 103(1 )(b).

91. A final comment on terminology. Given that wrongdoing and lack of consent are distinct reasons for not enforcing a contract it would be preferable if they were not lumped together under the single heading of duress. One possibility would be to adopt the term “coercion” where the defence is that pressure was wrongfully applied and to use to term duress where the defence is absence of consent. Second, the pressure cases that are currently grouped under the heading of undue influence or unconscionability should be placed together with other pressure cases. Third, the term “economic duress” is unhelpful. The standard example of economic duress, a threat to breach a contract, is no different in kind from other forms of duress by wrongdoing.

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• Volume 56, Issue 2
• Stephen A. Smith (a1)
• DOI: https://doi.org/10.1017/S0008197300081368

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19 Duress, Undue Influence, and Unconscionability in Contract Law: A View from Singapore

• Published: June 2022
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This chapter presents an overview of the legal principles in Singapore that relate to the vitiation of contracts on grounds of ‘procedural’ or ‘substantive’ unfairness. It discusses and analyses leading judgments of the Singapore courts that have dealt with different categories of reprehensible conduct that one contracting party may have engaged in towards another contracting party when their contractual relationship was established. These categories of misconduct involve: (i) the application of overt pressure by the stronger party on the weaker party (Duress); (ii) the improper exertion of influence by the stronger party over the weaker party (Undue Influence); and (iii) the unfair exploitation by the stronger party of the weaker party’s infirmity (Unconscionability).

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The Duress Cases in Contract Law Essay

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Introduction

James d. casto, petitioner, v. donna l. casto, respondent, bates vs. bates case.

An agreement involves parties who consent to perform a certain action in consideration of specific guidelines written in the contract that they sign. Although those involved expect transparency from each other, there may be duress and other crucial factors that may lead to lawsuits when discovered long after signing the agreement. For example, parties in an agreement may involve coercion or pressure others to sign contracts for their benefit, even without knowing they are causing harm. In Florida, there have been several cases involving contracts purported to be signed under duress leading courts to make decisions about such cases to establish whether the agreements should be voided (Bix, 2020). Two related cases involved Castro v Castro and Bate v Bate which included contracts purported to have been established under duress.

Facts of the Case

The case involved a couple who married in 1964, dissolved in 1966 and remarried in 1967. While the wife had no job, she stayed at home with no children within their marriage duration. At the same time, the husband invested in the development of shopping centers. In 1977, the couple signed a postnuptial agreement stating that the wife would get the home and $100000. The husband was expected to pay the mortgage for a year and contribute to repair worth $5000 (Casto v. Casto, 1987). The contract states that the wife would enjoy health insurance, club membership, and credit cards. Additionally, each party would continue to own any property solely owned before the engagement. Each individual was also expected to pay their attorney in case of any dissolution proceedings.

One year after remarrying, the husband wanted the postnuptial agreement to be approved after filing for dissolution. The wife alleged the agreement was invalid and claimed to have signed under duress and deceiving action because she was unfamiliar with her husband’s worth. In return, the wife sued the husband for coercing her to sign the agreement to get permanent lump sum alimony, associated costs, and attorney’s fees.

Issues Considered

The court investigated whether the wife knew about the husband’s properties, including shopping centers, and if she was advised properly by an attorney. The husband was required to advise and reveal his worth to the wife, and the court assessed if that was the case. Finally, the judges considered whether any form of duress forced the wife to sign the contract by checking the evidence provided by both parties.

The Court’s Decision

The court decided that the agreement was null and void because the wife did not receive adequate advice concerning the husband’s worth before or during the time she was required to sign the agreement. The wife did not have independent knowledge concerning the income and assets owned by her husband, meaning the agreement was not based on full exposure of the real circumstances for informed decision-making. The court stated that the wife did not receive competent counsel assistance from an attorney and the agreement was unjust and unfair to her. She was awarded a lump sum alimony totaling $1.5 million as a five-year payment by the husband (Casto v. Casto, 1987). The district court upheld the judgment but stated that there was compelling evidence to suggest that the wife had the knowledge and adequate independent advice before signing the agreement. However, there was no substantive evidence to reverse the decision of the trial court based on the knowledge available.

Ethical Issues

It was unethical for the husband to state that the wife must sign the agreement lest they lose the house. This indicates that there was clear manipulation and coercion into signing the agreement where the husband purported to gain from the incident. In this case, one of the ethical dilemmas is that inadequate legal counsel could be grounds for nullifying the agreement. The wife consulted two lawyers; hence this can be considered adequate legal counsel.

It can be purported that the contract’s circumstances negated the legal advice provided. First, the husband has influenced the wife to fire her previous attorney. The second attorney, in this case, was only invited to advise about the format of the agreement and not to provide advice regarding the wealth and income of the husband. All these actions from the husband can be purported to negatively affect any ability of the lawyers to provide competent advice to the wife. Third, the attorney stated that he could not have allowed the wife to sign the contract if he understood that the husband was rich. Lastly, it was ethical for the wife to seek to nullify the agreement if she felt that there was duress or unfair influence during the document signing.

Paul Evan Bates met with Magda Jhovanna Bates through a matching website. The 40-year-old husband was divorced and a commercial airline pilot with a net worth of 4 million (Scales, 2021). The woman was 18 years old and in her second year of medical school in Columbia. Later during a trip, the couple had sex, and the female got pregnant. The husband paid for the abortion, with the family unaware of the premarital sex, pregnancy, and abortion. During courtship, the husband asks their wife to sign a prenuptial agreement. They never discussed the deal or negotiated any of the terms. A wife is not a conversant speaker of English, and she later sorts the agreement’s translation into Spanish, realizing some form of deceit.

Later in May 2017, the wife signed a verified petition to dissolve the marriage with minor children. The wife wished to set aside their prenuptial agreement because it was reached under deceit, fraud, coercion, misinterpretation, duress, and overreaching. She says that the contract was executed involuntarily as a result of the timing of the agreement (Scales, 2021). The court entered a bench trial on the validity of their prenuptial agreement.

The wife testified that she was a virgin before the pregnancy, in which the husband paid for the abortion. She was raised in a strict Catholic background where they did not approve of premarital sex or abortion. She says she was in pain and distress and only signed because she could barely walk and was bleeding. She did not read the agreement before signing it and later realized its content after translating it into Spanish. The wife testified that the husband told her repeatedly to sign the deal declaring that she had to sign it as a requirement to enter the States. She later admits that she would have signed anything the husband asked because she loved and wanted to marry him.

The court concluded that coercion was present as Mrs. Bates was in a vulnerable emotional position at the time of the agreement having the wedding scheduled a couple of weeks later. The immigration date was also set shortly after the marriage, and the demand to sign the agreement was high. The court also indicated that due to her religious beliefs, she was not allowed to have sex on their wedding day and had an abortion resulting in more emotional stress and duress. Finally, the court discounted the husband’s testimony that the parties had negotiated and discussed the agreement (Scales, 2021). Here no meaningful negotiations had occurred with complex legal language resulting in barriers.

It was unethical for the parties to pressure each other into a contract. The husband took advantage of the current situation to get the wife to sign the agreement. The husband did not consider the language barrier between him and the wife. Discussion of the deal was not present, and the husband’s act pressured the wife into the accord portraying selfish reasons. It is ethical for that wife to avoid the contract after realizing that the husband deceived her into signing it. Another ethical issue identified is that as much as Mrs. Bates was in a tough situation, she should have known that this agreement was important. She should have tried to at least discuss it with Mr. Bates to be able to understand it fully before signing.

In conclusion, the decision concerning the contract signed on duress can vary depending on the reasoning used by the judges. For instance, failure to receive adequate legal advice is not sufficient to nullify an agreement, but how the partners influence the probability of receiving such counsel can determine the court’s final decision. In the two cases, different courts provide the same judgments but with different reasoning, which signifies the subjectivity of the ruling to establish whether agreements were signed under duress or not.

Casto v. Casto. (1987). 66325 (458 So.2d 290) – District court of appeal of Florida, fourth district. Web.

Scales, J. (2021). Bates v. Bates . Legal research tools from Casetext. Web.

Bix, B. H. (2020). Family law: Values beyond choice and autonomy? Law and Philosophy , 40 (2), 163–183. Web.

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• DOI: 10.2139/ssrn.3455590
• Corpus ID: 219447450

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Essay: Contract law and duress

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Introduction: Many contracts occur each day, ranging from minor shop transactions to more substantial commercial contracts, they are a normal element of daily life. When entering a contract, there is a basic principle voluntariness of both parties, however issues can arise when one party is pressured to enter into the contract. Denying one party from their right to voluntarily enter the contract gives rise to the defence of duress, which makes the contract voidable . One definition of duress was set out in R v Attorney general [2003] as “physical threat or other illegitimate pressure being used for an improper objective which is sufficiently serious to impair the consent of the other party.” This essay will address the issues associated with duress and discuss whether there is rational justification for the doctrine of duress and if without reason disrupts the principle of freedom of contract. Reasons for: (a) Lawful pressure One question about duress is whether a threat of a lawful act would still be considered illegitimate pressure. This is problematic because essentially the contract is voidable even though all actions were lawful. This was seen in the case CTN Cash and Carry v Gallaher [1994] where the plaintiff ordered cigarettes from the defendant but through their own fault mistakenly ordered them to be sent to the wrong warehouse. The cigarettes were stolen. The defendant mistakenly believed the risk of theft was the plaintiff’s responsibility and as a result insisted the plaintiff pay for the cigarettes and if they were to refuse they threatened to withdraw credit facilities on future contracts. The claim failed in the court of appeal and was found there to be no economic duress because the threat was made in good faith and genuinely believed their claim for payment was legitimate. Steyn LJ went on to say the defendants were in law entitled to refuse to enter into any future contracts with the plaintiffs for any reason and therefore it was lawful for the defendants, for any reason to insist that they would no longer grant credit to the plaintiffs or have the right to reject any party for any reason . Professor Birks explains, “lawful pressures can give rise to the doctrine of duress, the only viable basis for discriminating between acceptable and unacceptable pressures is not positive law but social morality.” This is significant because it shows lawful act cases complicate the doctrine because it is based on social morality rather than law, which means it may interfere with the freedom of contract and normal commercial businesses as parties are constantly having to be wary of their actions even if they are lawful due to fear of the contract being challenged or one party not liking the terms of the contract at a later date and raising a claim of duress. This would interrupt commercial contracts since businesses threatening others to get a better deal is considered a norm, if lawful acts are included in duress it gives the opportunity for the majority commercial contracts to be voidable and therefore widens this area of law to allow for too many claims to be made which in turn may create uncertainty within the law and limit the freedom to create contracts. (b) Voluntary One possible line of thought is for a claim in duress to occur; a contract must have been made. A issue with duress is majority of claims are not from parties that have been physically forced to sign the contract where the other party physically forces their hand to sign it; usually the claims are made by parties that voluntarily entered into the contract. As the party entered voluntarily, it can be argued that duress violate the principle of freedom of contract if the party is able to go back on their agreement at a later date after they voluntarily entered the contract . “A contract is a promise” both parties have made this promise so going back on it is violating the contract (promise) made. More importantly, another point of interest is in the situation where one party is threatened to enter a contract, which they would have entered into anyway. Lord Cross suggested that duress is available even if the contract would have been made without the threats. This can be seen as violating the basic principle of freedom of contract because it is effectively allowing parties to claim in duress and make the contract voidable for no reason, as they would have entered into the contract regardless to the threat made. Issues have been found with this approach, therefore Lord Scarman’s approach in Pao on v Lau Yiu Long [1980] is more adequate approach, which is part of the test of whether duress was operative is whether the claimant had any real alternative but to submit. This is more readily accepted because it implies the contract would not have been made but for the threat which keeps the doctrine of duress narrow and doesn’t allow claims to be made against contracts they would have entered anyway and avoids unjustifiable duress claims to keep the principle of freedom of contract intact. In addition, in the case Barton v Armstrong [1976] the Privy Council seems to share a similar opinion with Lord Cross. It was held that it was sufficient to form duress if the threat was ‘a’ reason for the claimant entering into the contract and not the sole reason. They stated “their lordship think that the same rule should apply in cases of duress and that if Armstrong’s threats were ‘a’ reason for Barton’s executing the deed he is entitled to relief even though he might well have entered into the contract if Armstrong had uttered no threats to influence him to do so…” Here they are reiterating that the defendant’s threat only needs to be one reason among other reasons for the claimant’s entering the contract for a claim in duress to be raised. This evaluation indicates the doctrine of duress focuses on the defendant’s morally wrong behaviour rather than its effect on the claimant. This suggests a lack of rational foundations in the doctrine because as this case was not considered binding precedent, not all judges will share the same opinion as lord cross and the privy council, this means if another case similar to this case comes to court, the decision and reasoning could be different which creates uncertainty in the law.     (c) Illegitimate pressure Additionally, in order for a claim in duress to be successful there must be an illegitimate pressure. Illegitimate pressure is an unlawful threat exerted by the defendant on the claimant. The issue of whether a lawful act can be considered illegitimate was discussed earlier. Prior to economic duress, duress of the person was the only duress available for parties to make a claim. When economic duress became available many issues arose. One issue is which threats are considered illegitimate in economic duress. In the case of Pao On v Lau Yiu Long [1980] , the claimants threatened they would not complete the main contract unless the defendant agreed to a guarantee to buy the shares back from the claimant at the price of $2.50 per share at the end of April 1974. After April 1974, the claimants sought for the defendant to buy the shares back, however the defendant refused and claimed they were under duress when entering the contract. Lord Scarman, giving judgement on behalf of him and others, stated duress is coercion off the will so as to vitiate consent. He focused more on the coercion of the will than the illegitimate pressure, which makes one wonder whether illegitimacy of pressure is less relevant than the coercion of the will in a claim for duress. The lordships agreed that in a contractual situation commercial pressure is not enough, raising the question, what is enough pressure in economic duress for it to be considered illegitimate. This shows the doctrine of duress has a lack of rational foundation because although illegitimate pressure is one of the main features in a claim of duress, it is implied it is less important than the coercion of the will in this case which shows there is no strong basic principles in the doctrine of duress which would help judges decide, instead it is left to the opinion of the judges. Reasons against: (a) Fairness It can be argued the purpose of the doctrine of duress is to provide some fairness for contracting parties. In the case of Atlas Express Ltd v Kafco (importers and Distributors) ltd [1989] , Atlas threatened Kafco that if they do not sign the document, they would not deliver the goods. Kafco signed the contract because the goods were crucial to Kafco’s commercial success and would have been unable to find an alternative provider for the goods at short notice. However later when Atlas sought to collect the money agreed on under the new contract, Kafco refused arguing the new agreement has been made under economic duress. This claim was held to be successful. Tucker J stated Kafco signed the agreement under compulsion and unwillingly, and had no bargaining power. Therefore as Kafco had no bargaining power and was forced into the new agreement it would be fair to make the contract voidable. Similarly in the case Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] where two companies made an agreement that one of the party’s would provide a cargo ship to the other. However the ship was given to another company and in order for the contract to not be terminated the owners offered another ship and to cover the cost of any losses incurred. But later the ship owners said they would only provide the substitute ship if the charters agreed to waive all their rights to damages for the breach in contract. The charters protested but then agreed. It was found the waiver agreement was voidable for economic duress. In this case the charters were clearly in an unfair situation, a claim in duress would have righted the wrong the owners created and in doing so made the outcome of the contract fairer for all parties. Looking back at the examples it is clear the doctrine of duress does provide a rational foundation, and that it creates a principle of fairness. It can be argued it also provides justification for violating the basic principle of freedom of contract, which is to not allow parties in a contract to intimidate the other party to get their way. Further more, forcing another party into the contract violates the basic principle of freedom of contract itself; therefore duress can be thought as simply enforcing the principle and attempting to put the losing party in a position they were prior to the contract if it is decided the contract is void because of duress, the contract has essentially not occurred due to there not being consent. This was seen in the case of Halpern v Halpern [2007] where the parties had been in a dispute over an inheritance, which was settled. The claimant sought damages for breach of this agreement but the defendant argued they entered under duress. Court of appeal adopted a more flexible approach to the issue and referred back to the House of Lord’s decision in Erlanger v new sombrero phosphate co [1873] which held the courts may do ‘what is practically just, though it cannot restore the parties precisely to the state they were in before the contract’ . This indicates there are difficulties in making the law completely fair; there may always be a party, which is in a disadvantaged situation in every duress claim that cannot be fixed by the courts. (b) Limited use It is clear from many previous cases in contract law that judges are reluctant to decide in favour of duress claims. An example of this stems from the case of R v Attorney General [2003] . The judges in order to define the limits of duress; decided the decision in the case was only of persuasive authority for future cases. This is done to encourage English courts to adopt the same approach, reluctance to define the doctrine of duress, in the future cases. It is proposed; the reason for the judge’s reluctance to decide in favour of duress claim is in order to preserve the principle of freedom of contract. Judges recognise duress does violate the principle of freedom of contract, however, they would argue it is not without justification when they do decide in favour of the duress claim. In an attempt to control the claims made for duress, the judges added a time lapse for when a party, which entered into the contract under duress, can claim. If the claim were not made in time, they would not decide in favour of the duress. An example of this is seen in the case North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, The Atlantic Baron [1979] where a claim in duress was made against the waiver signed by the claimant which signed away their rights to make a claim in court for losses., they claimed they signed it under economic duress. However, although it was found that it was economic duress and it did make the contract voidable, it was not made void because the claimant failed to take faster steps to avoid the contract and in doing so had affirmed the arrangement. It is suggested this is an unfair decision, however it can be seen as justified because judges are attempting to protect the contract and by limiting the time period, it limits the chance of claimants only claiming because they later did not like the terms of the contract after they had already agreed to them. Conclusion: To conclude, referring back to the issues relating to the doctrine of duress previously discussed in this essay, it is evident there are many criticisms and limitations of the doctrine. However, there is a justification for having the doctrine and that is providing a degree of fairness for all contracting parties. The essay also acknowledges that judges recognise the doctrine does violate the basic principle of freedom of contract, however judges avoid deciding in favour unless it is right to do so. Therefore even though there are many issues associated with having the doctrine of duress, the benefits of having it outweigh the criticisms, without it, it would be worse for all contracting parties.

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Contract Law in Practice

Neil andrews.

This book is a detailed examination of the general doctrines of English law of contract. Cases are analysed precisely, providing quick access to the major authoritative passages in the leading judgments. The coverage is comprehensive. It focuses on English law, but it also provides analysis of assistance throughout the Common Law family of legal systems. It provides up-to-date examination of case law developments. There are nearly fifty ‘evaluation’ sections which provide comment on controversial or unclear topics. Six major principles are identified: Freedom of Contract; Objectivity; the Contractual Bond Principle; Estoppel; Good Faith and Fair Dealing; the Compensation Principle.

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Out-Law News 6 min. read

UK Supreme Court clarifies scope of ‘lawful act economic duress’

06 Sep 2021, 1:05 pm

A recent decision by the UK’s highest court has clarified the circumstances in which a party to a commercial contract is entitled to rescind that contract on the grounds of ‘economic duress’ under English law.

The Supreme Court ruled against Times Travel , a Birmingham-based family-run travel agency, as it was unable, on the facts of the case, to establish the existence of ‘lawful act economic duress’, which may arise where a contract results from a threat to do an act which is itself lawful. This meant that Times Travel was not entitled to rescind a new contract it had entered with the national carrier airline of Pakistan, Pakistan International Airline Corporation (PIAC).

At the relevant time, PIAC was the only airline that offered direct flights between the UK and Pakistan. Under the new contract, Times Travel waived its right to bring a claim for unpaid commission (worth around £1.1million) under a previous agreement between the parties.

Legal experts at Pinsent Masons, the law firm behind Out-Law, said that the decision was of general commercial relevance. The case confirms that the doctrine of lawful act duress, including lawful act economic duress, does exist despite the arguments of some academic commentators. It also provides guidance to distinguish between what the court described as “hard-nosed commercial negotiation” from genuine economic duress.

Joanne Gillies

Partner, Co-head of Litigation, Regulatory & Tax

The court has firmly restated that there is no general doctrine of good faith or inequality of bargaining power in English contract law – and Scottish law is likely to follow suit

The decision is also interesting due to an intervention by the All-Party Parliamentary Group on Fair Business Banking (APPG), a cross-party group of members of the House of Commons and the House of Lords. The APPG was given permission to provide written and oral submissions to the court on how the doctrine of lawful act duress operates in the banking context. The APPG had expressed concerns about the doctrine restricting small business banking customers from challenging settlements, including renewed facilities, with their lenders entered under alleged duress.

Commercial and financial services litigation expert Joanne Gillies  said that the overriding message from the Supreme Court is that claims for lawful act economic duress will face a very high bar to success.

“The court has firmly restated that there is no general doctrine of good faith or inequality of bargaining power in English contract law – and Scottish law is likely to follow suit,” she said.

“The difficulty for claimants of establishing lawful act duress is illustrated by the court declining here to find duress despite a number of notable findings, such as that: PIAC’s defence to the waived claims was unreasonable; the waiver of claims was an ‘onerous’ term; the court would likely have awarded summary judgment to Times Travel on some aspects of the commission due but for the waiver it agreed; PIAC prevented Times Travel from seeking advice before signing the new agreement; and PIAC exploited its monopoly position. The decision is consistent with the principles of freedom of contract and contractual certainty in English and Scots law, and large businesses in particular are likely to welcome that,” she said.

Gillies added, however, that businesses should be aware that the case leaves the door ajar for claimants to try to bring claims arguing, for example, that the behaviour of a particular defendant was “unconscionable” or “reprehensible”. While successfully running these arguments would require extreme facts, Gillies said potential defendants - typically a business with ostensibly greater bargaining power than its counterparty – may wish to take additional steps to guard against claims.

“For example, when agreeing new terms with an existing counterparty, businesses should be careful if insisting on a waiver of previous claims against them, especially if their defence to those claims is weak,” she said. “They may also wish to record details of contractual negotiations and what leverage was applied, including any demands which might be regarded as onerous. Finally, whilst the case shows that using commercial leverage to extract increased demands from a commercial counterparty is generally an acceptable part of doing business, companies should be very wary of making a legal threat concerning a matter which sits outside the scope of the commercial relationship between the parties or the contract being negotiated.”

Times Travel was a travel agent whose business consisted almost exclusively of selling plane tickets to and from Pakistan on flights operated by PIAC. PIAC had arrangements with several travel agents under which it allocated them a certain number of tickets, and then paid commission to the agents for the number of tickets each sold. The airline was entitled to terminate these arrangements at any time by giving the agents one month’s notice.

In 2011 and 2012, some travel agents, including Times Travel, alleged that PIAC had not been paying it some of the commission it was due. Some of the agents brought claims to recover the unpaid sums. Under pressure from PIAC, Times Travel did not join in the claims. However, in September 2012, PIAC cut Times Travel’s normal fortnightly ticket allocation from 300 to 60, as it was entitled to do, and gave notice that it would terminate the contract the following month. PIAC presented Times Travel with a new contract, without the ability to take that agreement away to obtain advice, under which Times Travel waived any right to claims under the previous agreement.  Times Travel entered the new contract, and its ticket allocation was restored.

Times Travel later brought a claim against PIAC for the unpaid commission, arguing that it was entitled to rescind the new contract. It said that it only entered the new contract as it would otherwise have gone out of business. In response, PIAC argued that it had not acted in bad faith as it genuinely believed that the disputed commission was not due. The High Court found in favour of Times Travel, but this was overturned by the Court of Appeal, which held that lawful act economic duress could only be established if PIAC had acted in bad faith – in other words, if PIAC had made the request for Times Travel to waive its claims whilst knowing it had no defence to those claims.

Lord Hodge gave the leading majority judgment of the Supreme Court. Lord Burrows gave a separate judgment that reached the same outcome.

The two judgments disagreed on how to determine what was an “illegitimate threat”, being one of the two necessary elements of a claim for lawful act duress along with causation to enter the contract.  Lord Burrows said there were two elements to an illegitimate threat: the defendant must deliberately increase a counterparty’s vulnerability to a demand, and then make that demand in bad faith. He considered that these elements were necessary and sufficient to show an illegitimate threat.  However, Lord Hodge said there must be “reprehensible” or “unconscionable” behaviour by the defendant for a threat to be illegitimate; acting in bad faith is not necessary, but nor is it sufficient to show reprehensible or unconscionable behaviour. 

Both judges warned that the courts should approach with caution any extension to the doctrine, “particularly in the context of contractual negotiations between commercial entities”. Lord Hodge said: “In any development of the doctrine of lawful act duress it will also be important to bear in mind not only that analogous remedies already exist in equity, such as the doctrines of undue influence and unconscionable bargains, but also the absence in English law of any overriding doctrine of good faith in contracting or any doctrine of imbalance of bargaining power”.

Lord Hodge found that PIAC had not “used any reprehensible means” to increase or exploit Times Travel’s vulnerability nor did he find any bad faith on the part of PIAC. The airline’s actions were that of “hard-nosed commercial negotiation that exploited PIAC’s position as a monopoly supplier”, but “did not involve the reprehensible means of applying pressure which gave rise to the findings of lawful act economic duress” in previous cases, he said.

Notably, Lord Burrows – who had agreed with the findings of the Court of Appeal - found that PIAC did not act in bad faith, as it believed its defence to the claims for commission to be genuine. He accepted that his proposed test placed a significant burden on a claimant, who would have to prove the bad faith of the defendant. Lord Burrows also referred to a claimant’s potential ability to invoke the law of unconscionable bargain - the exploitation of weakness to induce someone to enter a contract who has not obtained advice. Whilst typically reserved for individuals, Burrows stated that “it is not inconceivable that the relevant weakness could be the very weak bargaining position of a company”.

Additional research by Joe Young of Pinsent Masons.

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