When does ‘playing hard ball’ become economic duress?

Insights - 31/05/2019

Many of us have found ourselves in the position where we feel the other side are not quite playing fair when it comes to negotiating a contract but when does ‘playing hard ball’ cross the line and become illegitimate pressure?  A recent court decision has reignited a decade long development.

It has long been a principal of UK law that a contract will generally only be valid if it has been entered into freely and voluntarily. As such, an agreement procured by duress is voidable and can be set aside by a party who can prove he is the victim of duress. This can be simple to prove if an illegal act or omission creates undue influence on a party.  However, in the absence of any illegal act, how can we prove duress?

Being an area of law that is difficult to legislate for, case law in the area has developed over the last decade.

In Progress Bulk Carriers Limited v Tube City IMS LLC [2012], the Commercial Court confirmed that the doctrine of economic duress can be invoked even where the pressure applied doesn’t actually consist of an unlawful act and stated that to prove economic duress you must be able to show two elements:

  1. The economic pressure applied by the party must be illegitimate

When deciding whether pressure is illegitimate for the purposes of duress, it may be considered appropriate to take into account both the legitimacy of the demand and the propriety of the conduct by reference not only to what is lawful, but also the basic minimum standards of acceptable behaviour.

  1. The claimant must be able to prove they would never have entered into the contract or made any payment but for the illegitimate economic pressure.

Case law has not provided an absolute test, or set of rules, to distinguish illegitimate pressure from the usual pressures of negotiation, however, courts will consider factors such as:

  • The severity of the impropriety;
  • Whether the party acted in good faith when exerting the pressure;
  • Whether the effected party had a “real choice” or a realistic alternative;
  • Whether the threat was a grave one; and
  • Whether the effected party protested at the time.

In the case of Al Neyayan v Kent [2018] the defendant counterclaimed that he had been induced to enter into certain agreements by duress.  The court found that the claimant’s methods, in obtaining the defendant’s consent to enter into the agreements amounted to duress.  In considering the factors for duress, the court determined that the defendant was induced to enter into the agreements by duress because:

  • The claimant identified no legal basis for demanding repayment by the defendant (the demand was therefore illegitimate);
  • The illegitimate demand for payment was reinforced by threats of physical violence, implying that the defendant was at risk should he not sign the agreements; and
  • The threat of litigation was itself illegitimate. The claimant had no valid basis for bringing a lawsuit, and the evidence suggested that the threats were made purely as a means of creating added pressure on the defendant.

In a recent case, Times Travel (UK) v PIAC [2019], the Court of Appeal confirmed the existence of the doctrine of lawful act economic duress. However, it was cautious not to extend its application to the use of lawful pressure to achieve a result to which the person exercising pressure believes in good faith it is entitled.

The Court of Appeal was also keen not to develop economic duress as a means of restricting the lawful use of a monopoly power. Quoting a similar case, CTN Cash and Carry v Gallaher [1994], “the control of monopolies is, however, a matter for Parliament. Moreover, the common law does not recognise the doctrine of inequality of bargaining power in commercial dealings”.

In providing their ruling the court expressed awareness that their decision may be considered harsh, however, believed that it was necessary to provide an element of certainty to the doctrine.

As the courts have proved, despite its development, this is still a grey area.  Therefore, if you feel that you need assistance in this area, we would recommend that you speak to a solicitor.

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Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.