Introduction- Law of contract is usually seen as a panel

of power-giving rules that enable individuals to enter

into agreements of their own choice on their own terms.

This has the consequences in common law that freedom of

contract and sanctity of contract are referred to as

basic principles that govern the whole contract ideology.

Thanks to these ideologies, parties are free to decide

their terms of the contract, and courts or Parliament

should not interfere in the contractual relationships.

This has been called by some authors the ‘will of the

parties’1 theory. Basically, it is the application in

contract law of the ‘laissez-faire’ ideology.

But it is not possible today to pretend that all contract

law’s doctrines rely on this ideology. Indeed, the

appearance and the development of doctrines such as

consideration, duress or undue influence is a clear sign

that courts try more and more to intervene in creating

protecting rules for the weaker parties.

Problems arose, as argued by McKendrick2, because:

1 See Fried, ‘Contract as a promise’ Harvard, 1981.2 Ewan McKendrick ‘Contract law’, 4th ed., Palgrave law masters.

1

‘The growth of standard forms contracts and the aggregation of capital in fewer hands has

enabled powerful parties to impose contractual terms upon consumers or weaker parties.’3

Indeed, not all contracts are fair ones, and it appears

to be law’s goal to redress the balance in particularly

gross cases of inequality. Traditionally, the

consideration doctrine has played an important role in

doing so. But over the last few decades, judges have

found themselves facing situations where consideration

was not sufficient to deal with the problems set.

Thus, courts have little by little tried to offer some

new ways to protect weaker parties in the course of the

contract.

The doctrine of duress is a long-standing one in common

law. Courts have already recognised duress to persons4,

and duress to goods5. With the failure of consideration

dealing with problems set in the course of complex

business relationships, courts have highlighted the fact

that the doctrine of duress might be able to play a role

there.

3 Cited above, see footnote 2, op. p44 [1975] ‘Barton v Armstrong’ 2 All ER 465, Privy Council.5 [1915] ‘Maskell v Horner’ 3 KB 106.

2

A new category of duress has made its appearance in

common law6, namely duress to economic interests. This is

usually referred to as the ‘economic duress’ doctrine.

This new concept was going to play an important role,

especially in cases of monopoly situations. It must be

said about monopolies, following Atiyah’s point of view7,

that they are much more common than is usually recognised

by economists. Indeed, they are likely to arise where a

party to a contract does not have the freedom to choose

whom he is going to contract with, or does not have the

opportunity to contract with someone else in time. P.

Cartwright8 or even Atiyah use the micro-monopoly idea to

define these kinds of situations.

Basically, this happens very often in business

relationships. In these kinds of situations, the

economically powerful party may use his superior position

to obtain further advantages from the weaker party.

Economic duress was so designed to redress the unbalance

6 ‘Occidental Worldwide Investment Corp. v Skibs A/S Avanti, the Siboen and the Sibotre’ [1976] 1 Lloyd’s Rep. 2937 P.S Atiyah ‘An introduction to the law of contract’ 5th ed., Clarendon Press Oxford, 1995.8 P. Cartwright ‘Unequal bargaining: a study of vitiating factors in the formation of contracts’ Clarendon Press Oxford, 1991.

3

in contractual relationships that can arise from this

kind of bargain.

The doctrine could be defined as an unacceptable use of

economic power to place the victim in a situation in

which he or she as no practical alternative but to submit

to the demand.

In order to prove economic duress, one has to demonstrate

that he was the object of unacceptable pressures, that

these pressures induced him to enter into a contract he

would never have entered into otherwise, and that he had

no choice but to accept to contract.

Clearly, the concept of economic duress will be

difficult. And indeed, courts spent several years trying

to clarify the doctrine. This involved questions such as:

Which basis could be used in order to ascertain the

presence of duress ?

How can the victim prove that her freedom of choice was

‘coerced’ ?

How to distinct legitimate and illegitimate pressure in

the course of a business ?

4

What are the criterions judges may use in order to decide

if a causal link existed between the pressures and the

entry into the contract ?

We will try to show that the concept of economic duress

has always been surrounded by uncertainties, due to the

fact that it is a lively area of law. The concept is also

interesting because it is closely linked with the

development of the business area. This interaction with

commercial bargains has brought debates about the origin

and the theoretical foundation of the notion. Likewise

questions about the role of courts relating to commercial

agreements arose.

In examining economic duress, we will see that the

genesis of the notion was not an easy one. At first,

courts relied on the ‘coercion of the will’ test to

ascertain the presence of economic duress. Then, after

criticisms made by some authors, courts began to distance

themselves from this test, and started to look at the

causal link between the pressures applied and the entry

into the contract. Meanwhile, the problem set by the

definition of illegitimate and legitimate pressures was

5

hard to deal with and brings some controversy about the

scope of the doctrine. It was therefore not easy for the

notion to impose itself alongside with doctrines such as

consideration and undue influence, which were nearly

designed to redress the same kinds of problem, unbalance

in contractual relationship.

In a first part, we will try to see the scope (mainly the

genesis and the first steps) of economic duress in

traditional common law (I).

Then, we will study the main point on which judges are

focusing today, the legitimacy of the pressures, and the

place of the doctrine relating to consideration or undue

influence (II).

I – The scope of economic duress in traditional common

law .

In this part, we will first examine how the doctrine

appeared at the end of the seventies, following the way

opened by Australians in the beginning of the century.

6

We will study the appearance of the concept in English

law, in the late seventies.

It must be noticed that the emergence of such a doctrine

in common law was sort of expected, because of the

weakness of usual law concepts to deal with the problems

set by the way economic evolution followed.

We will first introduce one of the key concepts in the

theory of economic duress: the coercion of the will

doctrine. We will then have a look at the rise and fall

of this notion, on which the doctrine relied for a long

time. We will finish introducing the concrete criterions

courts chose to use in order to ascertain the presence of

economic duress in the cases they are dealing with.

A- The notion’s genesis .

Excessive interdependence between companies soon became a

problem for courts. Economic actors have no choice

sometimes but to accept demands made from others, for

instance when they are in critical financial conditions.

7

Basically, there was no legal doctrine to deal with the

situation where a contractor is in the obligation of

submitting to a demand he would not have normally

accepted. The problem was that these kinds of situations

multiplied with the development of business as the vital

nerve of society. Thus, courts found themselves in the

obligation of finding new ways to unbalance contractual

relationships where monopolies were used to obtain

further advantages from weaker parties. Here we will

deal with the appearance of the notion of ‘economic

duress’ in common law. We will study the first cases

which referred to the concept, and we will have a look at

the ‘coercion of the will’ test, which relied on the idea

that the submission of the victim arises as a result of

the ‘destruction’ of her consent.

1) The first cases.

First recognised cases of economic duress appeared in

Australia, in the twenties.

8

The inspiration for English renaissance of economic

duress could be found in ‘Smith v William Charlick Ltd’9.

In that case, the Australian Wheat Wharvest Board, a

monopoly supplier, threatened not to supply a miller with

flour in the future. This refusal was not a breach of any

existing contract. The demand was made for the payment of

a ‘surcharge’ which was legally unjustified. The High

Court said that the surcharge could not be recovered

because as a general principle, refusing to deal (not

being in breach of contract), should not amount to

economic duress.

Relying on this early inspiration, the notion of economic

duress appeared in English law half of a century later,

in a case known as ‘The Siboen v the Sibotre’10. In this

case could be seen the first discussion about the concept

of duress applied in an economic context.

With ‘The Siboen and the Sibotre’11, a court admitted for

the first time that in the course of a business, some

kind of pressure may cause one of the contractants to

9 [1924] 34 CLR 3810 Cited above, see footnote 6 11 Cited above, see footnote 6

9

accept agreements that he would not have accepted

otherwise.

In the facts of the case, the charterers of two ships

renegotiated the rates of hire after a threat by them

that they would go bankrupt and cease to trade if

payments under the contract of hire were not lowered.

Since they also represented that they had no substantial

assets, this would have left the ship owners with no

effective legal remedy. The owners would have had to lay

up the vessels and would then have been unable to meet

mortgages and charges. The problem is that the charterers

knew it. Thus, the threats were false, mainly because

there was no question about the charterers being

bankrupted by high rates of hire.

In his statement, Lord Kerr said:

‘But even assuming, as I think, that our law is open to further development in relation to

contracts concluded under some form of compulsion not amounting to duress to the person,

the Court must in every case at least be satisfied that the consent of the other party was

overborne by compulsion so as to deprive him of animus contrahendi. This would depend

on the facts of each case […] [The agent of the party alleging duress] was acting under great

pressure, but only commercial pressure, and not under anything which could in law be

regarded as a coercion of his will so as to vitiate his consent.’12

12 Cited above, see footnote 6.

10

This case opened the way for lot of others. The presence

of economic duress was rejected here, but it was clear

from the judgement of lord Kerr that the notion was going

to implant in English law.

The basis for the notion was set, though it must be said

that at the time, the way courts were going to deal with

it was unclear.

Nevertheless, one had to wait three years before the

appearance of ‘economic duress’ in English law was

confirmed, in a famous case called the ‘Atlantic Baron’13.

Here, the builders of a ship demanded a 10% increase on

the contract price from the owners (because the value of

the US dollar fell by 10%), or threatened not to complete

the ship. The owners paid the increased rate demanded

from them, protesting that there was no legal basis on

which the demand could be made. The owners were almost

obliged to pay, because at the time of the threat, they

were negotiating a very lucrative contract for the

charter of the ship being built.

13 ‘North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd, the Atlantic Baron’ [1979] QB 705.

11

Mocatta J decided that this case was dealing with

economic duress. The building company exerted an

illegitimate pressure with their threat to break the

contract. Where a threat to break a contract leads to a

further contract, that contract, even though made for

good consideration, is voidable by reason of economic

duress14.

In this case, the right to have the contract set aside

was lost by affirmation. Indeed, the plaintiffs had

delayed for reclaiming the extra 10% until eight months

later, after the delivery of a second ship. We will come

back to the ‘reaffirmation’ problem later.

However, in both cases, the existence of an economic

duress doctrine was recognised. But we have to keep in

mind that these two cases were the first ones.

The doctrine, therefore, was not really well constructed

and suffered a lack of coherence in its basis. The point

on which judges were focusing was to find out in each

case if the victim’s mind was overborne.

14 Some authors discussed this. It seems that in cases where the renegotiations of the contract leads to a fairer contract, courts will not set aside the contract on the ground of duress. See for instance ‘Pao On v Lau Yiu Long’ [1980] AC 614

12

2) The basis for the notion: the coercion of the will.

The basis on which the courts intervene to set aside a

contract on the ground of duress is, at this time, where

the victim’s will has been coerced in such a way as to

vitiate his consent. This idea, as we have previously

seen, was first expressed in the ‘Siboen and the Sibotre’

case, by lord Kerr, when he employed such words as:

‘…coercion of his will such as to vitiate his consent.’15

This statement has also been developed in some other

cases, such as ‘Pao On v. Lau Yiu Long’16. This case was

important because for the first time, the Privy Council

had to deal with a case of economic duress, and was

entitled to set the basis of the notion.

In the latter, the plaintiff had threatened not to

proceed with a contract for a sale of shares unless the

other party agreed to renegotiations of certain

subsidiary arrangements. The defendant knew that they

could claim specific performance of it. But they chose to

15 Cited above, see footnote 6.16 ‘Pao On v Lau Yiu Long’ [1980] AC 614, 635-6.

13

accept because they were anxious to complete the

agreement and wished to avoid litigation. Later, the

plaintiff tried to enforce these arrangements. The

defendants claimed that they have been extracted by

duress, and were so voidable. But as the court held, the

defendant chose to avoid litigation. Thus, there was

commercial pressure, but no coercion.

Lord Scarman, indeed, stated:

‘Duress, whatever form it takes, is a coercion of the will so as to vitiate consent… In their

lordship’s view, there is nothing contrary to principle in recognising economic duress as a

factor which may render a contract voidable, provided always that the basis of such

recognition is that it must amount to a coercion of the will, which vitiates consent. It must be

shown that the payment made or the contract entered into was not a voluntary act’17

In confirming the existence of the doctrine, and in

relying on principles exposed four years before by lord

Kerr18 (economic duress is proved when improper pressures

lead to a coercion of the will so as to vitiate the

consent), the Privy Council took an important decision.

Lord Scarman, in his discussion, agreed with the

observations of Kerr J in the Siboen and the Sibotre that

17 Cited above, see footnote 1618 Cited above, see footnote 6

14

in a contractual situation, commercial pressure is not

enough. There must be present some factor:

‘…which could be regarded as a coercion of the will’.

In the ‘Universe Sentinel’19, another really important

case for the development of the notion, Lord Scarman took

a similar line for expressing what he felt was the

essence of economic duress at that time, though some

authors saw some premises of a change in his discussion.

In the latter, the defendant trade union ‘blacked’ the

claimant ship. They refused to let it go unless a certain

sum of money was paid. In view of the catastrophic

financial consequences that the shipowners would have

suffered if these threats had been carried out, it was

conceded that they constituted economic duress, vitiating

the shipowners’ consent to the agreement. The House of

Lords held that the payment was recoverable. Lord Scarman

said:

‘Compulsion is variously described in the authorities as coercion or the vitiation of consent.

The classic case of duress is, however, not the lack of will to submit but the victim’s intentional

19 ‘Universe tankships Inc of Monrovia v International Transport Workers’ Federation’ [1982] 2 All ER 67.

15

submission arising from the realisation that there is no other practical choice open to

him…’20

Some authors saw in that statement the beginning of the

end for the ‘coercion of the will’ theory. This sounds

difficult to admit. Indeed, lord Scarman chose to apply a

different approach from what was usually done when

speaking about the coercion of the will theory. He

recognised that the victim’s will wanted to submit, but

in his mind, we can assume that ‘no other practical

choice’ was another way to define the fact that the

victim’s will has been coerced. Indeed, he refused to

admit that a choice exists for the victim, and relied on

the fact that the absence of alternative course open

induces the coercion of the will. That was the basis for

lord Scarman’s coercion of the will theory, which was

challenged, as we will see, by Atiyah. Moreover, when

justifying economic duress in the case, lord Scarman

still clearly relies on two elements:

- the presence of illegitimate pressure; and

- the fact that the consent was induced by the coercion

of the will of the victim.

20 Cited above, see footnote 19

16

The discussion about the basis of the theory made by lord

Scarman proves that some uncertainty about the foundation

of the notion was present in judge’s mind. Nevertheless,

the coercion test was the main point on which courts were

focusing in the early eighties. We will see that this led

to harsh debates in doctrine about the theoretical

foundation of the concept of economic duress.

B- The search for a coherent set of rules to apply.

We’ve seen previously that some uncertainties remained,

in the beginning of the eighties, about how lord

Scarman’s discussions in ‘Pao On v Lau Yiu Long’21 and

although to a lesser extent in the ‘Universe Sentinel’

were to be used.

Mainly, interrogations arose after the criticisms the

previous decisions led to.

A large debate involved lawyers about what were the

theoretical foundations of the concept.

Although it is clear that the nature of the threat must

be coercive, proving the coercion of the will soon21 Cited above, see footnote 16

17

appeared as inefficient. Professor Atiyah’s theories,

indeed, exposed in the beginning of the eighties22,

started to bring confusion in the way the doctrine was to

be applied. This led to a progressive move away of the

coercion of the will’s theory.

That is what we are going to examine first. Then, we will

have a look at the way courts dealt with economic duress

thereafter, in searching for a sufficient causal link

between the pressure applied and the entry into the

contract.

1) The gradual move away from the coercion of the will

test.

Here we have to deal with a theoretical debate, impulsed

mostly by Pr. Atiyah in the early eighties. Economic

duress arises where:

‘One party uses his superior economic power in an ‘illegitimate’ way

so as to coerce the other contracting party to agree to a particular

set of terms.’23

22 Atiyah ‘Economic duress and the overborne will’ 98 LQR 197 (1982). See also ‘Duress and the overborne will again’ 99 LQR 353 (1983).23 McKendrick, cited above, see footnote 2

18

For some authors, the Courts relied too much on the

coercion of the will theory in order to determine whether

economic duress existed or not in particular cases.

Indeed, the previous decisions were severely criticised

by the doctrine, especially on the point that there was

no coherent basis to justify the ‘coercion of the will’

test.

M.H Ogilvie and P.S Atiyah harshly challenged the use of

the coercion of the will in cases of economic duress.

Mr Ogilvie, in ‘Economic duress, Inequality of bargaining

power and threatened breach of contract’24, argued about

Lord Kerr’s statement in ‘The Siboen and the Sibotre’,

that it was questionable whether:

‘Coercion of the will is a satisfactory criterion for distinguishing duress from acceptable

commercial pressure in that there will always be a voluntary submission when the only

alternatives are worse.’25

His criticism of the ‘overborne will’ theory relied on

the fact that the correctness of the theory is doubted.

The victim of the duress has usually freely consented to

a lesser evil. Thus, there can never be coercion. Any

24 M.H Ogilvie ‘Economic duress, inequality of bargaining power and threatened breach of contract’ 26 McGill L.J. 289 at 298.25 Cited above, see footnote 24

19

victim of a threat who submits will have done so

willingly. For Mr Ogilvie, the coercion of the will

theory does not enable the courts to:

‘distinguish readily between an agreement consented to under economic pressure from any

other contract freely bargained […] there is an element of compulsion or necessity in all

contracts’26.

He also doubted whether it was possible to prove that the

will of another has been coerced. He ironically stated

that:

‘If the courts persist in further development of this test, their resulting discussions will bear

an absurd similarity to scholastic disputations on the varying degrees to which the free will

must co-operate with divine grace in order to merit salvation.’27

In well-known articles published in 1982 in the Law

Quarterly Review, Pr. Atiyah, a famous contract law

specialist, discussed also the theoretical aspect of the

doctrine in the early eighties. In these two articles,

‘‘Economic duress and the ‘overborne will’’’28, and

‘Duress and the overborne will again’29, Atiyah exposed

his point of view on the way Courts were emphasising on

the coercion of the will theories. He doubted the

26 Cited above, see footnote 24, op. p.31627 Cited above, see footnote 24.28 98 LQR 197 [April 1982].29 99 LQR 353 [July 1983].

20

theoretical foundation for the rules of duress. Referring

to American writers and even to Aristotle, he rejected

the coercion of the will doctrine. For Atiyah, a person

who does something under the most severe constraints is

still acting voluntarily, of his own free will. He is

choosing between two ‘very unpalatable courses’, but he is still

making a free choice. In order to demonstrate the point,

Atiyah referred to ‘Lynch v D.P.P of Northern Ireland’30

in which the House of Lords discussed the theoretical

basis of duress. Though it was a criminal case, Atiyah

felt confident that it was possible to use judge’s

discussions in contract law context. Basically, in this

decision, all five lords rejected the theory that duress

was based on a coercion of the will that vitiates the

victim’s consent. Lord Simon of Glaisdale stated for

instance:

‘In both […] sets of circumstances there is power of choice between two alternatives, but one

of the alternatives is so disagreeable that even serious infraction of the criminal law seems

preferable. In both, the consequence of the act is intended within any permissible definition

of intention.’31

30 ‘Lynch v D.P.P of Northern Ireland’ [1975] AC 653.31 Cited above, see footnote 23, op. p.692.

21

Likewise, a person who signs a contract at the point of a

gun may be said to be simply choosing between being shot

and signing the document. If he signs, it is not because

he has no will (the more strongly he believes in the

gunman’s threats the more willing he is likely to enter

the contract32) but because it is the lesser of the two

evils open to him. This analysis leads Atiyah to admit

that all contracts (or almost nearly all) are made

voluntarily, but also that all contracts are made under

pressures of some sort. He argued that the pressure and

the threat are implicit in the whole concept of exchange.

In 1982, he concluded the ‘Economic duress and Overborne

will’ article stating that:

‘A rule which declares that it only operates when a person has no choice but then requires

examination of the choices open to him, does not inspire confidence over rationale

beings’33.

For the previous Oxford common law lecturer, the

rejection of the overborne will theory was an important

point. Indeed, if one admits that the victim of duress

has chosen between evils, one has therefore to examine

32 This analysis was first developed by Dawson, in 1947, in ‘Economic duress, an essay in perspective’ 45 Michigan Law Rev. 253, 267.33 Cited above, see footnote 22, op.p.201

22

the nature and acceptability of the choice the victim is

offered. This involves a question of law whereas a focus

on the coercion of the will involves a question of fact,

and brings uncertainties into the way courts are dealing

with the notion…

Given these criticisms, Courts have progressively

distanced themselves from the coercion of the will test.

The influence of commentators and some signs in recent

cases show that the importance given to the test is not

what it used to be.

In the ‘Evia luck’34, for instance, some signs of the

abandonment of the theory could be found in the judgement

of Lord Goff.

In this case, the plaintiff’s ship was in harbour in

Sweden. It was boarded by agents of the International

Transport Workers’ Federation (ITWF), who informed them

that the ship would be blacked and loading would not be

continued until the company entered into certain

agreements with ITWF, including back pay to the crew, new

contracts of employment at higher wages and guarantees

for future payments. The plaintiff did not agree at34 ‘Dimskal Shipping Co. v ITWF, the ‘Evia Luck’’ [1992] 2 AC 152

23

first, and the ship was blacked. Yielding to the

pressure, the company agreed to sign the various

agreements, which were expressly governed by English law.

The plaintiffs then sought to avoid the agreement on the

grounds that of duress.

The house of Lords held that the owners of the ship were

entitled to avoid the agreements they entered into

because of pressure from ITWF.

If we focus on the justification which were given to

justify duress in that case, the judgement of Lord Goff

seems interesting, especially what was said about the

coercion of the will. Indeed, the Lord noted the

criticisms against the ‘overborne will’ test, and held

that he was doubtful about:

‘whether it is helpful to speak of the [claimant’s] will having been coerced’.

From the decisions in the last decade (at least the ones

from the highest jurisdictions), it can be seen that the

focus of the judge is not anymore on whether the victim’s

mind has been coerced.

Mainly, courts therefore tried to construct coherent

tests in order to ascertain the presence of economic

24

duress in particular cases. Judges focused more on the

search of a causal link between the pressure applied and

the entry into the contract. McKendrick proposed this

analysis and stated recently that:

‘…courts will soon abandon the test completely and have regard to the consent of the

claimant only for the purpose of ensuring that there is a sufficient causal link between the

pressure applied by the defendant and the entry into the contract’35.

2) The search for a sufficient causal link between the

pressure applied and the entry into the contract.

From the beginning, Courts have tried to define which

factors could amount to a: ‘coercion of the will so as to vitiate the

consent’.

We have seen in the previous part that this test today

was not of such a great importance. But its move away is

due to the fact that Courts had, little by little, drawn

guidelines. Judges use rationale material in order to

define whether the victim’s freedom of choice has been

denied or not. Criterions exposed below may be taken as a

way to prove the existence of a causal link between the

35 Cited above, see footnote 2, op p.353

25

pressures applied (on which we will come back in our

second part), and the victim’s entry into the contract.

The main problem in that area is that for a while, it

seemed difficult for the Courts to work out a coherent

list of factors which could prove a denial of the freedom

of choice.

In ‘The Siboen and the Sibotre’36 (see above), Lord Kerr’s

statement relied for instance on:

‘…The Court must in every case be satisfied that the consent of the other party was

overborne by compulsion […] This would depend on the facts of each case. One relevant

factor would be whether the party relying on duress made any protest at the time…Another

would be to consider whether or not he made it clear that he regarded the position as still

open…’37

The problem with these factors is that none of the cases

were clear about the relative importance of each of them.

It took a long time to define precisely the criterions

which were to be used in order to prove a causal link

between the pressures applied and the entry into the

contract.

Before we start to examine the different factors that

constitute judge’s focus now, let’s stop on the question

36 Cited above, see footnote 6.37 Cited above, see footnote 6.

26

of the burden of proof. Although this is not a key factor

in determining if the pressures did effectively ‘coerced

the will’, it seems important to precise who of the

contractors will have to carry the burden of proof,

especially because rules in economic duress may differ

from what happens in duress to persons. A rapid

comparison between both doctrines may be done.

In duress to persons, there is a suggestion in ‘Barton v

Armstrong’38 that the burden of proof should be carried by

the defendant. It is quite clear that this approach

should be too kind for the claimant in cases of economic

duress. Indeed, commercial pressures are part of economic

activity, and giving the keys to the claimant to set

aside a renegotiation of a contract which he has since

realised was too problematic for him could lead to

inappropriate situations. So it is the claimant’s

responsibility to prove that there was a sufficient

causal link between the pressure applied and his entry

into the contract39. This analysis is developed in the

38 Cited above, see footnote 3.39 Huyton SA v. Peter Cremer GmbH & Co Inc [1999] 1 Lloyd s Rep 620.

27

‘Huyton SA v Peter Cremer GmbH & Co Inc’40case, where it

is argued that:

‘The onus of proof is on the claimant to prove the existence of a sufficient causal link’.

In order to prove the existence of a causal link, some

factors are taken into consideration.

Nevertheless, it must be said that all of these matters

have emerged progressively from the Courts decisions, and

that they cannot be taken as decisive in each case. The

courts have failed to present a coherent list of factors.

Thus, one needs to have a look at the various factors

described in the authorities in order to know which of

these elements could be used in a particular situation.

- First, economic duress could not be proved if the party

alleging coercion has subsequently affirmed the contract.

This happened in ‘The Atlantic baron’41, where the right

to claim economic duress was lost by the claimants,

because they waited after the reception of a second ship

before going to law. At this time, the pressures had

ceased long ago.

Mocatta J, indeed, held:

40 Cited above, see footnote 3941 Cited above, see footnote 13.

28

‘That a person who has entered into the contract may either affirm or avoid such contract

after the duress has ceased; and if he has so voluntarily acted under it with a full knowledge

of all the circumstances, he may be held bound on the ground of ratification, or if, after

escaping from the duress, he takes no steps to set aside the transaction, he may be found to

have affirmed it’.

Thus, it is clear that the right one has to claim

economic duress is not a life-long one. The rationale for

this rule seems logical. If the victim waited too long,

or started to cry ‘economic duress’ long time after, it

would bring great uncertainties relating to a contract

law foundation such as the sanctity of contract.

- The fact that the victim protested at the time the

contract was concluded might be a good indication that

the consent was freely given. The problem with that

criterion is that most of the time, in cases of economic

duress, protesting may appear really useless for victims.

Mr Ogilvie said about this that:

‘The fact of protest may not be a significant factor in that the victim may not be a protesting

sort, or might consider protest as superfluous, while the victim at the time may consider

himself fully bound and will only question the transaction later’42.

42 Cited above, see footnote 24.

29

This statement could be seen as truth. Lord Scarman

offered in ‘Pao On v Lau Yiu Yong’43 that in determining

if the pressure was improper enough to coerce the will of

the victim, it could be necessary to enquire:

‘…whether the person alleged to have been coerced did or did not protest…’44.

But it is sure from recent decisions that even if it

could be a crucial factor in rare cases, it is not in

every case that judges will discuss about it. Therefore,

it can not be looked at a determinant factor.

- The third point which could be emphasised from the

decisions we had to look into was that it is the claimant

who will have to show that the pressures applied were a

‘significant cause’ inducing him to enter into the

contract. Lord Goff developed this idea in the ‘Evia

luck’45 (see above). Again, here is a difference with

duress to persons. In cases of duress to persons, the

pressures need only be ‘a’ cause of the claimant acting

as he did46. In cases of economic duress, the victim will

have to prove that the pressures were not only ‘a’ cause,

43 Cited above, see footnote 1644 Cited above, see footnote 1645 Cited above, see footnote 3446 Cited above, see footnote 3

30

but ‘the’ cause for his entrance in the contract. Mance

J, in ‘Huyton v Peter Cremer’47 stated that in his mind:

‘The use of the phrase ‘a significant cause’ by lord Goff in The Evia Luck […] suggests that this

relaxed view of causation in the special context of duress to the person cannot prevail in the

[…] context of economic duress. The minimum basic test of subjective causation in economic

duress ought, it appears to me, to be a ‘but for’ test. The illegitimate pressure must have been

such as actually caused the making of the agreement, in the sense that it would not otherwise

have been made either at all or, at least, in the terms in which it was made.’48

One needs to prove that the decision to submit to the

demand was a direct consequence of the illegitimate

pressure applied. The reason for this is that marketplace

is an area where courts cannot set aside contracts

easily. Indeed, pressures are part of a normal activity,

and giving judges the keys to set aside commercial

contracts easily would bring too much uncertainty in the

way the doctrine would have to be pleaded, and even in

commercial relationships.

- An important point is whether an ‘alternative course’

was open or not for the victim. It seems to be the one on

which Courts have had the most difficulties dealing with.

It is the fact that the party alleging coercion had no

47 Cited above, see footnote 3948 Cited above, see footnote 39, op. p637

31

practical alternative course open to him at the time he

entered into the contract. Mr Andrew Phang called it the

‘umbrella factor’49. Mr Phang, senior lecturer in the

faculty of law of Singapore, exposed his theories in an

article that was published in January 199050. He offered

from Lord Scarman’s discussion in ‘The Universe

Sentinel’51 that this factor should be seen as the main

one. In his discussion, the judge was emphasising this

point as the main way to ascertain a coercion of the

victim’s will. But Phang doubted about this, and thought

that it was:

‘rather unhelpful [because] the problem has been redefined at the same level of

abstraction’52.

Despite this severe criticism, this factor is

theoretically important at least, because it admits the

fact that economic duress is more likely to arise in

monopoly situations. If the victim had the choice to do

something else (for example to contract with someone

else), she would not have entered the contract. The

49 Andrew Phang ‘Whither economic duress ? Reflections on two recent cases’ 53 MLR 107. p.110.50 Cited above, see footnote 4951 Cited above, see footnote 19.52 Cited above, see footnote 49, p.110.

32

emphasis on the ‘alternative course’ open may be seen as

the way courts are recognising the existence of monopoly

situations when dealing with economic duress.

Atiyah emphasised on this point. In his view,

‘Monopolies are far more common than is generally recognised, because monopoly is a

matter of degree. While economists are usually interested in large-scale monopolies which

have an influence on the nation’s whole economy, the lawyer must recognise that monopolies

often exist on a very small scale and, furthermore, that they are often mere matters of

degree.’53

In a strict law point of view, an ‘alternative course’

can cover several ways of acting for the victim. From

lord Scarman statement in ‘The Universe Sentinel’54, it

can be: ‘…proved in lot of ways, e.g. by protest, by the absence of independent advice,

or by declaration of intention to go to law to recover the money paid...’

But in the Huyton case55, Mance J stated that it is:

‘not necessary to go so far as to say that it is an inflexible […] essential ingredient of

economic duress that there should be no or no practical alternative course open to the

innocent party.‘

All of these matters may be decisive in order for the

victim to claim and to prove economic duress. Although

some authors have argued that the alternative course open53 P.S Atiyah ‘An introduction to the law of contract’ Cited above, see footnote 7.54 Cited above, see footnote 1955 Cited above, see footnote 39

33

to the victim was the most important factor, we can

assume from recent cases that judges did not choose to

follow this point of view. All the matters are equally

important, and it is precisely this aspect that give

judges the relative freedom they need to decide in this

uncertain law’s area. This can also be explained by the

fact that the situations faced by judges are really

different from one another and generally take place in

the course of complex business relationships. It is

therefore difficult to ascertain precisely what factors

are to be used. Thus, it is better for courts to keep a

relative freedom in deciding which criterions may fit the

best the facts of the case.

Transition- We have tried to see in this first part the

way the doctrine has implanted itself in English law over

the last two decades. We have seen that the test which

was applied by the courts at the beginning, the coercion

of the will test, gradually moved away under the

influence as writers such as Attiyah or Ogilvie.

34

But, if the coercion of the will test is behind us,

judges still rely on the state of mind of the victim in

order to be sure that the pressures applied were truly

the reason for the entry into the contract.

In order to define economic duress, we know that we need

an illegitimate threat, a vitiation of the freedom of

choice of the victim, and a causal link between the two.

Having already define the state of mind the victim needs

to be in to prove economic duress, and the questions

judges try to answer in order to ascertain the presence

of a sufficient causal link, we will emphasise now the

element on which judges and the doctrine focus today: the

legitimacy of the pressures.

Whether the threat actually gives rise to duress must be

considered by reference to its coercive effect in each

case. Treitel56 rightly argued that:

‘No particular type of threat is regarded either as ipso facto having such an effect [a coercive

effect], or being incapable, as a matter of law, of producing it’

Attiyah demonstrated in 1982 that some ways must be found

for distinguishing between the kind of pressure and

56 G.H Treitel ‘The law of contract1 10th ed. Sweet & Maxwell. 1999.

35

threats that will be permissible and the pressures that

will be ruled out and will invalidate a contract.

In 1995, he finished his statement about economic duress

theory stating that:

‘The distinction which the law seeks to draw must be that between legitimate and illegitimate

pressure, or threats, and has nothing to do with overborne wills’57.

But dealing with that kind of problem is not an easy task

for the courts.

Indeed, pressures are part of the economic activity, and

the line is thin between a legitimate and an illegitimate

pressure.

But the emphasis on legitimacy of pressures made by

judges since a few years permitted the development of the

doctrine. In defining exactly what kind of threats should

amount to duress and what should not, courts gave the

doctrine a good rationale basis. The expanding number of

economic duress pleading cases courts had to deal with

confirmed that the doctrine was well implanted in common

law. This has led the economic duress notion to impose

itself alongside other doctrines like consideration,

57 Cited above, see footnote 7

36

undue influence and, though to a lesser extent,

inequality in bargaining power.

In this second part, we will first try to focus on the

problem set by the legitimacy of the pressures. Then, we

will consider the scope of the doctrine, and we will try

to compare economic duress with other doctrines designed

to achieve the same goal: unbalance contractual

relationships.

II- The emphasis on the legitimacy of the pressures and

the place of the notion in English law

We chose in a first time to discuss the main problem that

judges are facing today. This concerns the distinction

that has to be drawn between legitimate and illegitimate

pressures. We will see that though it sounds quite clear

in theory, it is much more difficult in practice to

define where the line is, and some confusion may

sometimes be made. This could easily be seen from the

number of exceptions arising from each one of the

categories we chose to present.

37

Then, we will try to have a look at the scope of the

doctrine relating to other doctrines used to achieve the

same goals, mainly consideration, undue influence and

inequality of bargaining power doctrines.

A- Legitimate and illegitimate pressures .

Before examining what belongs to legitimate and

illegitimate pressures, one has to keep in mind that the

essence of competition is agression and pressure. And in

the marketplace, competition, or being competitive is the

goal each company wants to achieve. In ‘Queensland Wire

Industries Pty Ltd v BHP co Ltd’58, Mason CJ stated that:

‘Competition, by its very nature is deberate and ruthless’.

The role of the courts, therefore, will be to find and to

rule the permissible limits of pressures. But because

business is one of the vital nerves of our societies and

it needs to be protected, courts cannot make the finding

of economic duress easy to prove. That being said, we

will try to reference the sort of pressures that may be

58 ‘Queensland Wire Industries Pty Ltd v BHP co Ltd’ [1989] 167 CLR 177

38

seen as legitimate and the kind of pressures courts

usually regard as illegitimate.

Mainly, not every kind of pressures can constitute

illegitimate pressure able to give rise to economic

duress. The problem with the legitimacy of the pressure

is that it is an area where exceptions to the rules are

common, and courts rely on the facts of each cases in

order to know if the pressure was legitimate or not.

Usually, authors deal with the problem of the legitimacy

of the pressures in dividing different threats between

lawful and unlawful threats.

We chose not to follow the classical point of view and to

present the types of behaviour that could be seen as

legitimate in a first part, and then to see what could

amount to illegitimate pressures. Basically, this does

not involve real differences, but it seems easier to act

this way in order to have the entire extent of the

problem in mind.

1) Legitimate pressures .

39

In the course of a business, most of the pressures

applied are just part of the normal activity and cannot

constitute illegitimate pressures. We tried to divide

legitimate pressures into different categories of

threats. We will see that some doubts are still present

in some of these categories about whether these kinds of

threats could amount to economic duress or not.

We classified legitimate pressures in four categories: a

threat to refuse to contract, a threat to refuse to waive

existing obligations, the threat of the use of legal

process, the fact of taking advantage of the market

(driving a hard bargain). We will examine each of them:

- The use of legal process.

Can the use of legal process ever be illegitimate ?

Although the logical answer might be no, it can happen in

some particular situations that a threat to use a legal

process amount to illegitimate pressure.

Indeed, in an Australian case, namely ‘Public service

Credit Union v Campaign’59, a father agreed to give a

guarantee after a threat was made to prosecute his son,

whom had obtained funds fraudulently. The aim of the59 ‘Public service Credit Union v Campaign’ [1984] 75 FLR 131

40

guarantee was to cover the arrears in the son’s account.

The court held in that case that the guarantee was not

enforceable against the father.

Mainly, in that law area, it is clear that if the

threatened action amounts to an abuse of process, there

are remedies available to the victim.

Nevertheless, it is not a common situation. Usually and

hopefully, the threat of the use of legal process will

not be looked as an illegitimate pressure.

- Driving a hard bargain.

This is referred to as the typical usual way of acting in

the market. This kind of pressure may not be considered

as illegitimate. This was dealt with in the Australian

case of ‘Wardley Australia Ltd v McPharlin’60, where the

judges found no economic duress in the conduct from one

party who was threatening to enforce existing legal

rights so as to obtain additional security. The judges

refer to this behaviour as: ‘commercially harsh and exacting’ and

‘driving a hard bargain’,

but held that this could not amount to illegitimate

pressures.60 ‘Wardley Australia Ltd v McPharlin’ [1984] 3 BPR 9500.

41

On the other hand, in the ‘Alev’61, Hobhouse J, seemed to

justify that economic duress might arise in case of hard

bargain.

The plaintiffs, in this case, chartered a vessel to

hirers who were carrying the defendant’s cargo of steel.

The hirers defaulted on the payments and the plaintiffs

were obliged by the terms of the bills to carry the

cargo. This involved extra costs. They therefore

negotiated with the defendants who agreed to pay extra

costs and not to detain or arrest the vessel in the port.

This agreement was reached through threats, including a

statement that unless the defendants paid the extra

costs, they would not get their cargo. Thereafter, when

the ship was in port, the defendants ignored the

agreement and arrested the ship. The plaintiffs pleaded

duress. It was held that the agreement fell within the

principles of economic duress.

Hobhouse J said of the agreement to pay that:

‘There was no question of any commercial bargain being struck; the reality and substance

was: ‘if you want us to perform the bill of lading contracts, you must agree to what we

demand’’.61 ‘Vantage Navigation Corporation v Suhail and Saud Bahwan Building Materials LLC (The ‘Alev’) [1989] Lloyd’s Rep. 138.

42

At least in this decision, a doubt arises about whether a

hard bargain could constitute illegitimate pressure.

It must be said that most of the authors have argued

about this case that the threat to withhold the cargo was

unlawful, and that the plaintiffs knew it. Thus, it

appears that the situation, despite of Hobhouse J

statement, could be seen as not being a usual commercial

bargain.

So, it is difficult to rely on this case to admit that

economic duress could arise in cases of hard bargains,

and most of the time, the Courts will refuse to admit it.

- Refusal to waive existing obligations.

Basically, a refusal to waive existing obligations should

not amount to duress. This is easily understandable

because the party who wants to rely on the existing

contract makes no wrongful threat. Mainly, no

‘illegitimate’ pressures are exerted when a party wants

to rely on pre-existing obligations. The question was set

in ‘Alec Lobb (Garages) Ltd v. Total Oil (Great Britain)

Ltd’62. This case involved a family company, which has

62 ‘Alec Lobb (Garages) Ltd v Total Oil (Great Britain)’ [1983] 1 WLR 87, 94.

43

entered into a series of agreements charging a petrol

station as security for a loan following financial

difficulties. The charges also contained a petrol tie in

favour of the defendants for the duration of the

agreements. The plaintiff’s financial problems continued

along with commercial pressure from the bank and

creditors. The plaintiff tried to obtain further

assistance from the defendants. They obtained it, in

persuading the defendants to take a lease of the premises

from the company for 51 years in exchange for a premium

of $35,000.

The plaintiff later tried to have the transaction of

lease set aside on the ground of duress.

It was held that the plaintiff had failed to establish

economic duress, mainly because there was no pressure

exerted from the defendant upon the plaintiffs. A

submission that the existence of the petrol tie made it

impossible for the plaintiff to seek help elsewhere was

rejected. The reason for that was that the defendant’s

refusal to waive performance of this pre-existing

contractual obligation was not improper.

44

So it is clear from this case that refusing to waive

existing obligations could not amount to economic duress.

- A threat to refuse to contract.

At first, it sounds quite obvious that it is anyone’s

right to choose not to enter into a contract.

Basically, it is a right to contract, and it is a right

also to refuse to contract.

Problems arise where one of the two contractors that

already reached an agreement refuses to conclude another

legal contract with the same contractor.

Arguably, in particular situations of long-standing

commercial relationships, a refusal to do business may be

unacceptably oppressive conduct and may amount to a

really coercive threat for the person who wants to

contract.

Here, two cases might help to understand the situation in

which a contractor can find him after his usual partner’s

refusal to deal with him.

The first case is the old case of ‘Smith v William

Charlick Ltd’63. We have seen that in this case, demand

was made for payment of a ‘surcharge’ that was legally63 Cited above, see footnote 9.

45

unjustified, by the Australian Wheat Harvest Board. The

Board was a monopoly supplier. The threat being to refuse

to deal anymore with the farmer, and to refuse to

contract with him in future times. The High Court held

that the plaintiff could not recover the surcharge, on

the ground that refusing to deal should not amount to

economic duress. But regarding to the monopoly position

of the Board, the fact that the demand was legally

unjustified and the fact that the effect on the miller

would have been concretely the ruination of its business

if he had not supplied to the demand, we can assume that

if the case was to be judged today, the solution would be

different.

The other case relating to a refusal to do business where

economic duress was pleaded was ‘CTN Cash and Carry Ltd

v. Gallagher Ltd’64.

In this case, the plaintiffs purchased cigarettes from

the defendants. One consignment was given to the wrong

warehouse (that did belong to the plaintiffs). The

parties agreed that the defendants would collect the

consignment and transport it to the proper warehouse, but64 ‘CTN Cash and Carry Ltd v Gallagher Ltd’ [1994] 4 All ER 714

46

before this could be done the entire consignment was

stolen. Each purchase of cigarettes was a separate sale

and a separate contract made by credit. Credit facilities

had been arranged with the defendants and they reserved

an absolute right to withdraw credit at any time and for

any reason. When the consignment was stolen the

plaintiffs initially refused to pay, but were ‘coerced’

into doing so by the defendants threats to withdraw all

credit facilities. This amounted to a threat to refuse to

contract (refusal to provide credit facilities in future

transactions).

The court of appeal held that the threat did not

constitute duress. But it should be noted that the courts

relied on the fact that the defendants did not act in bad

faith. Indeed, the defendants truly believed that they

were entitled to make the demand they made.

So it could be supposed that where there is bad faith,

some situations of ‘lawful act’ duress could appear,

although no cases have clearly stated in this way so far.

Steyn LJ, in this case, argued that:

‘…in a purely commercial context, it might be a relatively rare case in which ‘lawful act

duress’ can be established. And it might be particularly difficult to establish duress if the

47

defendant bona fide considered that his demand was valid. In this complex and changing

branch of the law I deliberately refrain from saying ‘never’. But as the law stands, I am

satisfied that the defendants’ conduct in this case did not amount to duress.’

2) Illegitimate pressures.

The main problem is to define what exactly constitutes

illegitimate pressure. Lord Scarman discussed this point

in the ‘Universe Sentinel’65. He said:

‘In determining what is legitimate two matters may have to be considered. The first is as to

the nature of the pressure. In many cases this will be decisive, though not in every case. And

so the second question may have to be considered, namely, the nature of the demand which

the pressure is applied to support […]. The origin of the doctrine of duress in threats to life […]

or to property, suggests strongly that the law regards the threat of unlawful action as

illegitimate, whatever the demand. Duress can, of course, exist even if the threat is one of

lawful action: whether it does so depends upon the nature of the demand’.

So, it appears that pressure may be illegitimate either

because:

- The thing threatened is unlawful, or;

65 Cited above, see footnote 19

48

- Because even though the thing is lawful, the way the

pressure is exerted is illegitimate (see the famous

example of blackmail given by Lord Scarman in the case66).

Therefore, if the thing threatened amounts to a crime or

a tort, the pressure will be regarded as illegitimate.

The main problem with illegitimate pressures arises where

the threat is one of breach of contract. This category of

threat is regarded as the paradigm of economic duress.

Most of the cases where economic duress was pleaded

involved situations where threats were to breach the

contract. Where one party threatens to breach an existing

contract unless he is given some further advantage, then,

although this does not amount to a tort, it will satisfy

the requirement of an illegitimate act.

The question therefore will be whether the threat is

sufficiently overwhelming to constitute economic duress.

This point was debated in many cases.

66 Lord Scarman: ‘the ordinary blackmailer normally threatens to do what he has a perfect right to do […], what he has to justify is not the threat, but the demand for money.’ This is an important point, mainly because it is recognised here thatin some cases, a lawful act may amount to duress. But in order to do so, one has to prove that though the threat was lawful, the nature ofthe demand that the threat supported was not.

49

For instance in ‘B&S Contracts and Designs Ltd v Victor

Green Publications Ltd’67. Here, a contractor who had

undertaken to erect stands for an exhibition at Olympia

told his client, less than a week before the exhibition

was due to open, that the contract would be cancelled

unless the client paid an additional sum to meet claims

which were being made against the contractor by his

workforce. The consequence of not having the stands

erected in time would have been disastrous for the

client, because it would have damaged his reputation and

might have exposed him to suffer the severe consequences

of claims that would have been made by exhibitors. The

High Court held that the payment had been made under

duress.

In his judgement, Lord Kerr J said:

‘A threat to break a contract unless money is paid by the other party can, but by no means

always will, constitute duress if the consequences of a refusal would be serious and

immediate so that there is no reasonable alternative open…’

It is possible to say from this statement that it means

that a threat to break a contract will always be

illegitimate. Whether it will constitute duress will

67 ‘B & S Contracts and designs Ltd v Victor Green Publications Ltd’ [1984] ICR 419.

50

depend on the pressures exerted. If the pressures were

sufficient to deflect the victim’s will, then economic

duress is likely to arise. In order to decide if the

pressures were sufficient, courts usually rely on the

criterions exposed above68.

Another alleged case where the threat was one of breach o

contract was ‘Atlas Express v Kafco’69.

A small company (namely Kafco) dealing in basketware, had

secured a large contract from Woolworths and had obtained

a large quantity of goods to fulfil it. They entered into

a contract with Atlas, a national road carrier, to

distribute the goods to Woolworths’ shops. Before they

entered the contract, an Atlas’s manager inspected the

cartons used by Kafco, and estimating a minimum load of

400 cartons, quoted a price of £1.10 per carton (£440 for

the total). In fact, the first load contained only 200

cartons which the manager said was not viable unless

Kafco agreed to pay a minimum of £440 per load. This was

a threat of breach of contract. Kafco commercial survival

68 See ‘The search for a causal link between the pressures applied andthe entry into the contract’, p 12.69 ‘Atlas Express v Kafco (Importers and Distributors) [1989] 1 All ER641.

51

depended on their ability to meet delivery dates. At the

time the demand was made, it would have been difficult,

if not impossible, to find other carriers. Kafco agreed

to the new terms, but later refused to pay at the new

rate.

In this case, it was held that Kafco was not bound by the

new terms. Economic duress had vitiated the new

agreement, and there was no consideration for it.

The amount of pressure exerted (in this case the fact

that there was no alternative open to Kafco) was

sufficient to deny the victim’s freedom of choice.

But it is not every threatened breach of contract that

amounts to economic duress. A threatened breach of

contract may amount to duress.

We have seen some cases, on the other hand, where these

types of threats did not amount to economic duress.

For instance, in ‘Pao On v Lau Yiu Long ’70

In this case, the claimants threatened to break the

contract with a company unless the defendants, who were

shareholders in the company, gave them a guarantee

against loss resulting from the performance of that70 Cited above, see footnote 16.

52

contract. The defendants thought that this risk was small

and gave the guarantee, to avoid the adverse publicity,

which the company might suffer if the contract was not

performed. It was held that there was no ‘coercion of the

will’, and that the guarantee was not vitiated by duress.

Mainly, the problem in many cases is to know whether the

party who exerted the pressure was threatening to break

the contract or whether he was entitled to demand what he

demanded. In particular circumstances, it has been argued

by few authors that threats of contract could be

justified on the ground that renegotiations that follow

are supposed to lead to fairer contracts. For instance,

Burrows71 suggested that the concept of legitimacy is open

to some flexibility and that a threatened breach may not

represent illegitimate pressure if there is a reasonable

commercial basis (such as a radical change in the

circumstances) for the threat of breach.

In order to distinguish between legitimate and

illegitimate threats of breach of contracts, he also

offered that some additional element should be required.

He proposed bad faith. Therefore, he offered that: 71 Burrows ‘Law of duress’ (1993) p181-182.

53

‘A threatened breach of contract should be regarded as illegitimate if concerned to exploit

the claimant’s weakness rather than solving financial or other problems of the

defendant’72.

Birks73, also, stated in 1990 that a threatened breach of

contract is illegitimate if it is: ‘accompanied by bad faith or

malice-the deliberate exploitation of difficulties of the other parties.’

McKendrick74, on the other hand, states that English law

do not generally refer to bad faith’s notion in cases of

breach of contract. He therefore defines the threat of

breach of contract as:

‘A threat which, under the terms of a contract, one is not entitled to make, irrespective of

one’s good faith’.

But this analysis could be challenged. Indeed, Mance J,

in ‘Huyton v Peter Cremer’75, held:

‘…that good or bad faith may be particularly relevant when considering whether a case might

represent a rare example of ‘lawful act’ duress is not difficult to accept. Even in cases where

the pressure relied on is an actual or threatened breach of duty, it seems to me better not to

exclude the possibility that the state of mind of the person applying such pressure may in

some circumstances be significant, whether or not the other innocent party correctly

appreciated such state of mind.’

72 Burrows ‘Introduction to the law of restitution’ 1993, ed. Butterworth. 73 [1990] LMCLQ 342.74 Cited above, see footnote 2, op. p 356.75 Cited above, see footnote 39, op. p637.

54

Good or bad faith might have a role to play in some

particular cases of breach of contract. But this

statement still has to be confirmed at the highest

levels.

B- Economic duress compared with consideration, undue influence and

inequality of bargaining power .

Economic duress doctrine appeared in the last two

decades. It offers a way to unbalance contractual

relationships, where illegitimate pressures have induced

the victim to agree to a set of terms he would have not

otherwise accepted. But it is not the only doctrine to do

so, and it is sometimes difficult for lawyers to choose a

basis for their actions. Usually, consideration is

pleaded alongside duress in most of the cases. But it is

also possible to see similarities in duress and undue

influence (‘actual’ undue influence).

We will try to define the scope of the economic duress

compared to these other contractual relationship

doctrines.

55

1) Economic duress and consideration .

In most of the cases we have studied, it must be said

that economic duress was pleaded alongside consideration.

Most of the time, the party who wants to extricate the

contract will try to prove either that there is

insufficient consideration or that there has been

economic duress. Whichever point he manages to prove will

allow him to set aside the contract.

Consideration was defined in the old case of ‘Currie v

Misa’76. It was held that:

‘A valuable consideration, in the sense of law, may consist either in some right, interest,

profit or benefit accruing to the one party, or some forbearance, detriment, loss or

responsibility given, suffered, or undertaken by the other’.

Basically, consideration is concerned with the problem of

the conclusion of the contract. Duress, on the other

hand, is a vitiating factor. This means that an otherwise

valid contract could be set aside on this ground.

In the ‘Alev’77, the defendants pleaded the absence of

consideration and economic duress. We have seen that they76 ‘Currie v Misa’ [1875] LR 10 Ex 15377 Cited above, see footnote 61.

56

succeeded on the ground of duress. But they failed on the

consideration point, although Hobhouse J held that

consideration ‘technically’ existed, because the

plaintiffs had appointed them as the ship’s agents.

Hobhouse J also said that:

‘Now that there is a properly developed doctrine of the avoidance of contracts of economic

duress, there is no warrant for the Court to fail to recognise the existence of some

consideration even though it may be insignificant and even though there may have been no

mutual bargain in any realistic use of that phrase.’

The consideration point was therefore overcome.

In ‘Atlas Express v Kafco’78, Tucker J. held that Kafco

was not bound by the terms of the new agreement. Not only

economic duress had vitiated their consent, there was

also no consideration for it.

In ‘The Atlantic Baron’79, the carriers pleaded, along

with duress, that the agreement to increase the purchase

price was void for lack of consideration. Mocatta J

rejected the claim based on consideration, arguing that

the promises went beyond that of a promise to fulfil an

existing contractual duty. This has been criticised by

Ogilvie80, who argued that if there was no economic78 Cited above, see footnote 69.79 Cited above, see footnote 1380 Cited above, see footnote 24.

57

duress, consideration found by the judge was doubtful. It

was based upon finding consideration in the promise to

perform an existing duty. He continued by arguing that

the judgement highlights the fact that duress is more

appropriate than consideration in order to deal with

coerced bargains, mainly because consideration

‘…does not expressly address the concerns which might determine the Courts decision’.

From these three cases, it can be seen that the two

doctrines are really similar, even if they are not

originally designed to perform in the same context.

Mr Andrew Phang81 proposed kind of a similar analysis. He

offered that the consideration doctrine is badly equipped

to deal with the commercial conflicts that may arise

today, and that economic duress may be a better solution

to suit:

‘…the light of modern commercial circumstances’

The reason for this is in his mind the fact that the

consideration doctrine is:

‘…at least as (if not more) amorphous than the doctrine of economic duress - in both

definition as well as application.’

81 Cited above, see footnote 49.

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This is a problem because the Courts ‘strain’ to find

consideration in each case. Phang has gone even further,

stating that:

‘There are good reasons why the doctrine of economic duress ought to displace and not be

in addition to, the doctrine of consideration in ‘extortion situations’ provided, of course, that

it can be rationalised’.

This statement can be discussed, because it appears quite

excessive to think that consideration should be replaced

by economic duress. Both doctrines do not have exactly

the same scope, and courts clarified that in the last

decade.

Pr. Atiyah, five years later, proposed his own view of

the problem. He argued about consideration that there was

no coherent basis for it in reciprocity. He stated that:

‘The truth is that the courts have never set out to create a doctrine of consideration. They

have been concerned with the much more practical problem of deciding in the course of

litigation whether a particular promise in a particular case should be enforced […] It seems

highly probable that when the courts first used the word ‘consideration’ they meant no more

than there was a ‘reason’ for the enforcement of a promise.’82

82 Pr Atiyah ‘Consideration: a restatement’, in Essays on Contract, Oxford University Press, 1986.

59

About the relationship between consideration and economic

duress, Atiyah, in his ‘Introduction to the law of

contract’83, stated in the light of new cases that:

‘At one time, the doctrine of consideration was used as a way of controlling the validity of

contractual variations which might have been obtained by undue pressure. Yet modern

decisions are beginning to shift the basis of the law away from consideration toward the new

doctrine of economic duress.’

The difficulties about the relationships between both

doctrines especially arose after the decision in

‘Williams v. Roffey Bros & Nicholls (Contractors) Ltd’84.

The defendants (Roffey) were contractors who had entered

into a contract to renovate a block of flats. The

contract stated that a penalty should be payable if the

work was not done in time. The defendants subcontracted

the plaintiffs to perform the carpentry work. But the

latters fell behind because they had agreed for a too low

price, which placed them in financial difficulties. In

order to avoid the use of the penalty by the main

contractor, the defendants proposed an extra payment to

the plaintiffs. The latter therefore asked for the money,

83 Cited above, see footnote 7.84 ‘Williams v Roffey Bros & Nicholls (contractors) Ltd’ [1991] I QB I.

60

but the defendants refused to pay, arguing that the

agreement was not supported by sufficient consideration.

The Court of appeal found in favour of the plaintiffs,

and held that the agreement was enforceable.

Basically, this case involved a consideration problem.

Indeed, economic duress was not even pleaded. In

considering the scope of the decision, it nevertheless

appears that it was the defendants who requested the

variation.

Some authors have discussed this in case relation with

the economic duress doctrine.

The most interesting one was proposed by McKendrick85. He

saw in the case a potential breach of contract by the

subcontractors. In his view, the probability of that

breach was the reason why Roffey offered to pay more for

the performance of the work. Roffey would have made this

offer as a result for the pressure they were under (the

penalty clause in the contract) because of the lack of

progress of the work.

The claimant was obviously incompetent because he was

unable to cost the work. This was an important point85 Cited above, see footnote 2, op.p356-357

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because if Williams had deliberately priced the job low

and then had made it clear that he was unable to finish

the work in time, judges would have been closer to an

economic duress situation.

The question is how is the distinction made between the

incompetent contractor and the one who wants to take

advantage of the economic situation of the weaker party.

McKendrick emphasises whether there might be a role for a

factor such as bad faith (in order to distinguish

legitimate and illegitimate threats of breaches of

contract), or whether it should be concluded that all

breaches of contract are illegitimate, and that a mistake

was made in ‘Williams v Roffey’ in the defendants failing

to claim economic duress.

This sets a lot of problems. Indeed, it means that the

scope of the doctrine of economic duress, in relation

with the one of consideration has yet not been defined

well by the courts. This is an area of law where lawyers

are still waiting for a leading and explaining case…

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2) Economic duress, undue influence and inequality of

bargaining power.

Basically, these three notions are considered as

vitiating factor, based on the improper conduct of one

party, the situation of dependence (or vulnerability), of

the other, or a combination of the two.

The doctrine of inequality of bargaining power is not

well developed in English law. We will examine it first,

and then we will have a look at the undue influence

doctrine, which is divided between actual and presumed

undue influence.

- Inequality of bargaining power

The problem with the inequality of bargaining power

doctrine is that its existence in English law still has

to be confirmed.

Indeed, since Lord Denning, for the very first time,

twenty-seven years ago, referred to it, courts have been

reluctant to confirm the existence of the concept in

English law.

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The first case to emphasise on this notion was ‘Lloyds

Bank v Bundy’86. In this case, an old man contracted with

his bank in order to provide a guarantee for his son’s

business debts. He mortgaged his house. The man relied on

the bank manager as his adviser. The problem was that the

bank manager was also the one of the old man’s son, and

so was seeking to protect his owns interests.

Lord Denning did not try to apply undue influence to the

case. Instead, he held:

‘English law gives relief to one who without independent advice enters into a contract upon

terms which are very unfair or transfers property for a consideration which is grossly

inadequate, when his bargaining power is grievously impaired by reason of his own needs

and desires, or by the his own ignorance or infirmity, coupled with undue influence or

pressures brought to bear on him by the benefit of the other.’

This principle was the basis for what later has been

called the ‘inequality of bargaining power’ doctrine. But

the least to say is that it did not receive a good

reception in English law. Indeed, in ‘Pao On v Lau Yiu

Long’87, Lord Scarman refused explicitly this theory. He

stated that agreements were not voidable simply because

they have been:

86 ‘Lloyd’s bank v Bundy’ [1975] QB 32687 Cited above, see footnote 16

64

‘…procured by an unfair use of a dominant bargaining position’.

We can assume that even though inequality of bargaining

power is sometimes referred to as a basis in order to

ascertain the presence of some vitiating factors in some

particular cases, it did not impose itself in English

law, despite of Lord Denning’s will.

- Undue influence.

The undue influence doctrine, on the other hand, is a

long-standing one.

Traditionally, it is divided in two main categories.

The first category of undue influence is presumed undue

influence. It arises where parties are in special

relationships (such as for instance, the one a patient

could have with his doctor or a solicitor with his

client).

In case of manifest disadvantage, it is presumed that

undue influence has vitiated the claimant’s consent. A

manifest disadvantage was defined in ‘Bank of Credit and

Commerce International SA v Aboody’88. The Court of Appeal

held that:

88 ‘Bank of Credit and Commerce International’ [1990] 1 QB 923.

65

‘A disadvantage would be a manifest disadvantage if it would have been obvious as such to

any independent and reasonable persons who considered the transaction at the time with

knowledge of all the relevant facts.’

It appears that a ‘manifest disadvantage’ is the key for

a presumption of undue influence to arise. From the

moment this presumption is said to exist, the onus of

proof switches to the defendant. It will be his

responsibility to prove that he did not exercise undue

influence.

The second category is the direct analogue of common law

duress. It appears where one party has exercised undue

influence, in the sense of domination89, over the other

party. This is usually referred to as ‘actual’ undue

influence. It is the party who wants to have the contract

set aside on the grounds of undue influence that will

have to prove its existence. There is no need for special

relationships between parties. Moreover, no abuse of

confidence need be proved. Usually, the type of cases

that fall in this category involve persons who fell under

domination of ‘spiritual advisers’, or men who put

89 McKendrick, in ‘Contract law’ cited above (see footnote 2), states that ‘the unfair and improper conduct often takes the form of ‘importunity and pressure.’’

66

pressure on their wives in order to force their consent

in mortgaging houses to secure business debts…

Nevertheless, the cases, in this law’s area, are not

common. The problem is that the scope of ‘actual’ undue

influence is quite restricted. Victims of pressure

therefore prefer to rely on common law duress or

‘presumed’ undue influence in order to have their

contract set aside. The most famous case of ‘actual’

undue influence is ‘Williams v Bayley’90. In this case, a

father executed a mortgage in favour of his banker. But

the reason why the mortgage has been done was that the

banker threatened to prosecute the man’s son for forgery

unless the mortgage was concluded. The father succeeded

in proving that he accepted the mortgage because of the

banker’s threats. Therefore, the court held that he was

entitled to rescind the mortgage on the ground of undue

influence.

In relation with economic duress, it is possible to

assume that both doctrine (duress and ‘actual’ undue

influence) occur where one party to a contract has

coerced the other or exercised such domination that the90 ‘Williams v Bailey’`[1866] LR 1 HL 200.

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other’s independence of decision was denied. ‘Actual’

undue influence seems closer to duress than presumed

undue influence. The main difference is that the

equitable concept of ‘pressure’ is wider in undue

influence than in common law duress. Actually, undue

influence can be exercised (and is usually exercised)

without any illegitimate threat or even without any

threat at all.

Thus, this appears to be the main difference with

economic duress. But basically, in an abstract point of

view, both doctrines are used to achieve the same goal.

Conclusion- After duress to persons and duress to goods,

the society evolution naturally led courts to recognise

duress to economic interests.

The economic duress doctrine is, as we have seen, a

newcomer in English contract law.

The genesis of the notion was not easy. The test applied

by the courts at the beginning, the coercion of the

will’s test, did not succeed in bringing certainty to the

concept. Thus, courts chose to distance themselves from

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this analysis, and started to rely on more concrete

criterions in order to demonstrate the presence of

economic duress in each case. This was an important thing

to do, for several reasons. Mainly, relying on the

coercion of the will forced the courts to deal with

questions of facts, in each case. This would have led to

considerable confusion in the application of the

doctrine, because no certainty would have been present

about the rules that were going to be applied.

This danger was early underlined by Atiyah. Thus, courts

tried to find a way to bring into the doctrine some

factors that could be seen as a concrete way to prove the

link between the pressures and the victim’s consent. The

choice of the criterions was not an easy one, and we can

assume that even in the latest decisions, no specific

criterion has been recognised decisive enough to be taken

into consideration in each case. Various factors are used

by courts, such as the presence of an alternative choice

for the victim, the fact that the pressures have been a

significant cause for the entry of the victim into the

agreement, or the fact that the victim protested at the

69

time. One can regret the fact that courts were not able

to define very precise guidelines to be used in each

case. But we can assume also that judges need certain

liberties in order to deal with economic duress, because

the problems set in this law’s area involve complex

business relationships. It is therefore a good way of

dealing with it to keep a relative freedom in deciding

which criterions could fit the best in each case, as long

as courts do not only use them in a purely factual

context.

Basically, the guidelines drawn by judges are just a way

to look at the consent of the victim, to ensure that the

pressures were effectively the reasons for the victim’s

entry into the contract. After some years of hesitations,

it appears that courts started to focus on the legitimacy

of the pressures, in order to give a coherent basis to

the notion.

The problem of the legitimacy of the pressures has been a

difficult task to deal with for the judges. We have tried

to see that sometimes, the line between legitimate and

illegitimate pressures is thin. Mainly, the distinction

70

between a lawful and an unlawful threat was not very

satisfying, because it has been admitted that in some

cases, a lawful threat may be illegitimate. The common

case in economic duress involves a threat of breach of

contract. It is the most used threat in commercial

relationships. But even in this area, such cases like

‘Williams v Roffey’91 brought doubts into the doctrine.

Indeed, it is submitted here that bad faith might play a

role in order to distinct legitimate from illegitimate

breaches of contract.

All the paradoxes of economic duress stand in this

problem. The courts have yet failed to construct solid

basis for the notion. Economic duress is still referred

to as young and still-developing law doctrine. Some

authors92 even recognised that the confusion is inherent

to the notion.

The fact is that the notion has developed at a really

rapid pace in the last two decades, trying to follow the

evolutions in the business relationships. But the

doctrine lacks a case that could bring in more coherence,

91 Cited above, see footnote 8492 Cited above, see footnote 49

71

and clarify the questions such as those raised by

‘Williams v Roffey’.

Mainly, economic duress offers a good alternative in

order for the courts to deal with the problem set in

cases of abuse of monopolies. But the situations in

business relationships are so complex that it has been

difficult to work out a coherent panel of rules able to

ascertain in each case the presence of duress or not.

Courts tried to do so, and had to keep in mind that the

interference of justice in contractual commercial

relationships is something that has to be done carefully.

Indeed, giving judges the power to set aside contracts on

the ground of duress in business situations could easily

lead to uncertainty among contracts concluded in the

marketplace. This could be dangerous because what

business needs is precisely contracts on which it can

rely.

So, courts have always been cautious when admitting

economic duress, and did not make its finding easy. The

concept could be a really powerful tool in judge’s hands.

But the rules that have been created respond to rationale

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questions, and even though the way courts deal with the

problems seems sometimes confusing, the criterions on

which the doctrine rely now do not permit the courts to

overtake their power in economic duress situations. The

doctrine, therefore, has implanted well in English law,

and we can expect judges in the next few years to get rid

of the uncertainties that are surrounding the notion.

Bibliography:

- P.S Atiyah ‘Economic duress and the ‘overborne will’’

98 LQR 197 (1982).

- P.S Atiyah ‘Duress and the overborne will again’ 99 LQR

353 (1983).

- P.S Atiyah ‘Consideration: a restatement’ in Essays on

Contract, Oxford University Press, 1986.

- P.S Atiyah ‘An introduction to the law of contract’ 5th

ed., Clarendon Press Oxford, 1995.

- H.G Beale, W.D Wishop, M.P furmston, ‘Contract: cases

and materials’ 4th ed., Butterworth, 2000.

73

- Burrows ‘An introduction to the law of restitution’,

ed. Butterworth, 1993.

- P. Cartwright ‘Unequal bargaining: a study of vitiating

factors in the formation of contracts’ Clarendon Press

Oxford, 1991.

- M. Cope ‘Duress, undue influence and unconscientious

bargains’, Monash studies in law, The law book company

Ltd, 1985.

- Dawson ‘Economic duress, an essay in perspective’ 45

Michigan Law Rev. 253, 267.

- E. McKendrick ‘Contract law’, 4th ed., Palgrave law

masters, 2001.

- M.H Ogilvie ‘Economic duress, inequality of bargaining

power and threatened breach of contract’ 26 McGill LJ

289, 1981.

- A. Phang ‘Whither Economic duress? Reflexions on two

recent cases’ 53 MLR 107.

- G.H Treitel ‘The law of contract’ 10th ed., Sweet and

Maxwell, 1999

74

Cases material:

- ‘Williams v Bailey’ [1866] LR 1 HL 200

- ‘Currie v Misa’ [1875] LR 10 Ex 153

- ‘Maskell v Horner’ [1915] KB 106

- ‘Smith v William Charlick Ltd’ [1924] 34 CLR 38

- ‘Barton v Armstrong’ [1975] AC 104

- ‘Lloyd’s Bank v Bundy’ [1975] QB 326

- ‘Lynch v D.D.P Northern Ireland’ [1975] AC 653

- ‘Occidental Worldwide Investment Corp. v Skibs A/S

Avanti, the ‘Siboen and the Sibotre’’ [1976] 1 Lloyd s

Rep 293

- ‘North Ocean Shipping Co. Ltd v Hyundai Construction

Co. Ltd, the ‘Atlantic Baron’’ [1979] QB 705

- ‘Pao On v Lau Yiu Long’ [1980] AC 614

- ‘Syros Shipping Co. S.A v Elaghill Trading Co. The

Probosce C.’ [1981] 3 All ER 189

- ‘Universe Tankships Inc of Monrovia v International

Transport Workers’ federation, the ‘Universe Sentinel’’

[1982] 2 All ER 67

- ‘Alec Lobb (Garages) Ltd v Total Oil (Great Britain)

Ltd’ [1983] 1 WLR 87

- ‘Wardley Australia Ltd v McPharlin’ [1984] 3 BPR 9500

- ‘Public Service Credit Union v Campaign’ [1984] 75 FLR

131

75

- ‘B&S Contractors v Victor Green Publications’ [1984]

ICR 419

- ‘Atlas Express v Kafco’ [1989] 1 All ER 641

- ‘Queensland Wire Industries Pty Ltd v BHP Co Ltd’

[1989] 167 CLR 177

- ‘Vantage Navigation Corporation v Suhail and Saud

Bahwan Building Materials LLC, ‘The Alev’’ [1989] 1

Lloyd s Rep 138

- ‘Bank of Credit and Commerce International SA v Aboody’

[1990] I QB 923

- ‘Williams v Roffey Bros & Nicholls (Contractors) Ltd’

[1991] I QB I

- ‘Dimskal Shipping Co. v ITWF, the ‘Evia Luck’’ [1992] 2

AC 152

- ‘CTN Cash & Carry v Gallagher’ [1994] 4 All ER 714

- ‘Huyton SA v Peter Cremer GmbH & Co Inc’ [1999] 1 Lloyd

s Rep 620

University of Nottingham

Year 2002

76

Review of

Economic Duress

In

Common Law

Supervisor: Mr Frank Hopkins

77