The Author, Mahima Singh is a 2nd Year, LLB student of Faculty of Law, Delhi University.
Introduction
Duress can be defined as unlawful threat or coercion that causes another person to commit acts that he would otherwise not commit. Initially the doctrine of duress was only confined to actual or threatened violence. Over the years, this doctrine has evolved to include various forms of duress including economic duress, duress by public officials, threat to seize or detain goods, threat to property, threat to a man’s trade or business, and so on.
Doctrine of Economic Duress
The doctrine of economic duress applies where illegitimate pressure has been applied to a party that has been induced to enter into a contract that he would otherwise not enter into. Such a contract can be avoided as it is voidable, rather than void, at the option of the party who has been threatened or induced into entering into the contract without his free consent. It is an established law that economic pressure can in law amount to duress; and that duress, if proved, not only renders voidable a transaction into which a person has entered under its compulsion but is actionable as a tort, if it causes damage or loss. [i]
In Puri Construction P. Ltd. and Ors. v. Larsen and Toubro Ltd. and Ors.,[ii] it was observed that the basis of duress does not merely depend upon the absence of consent, but on the combination of pressure and absence of practical choice. In this context, two questions become all-important. The first is whether the pressure or threat is legitimate; and secondly, its effect on the victim. Thus there are two universally accepted elements to establish economic duress namely:
(i) the exertion of illegitimate pressure by one party on the other; and
(ii) significant causation i.e. a significant cause compelling or pressurizing the other party to act as he did.
The Privy Council’s decision in Pao On v. Lau Yiu Long[iii] laid down that economic duress should amount to coercion of will which in turn vitiates consent. The classic case of duress is, however, not the lack of will to submit but the victim's intentional submission arising from the realization that there is no other practical choice open to him. [iv]
As per the first element of economic duress there must be existence of pressure which is regarded as illegitimate under law. Undoubtedly, not all pressure or threats are illegitimate. Thus, the pressure should be of such high capacity that it should be capable of provoking a sense of moral outrage and appear to be beyond the norms of ordinary commercial practice thus rendering it to be unconscionable enough to be at par with such conduct that the law expressly recognizes as illegal or even criminal. In DSND Subsea v. Petroleum Geo Services[v] it was observed that the courts must take into account a range of factors in determining whether there has been illegitimate pressure or not including whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim has any realistic practical alternative but to submit to the pressure; whether the victim protested at the time and whether he affirmed and sought to rely on the contract.[vi] It was further observed that illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining. It must be shown that the pressure was of such nature that the victim's consent to the contract was an involuntary act on his part. In other words, it must be shown that the payment made or the contract entered into was not a voluntary act. Therefore, 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.[vii]
It must be noted that financial pressure alone is not enough to constitute economic coercion. It must be accompanied by threatened or actual unlawful conduct. Moreover, it is not enough to merely state that an individual was under duress or coercion as it is necessary to describe the words and actions of the alleged person who is making the unlawful threats or conduct by providing evidence for the same. Therefore, economic duress is difficult to prove. There must be pressure, the practical effect of which is compulsion or absence of choice.
As far as the second ingredient of “significant causation” is concerned, it has to be shown that the illegitimate pressure was a significant cause that induced the claimant to enter into the contract. It is necessary to show that the agreement was caused by duress even though the nature of the causation may differ depending upon the nature of the duress. The courts must apply the test of a reasonable man to see whether an ordinary man of prudence would have acted in a similar manner in a similar situation, and if so, then would he have done so because he had no practical choice but to submit, or due to other reasons. The minimum basic test of subjective causation in economic duress ought, it appears to be a “but for” test. In other words, the victim must show that, "but for" the threat, he would not have entered the contract. Adopting a "but for" test would place cases of economic duress on par with cases of negligent or non-negligent misrepresentation.[viii]
There has been a difference of opinion regarding whether or not there are other ingredients of economic duress. It has been stated in numerous authorities that a third ingredient to constitute economic duress is to prove that the illegitimate pressure left the innocent party with no reasonable alternative but to agree to the contract in question. In this context, a distinction has been drawn between commercial pressure and coercive pressure. Commercial pressure may constitute economic duress especially where one party to a commercial transaction is in a stronger bargaining position compared to the other party. In any event, the presence or absence of a realistic practical alternative is, at least, relevant evidence to be taken into account in considering whether the contract has been procured by economic duress.
In Progress Bulk Carriers Limited v. Tube City IMS L.L.C., [ix] Lord Scarman said it was material to enquire "whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him, such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it." All those matters were said to be relevant in determining whether the victim had acted voluntarily or not. However, in CTN. Cash & Carry Ltd v. Gallaher Ltd[x] the Court emphasized on the need to analyze the distinct features of each case to determine whether or not it amounted to economic duress. This would clearly depend upon the facts and circumstances of each case. Another important observation made in this case was that the mere use of lawful means does not by itself remove the case from the scope of economic duress.
In Dimskal Shipping Co. v. International Transport Workers' Federation[xi], Neill L.J was of the opinion that the doctrine of economic duress must take into account the local law of the place where the activities in question occurred.
North Ocean Shipping Company Limited v. Hyundai Construction Co. Ltd.[xii], was a classic case of economic duress where the defendants were shipbuilders who threatened to terminate their contract with the plaintiff, without any lawful justification, unless the stipulated payment was increased by 10%. It was held that this amounted to economic duress and thus, the plaintiff would be entitled to refuse the 10% additional payment.
As far as the burden of proof is concerned, the aggrieved party has to prove a prima facie case of economic duress by significant causation. This would depend on the facts and circumstances of each case. The facts of any particular case may lead to an inference of inducement or loss, thus shifting the onus to the other party. Despite that, at the end of the day, the burden of proof lies on the party seeking relief. Thus, the doctrine of economic duress is an evolving facet of law that needs to be examined with greater depth to ascertain whether a prima facie case of duress has been made out or not.
References:
[i] Barton v. Armstrong [1976] A.C. 104
[ii] FAO(OS) 21/2009
[iii] ([1980] AC 614)
[iv] Universe Tankships Inc. of Monrovia v. International Transport Workers Federation [1982] 2 All ER 67
[v] ASA [2000] BLR 530
[vi] Chaggar v. Chaggar and Anor [2018] EWHC 1203 (QB)
[vii] Huyton S.A. v. Peter Cremer Gmbh &Amp; Co [1998] EWHC 1208 (Comm)
[viii] Hugh Beale, Chitty on Contracts (30th ed. 2008)
[ix] [2012] EWHC 273 (Comm)
[x] [1994] 4 AER 714
[xi] [1992] 2 AC 152
[xii] [1979] QB 705
