[T]he primary object of a plea of economic duress in relation to a contract is to avoid the contract, which is a legal consequence significantly different from establishing a cause of action in damages. So far as a cause of action in damages is to be made out, I can see no proper basis in principle why it should be on any basis other than a pleading of facts and matters sufficient to establish a cause of action for the tort of intimidation.
In Barton v Armstrong³ discussed more fully below, Lord Cross of Chelsea⁴ explained that the scope of the common law doctrine of duress was traditionally quite limited and originally confined to threats to life or limb, and only later developed so as to encompass threats to property, and, more recently, economic pressure. That said, at a comparatively early time equity began to grant relief in cases where a disposition had been procured by the exercise of pressure which the Chancellor considered to be illegitimate, although it did not amount to common law duress. In addition. There was a complimentary development in the field of dispositions induced by fraud. At common law, the only remedy was an action for deceit, but equity in the same period in which it was building up the doctrine of undue influence also came to entertain proceedings to set aside dispositions which had been obtained by fraud.
Lord Cross observed5, there were obvious analogies between duress, undue influence and fraud:
In each case - to quote the words of Holmes J in Fairbanks v Snow (1887) 13 NE 596, 598 - ‘the party has been subjected to an improper motive for action.’
Lord Wilberforce and Lord Simon of Glaisdale developed this point in their dissenting opinion in Barton v Armstrong6, in terms which were to prove influential:
in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as legitimate. Thus, out of the various means by which consent may be obtained - advice, persuasion, influence, inducement, representation, commercial pressure - the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion. In this the law, under the influence of equity, has developed from the old common law conception of duress - threat to life and limb - and it has arrived at the modern generalisation expressed by Holmes J - ‘subjected to an improper motive for action’: Fairbanks v Snow (1887) 13 NE Reporter 596, 598.
As will be seen In Barton v Armstrong itself, the illegitimate pressure used by one contracting party to secure the other party’s consent was a threat to murder him: a classic illustration of duress of the person. However, at the time when the case was decided, courts were beginning to accept that economic pressure could also, in some situations, vitiate consent, even if the pressure resulted from the threat of action which was not in itself unlawful. That development in the law was established by the House of Lords in Universe Tankships Inc of Monrovia v International Transport Workers Federation7 (The Universe Sentinel) where Lord Diplock explained8 that the rationale for this development of the common law was “similar to that which underlies the avoid ability of contracts entered into and the recovery of money exacted under colour of office, or under undue influence or in consequence of threats of physical duress”. These aspects are discussed further below.
Whether or not the pressure imposed is directed to the pressured party to commit an unlawful act9 is not to the point, as duress can arise in circumstances where the pressure is to get a party to commit a lawful act.10 The pressure must be illegitimate.11 A lawful threat to press an illegitimate demand may constitute duress and the measure of legitimacy for this purpose is not the defendant’s self-assessment but prevailing standards of morality and commercial propriety.12 In Thorne v Kennedy13 the High Court emphasised that:
[Duress] does not require that the person's will be overborne. Nor does it require that the pressure be such as to deprive the person of any free agency or ability to decide. The person subjected to duress is usually able to assess alternatives and to make a choice. The person submits to the demand knowing ‘only too well’ what he or she is doing.
As noted above, the law in relation to duress came to be applied, first, to threats to property and, thereafter, to threats to a person’s business or trade, that is, economic pressure.14 This development was described by Lord Scarman in Universe Tankships Inc of Monrovia v International Transport Workers Federation15 as ‘[t]he thread of principle which links the early law of duress (threat to life or limb) with later developments when the law came also to recognise as duress first the threat to property and now the threat to a man’s business or trade.’ In this respect, Lord Scarman16 said that there were two elements in the wrong of duress. The first was pressure amounting to compulsion of the will of the victim and the second was the illegitimacy of the pressure. Therefore, it is not the use of pressure that is the central ingredient. Rather, it is the nature of that pressure and what that pressure has been designed to achieve.
As to what was meant by the term ‘illegitimate’, in Universe Tankships Inc of Monrovia v International Transport Workers Federation17 Lord Scarman 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 limb, 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 depend upon the nature of the demand. Blackmail is often a demand supported by a threat to do what is lawful, eg to report criminal conduct to the police.
The first of Lord Scarman’s two matters concerning illegitimacy18 equates to the negation of choice element or the application of pressure which has vitiated consent.19 In relation to the second matter, focus is upon the illegitimacy of the demand and includes unlawful action. It may also, however, include a lawful act, such as in the example given by Lord Scarman concerning the case of blackmail constituted by threat to do a lawful act.20 This latter situation poses more of a problem and was touched upon in Thorne v Motor Trade Association,21 where Lord Atkin said:
The ordinary blackmailer normally threatens to do what he has a perfect right to do — namely, communicate some compromising conduct to a person whose knowledge is likely to affect the person threatened. … What he has to justify is not the threat, but the demand of money.
The notion that a threat could be lawful and still constitute duress, has been reiterated both by academics22 and by the courts in the United Kingdom and, as will be seen, in Australia.23 According to the editors of Chitty on Contracts:24
[T]here can be no doubt that even a threat to commit what would otherwise be a perfectly lawful act may be improper if the threat is coupled with a demand which goes substantially beyond what is normal or legitimate in commercial arrangements.
Similarly, in CTN Cash & Carry Ltd v Gallagher Ltd25 a party to a contract (the buyer) paid a sum of money that had been demanded by another party to the contract (the seller) in consequence of a threat made by the seller to withdraw credit facilities it provided to the buyer. The sum paid was not in fact due at the time of payment. The buyer said the agreement was voidable for duress. The Court of Appeal found that duress was not available. Steyn LJ said:26
I also readily accept that the fact that the defendants have used lawful means does not by itself remove the case from the scope of the doctrine of economic duress. Professor Birks, in ‘An Introduction to the Law of Restitution’,27 lucidly explains:
Can lawful pressures also count? This is a difficult question, because, if the answer is that they can, the only viable basis for discriminating between acceptable and unacceptable pressures is not positive law but social morality. In other words, the judges must say what pressures(though lawful outside the restitutionary context) are improper as contrary to prevailing standards. That makes the judges, not the law or the legislature, the arbiters of social evaluation. On the other hand, if the answer is that lawful pressures are always exempt, those who devise outrageous but technically lawful means of compulsion must always escape restitution until the legislature declares the abuse unlawful. It is tolerably clear that, at least where they can be confident of a general consensus in favour of their evaluation, the courts are willing to apply a standard of impropriety rather than technical unlawfulness.
And there are a number of cases where English courts have accepted that a threat may be illegitimate when coupled with a demand for payment even if the threat is one of lawful action (see Thorne v Motor Trade Association,28 Mutual Finance Ltd v John Wetton & Sons Ltd29 and Universe Tankships Inc of Monrovia v International Transport Workers Federation.30 On the other hand, Goff and Jones Law of Restitution31 observed that English courts have wisely not accepted any general principle that a threat not to contract with another, except on certain terms, may amount to duress.
We are being asked to extend the categories of duress of which the law will take cognisance. That is not necessarily objectionable, but it seems to me that an extension capable of covering the present case, involving ‘lawful act duress’ in a commercial context in pursuit of a bona fide claim, would be a radical one with far-reaching implications. It would introduce a substantial and undesirable element of uncertainty in the commercial bargaining process. Moreover, it will often enable bona fide settled accounts to be reopened when parties to commercial dealings fall out. The aim of our commercial law ought to be to encourage fair dealing between parties. But it is a mistake for the law to set its sights too highly when the critical inquiry is not whether the conduct is lawful but whether it is morally or socially unacceptable. That is the inquiry in which we are engaged. In my view there are policy considerations which militate against ruling that the defendants obtained payment of the disputed in-voice by duress.
Outside the field of protected relationships, and 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 defendant bona fide considered that his demand was valid. In this complex and changing branch of the law I deliberately refrain from saying ‘never’.
Similar emphasis was given in Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan vKent.32 In that case, Sheikh Tahnoon and Kent entered into a joint venture and became equal shareholders in Kent’s hotel business. Sheikh Tahnoon provided significant amounts of money to the business, which suffered from numerous cash-flow issues from time to time.
Between December 2011 and April 2012, Sheikh Tahnoon paid €6.5 million in exchange for Sheikh Tahnoon’s equity in the group increasing to 70 per cent. However, from April 2012, Sheikh Tahnoon refused to invest any additional funds. Inconsequence, the parties, through their representatives, had discussions which led to a subsequent agreement and a promissory note. During those discussions, Sheikh Tahnoon’s representatives threatened to take Kent to court if he did not agree to their terms. That threat was made in circumstances where it was known to be unfounded. In addition to the threats of litigation, ‘threats were made of a more sinister kind’33 and, on two occasions during discussions, Sheikh Tahnoon’s representatives made threats which implied that Kent’s life would be at risk if he did not comply with their demands.34
Soon after these discussions, Kent and Sheikh Tahnoon entered into an oral agreement that provided for the restructure of the business and for Kent to provide undertakings and indemnities including a promissory note by which Kent agreed to pay Sheikh Tahnoon €5.4 million.
In proceedings, Sheikh Tahnoon claimed the value of the unpaid promissory note, together with other amounts due under the agreement. In defending the proceedings, Kent claiming that his consent to the agreement and the promissory note had been obtained by unfair means, including threats of physical violence and in breach of fiduciary duties and/or a contractual duty of good faith owed to him by Sheikh Tahnoon. The court held that Sheikh Tahnoon had breached a contractual duty of good faith owed to Kent as his co-venturer.
Though it was found that Sheikh Tahnoon did not have any knowledge of the threats made by his representatives, he was held to be vicariously liable as the threats were made by representatives in the course of their employment in negotiating terms on Sheikh Tahnoon’s behalf. 35 The court found that Kent entered into the agreement and the promissory note under duress and that he would have been entitled to rescind those contracts had he made a claim to do so. In addition, it was held that Kent would have been entitled to damages in consequence of the duress. Damages would have awarded for the tort of intimidation. Despite this, the court found that neither party was entitled to damages against the other.36
On the issue of duress, Leggatt J said that a demand coupled with a threat to commit a lawful act will be regarded as illegitimate if:37
(a) the defendant has no reasonable grounds for making the demand and (b) the threat would not be considered by reasonable and honest people to be a proper means of reinforcing the demand.
It used to be said that, to amount to duress, pressure had to overcome or overbear the will of the person concerned so that they did not truly consent to whatever they had apparently agreed todo. The better and now generally accepted view, however, is that the doctrine is based not on lack of consent but on showing that a party’s consent was obtained in circumstances which make it unjust to allow the other party to enforce the agreement. Just as — contrary to what is often said — fraud does not vitiate consent, nor does duress. As Lord Scarman stated in The Universe Sentinel:38
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 submission arising from the realisation that there is no other practical choice open to him.
The fact, therefore, that the decision to enter into a contract involved an exercise of rational and independent judgment or was taken with the benefit of legal advice does not preclude a finding of duress. What is necessary is that the illegitimate pressure caused the claimant to enter into the contract.
The test of causation differs according to the nature of the duress. Where the illegitimate pressure involves a threat of violence, it is sufficient that the threat was ‘a’ reason for entering into the contract, even if the person threatened might well have entered into the contract without the threat. On the other hand, in cases of economic duress the ordinary test of causation applies which generally requires the claimant to show that he or she would not have entered into the contract ‘but for’ the defendant’s act.
In Times Travel (UK) Ltd v Pakistan International Airlines Corporation,39 an airline sent a notice exercising a right to terminate agreements with travel agents who sold flight tickets in return for commission. The airline offered to enter into new agreements with the travel agents on less favourable terms which also required the agents to give up accrued claims for commission. Some of those commission claims were held to be valid. To increase pressure on the travel agents, during the notice period the airline reduced the number of tickets allocated to the agents (as it was contractually entitled to do) and promised to restore the allocations if the new agreement was signed. The travel agents, whose business depended critically on selling tickets for the airline, signed the new agreement.
The trial judge40 declined to find that the airline had acted in bad faith in requiring the agents to give up their claims for past commission, but found that the agents had been induced to enter into the new agreement by illegitimate pressure and were entitled to rescind it.
On appeal, the English Court of Appeal41 held that ‘where lawful acts or threats are made by Ain support of a demand which A genuinely believes he is entitled to make ...[and] that belief is reasonably, as well as genuinely, held ... [there is] no basis on which a plea of economic duress [can] succeed’. However, if A's belief, though genuine, was unreasonable, the court,42 after reviewing relevant authorities, including Australian cases, held that ‘the doctrine of lawful act duress does not extend to the use of lawful pressure to achieve a result to which ... [A] believes in good faith itis entitled, and that is so whether or not, objectively speaking, it has reasonable grounds for that belief’. In justifying that ruling the court43 said:
The common law and equity set tight limits to setting aside otherwise valid contracts. In this way undesirable uncertainty in a commercial context is reduced. I appreciate that in the context of the present case, which concerns the reasonableness of the grounds for resisting a claim, it can be said that a test of unreasonableness is not uncertain, because it can be tested and decided according to conventional legal standards. But that will not be the case in the much more common situation of a party using lawful commercial pressure in support of a purely commercial demand. There is no yardstick by which to judge such demands, save those that can be set out in legislation such as that applying to consumer contracts. Such demands are a matter of negotiation against the background of the pressures operating on both parties.
An appeal by the travel agent in this case was unanimously dismissed by the United Kingdom Supreme Court in Times Travel (UK) Ltd v Pakistan International Airlines Corporation.44 The view of the majority of the Supreme Court on the issue of lawful act economic duress was set out in the judgment of Lord Hodge DP although it should be said that his Lordship agreed45 with what Lord Burrows said about:
Lord Hodge53 explained in a judgment with which the majority of the court agreed, that behaviour which would be judged in equity to render the enforcement of a contract unconscionable is treated as illegitimate pressure to enter into the contract in the context of the common law doctrine of duress. According to his Lordship,54 lawful acts would amount to illegitimate threats or pressure in the context of economic duress in two circumstances. The first was where the defendant used his or her knowledge of the other party’s criminal activity, or that of a person close to the other party, to threaten the other party. The second was where the defendant, having exposed himself or herself to a civil claim by the other party, used reprehensible means to manoeuvre the other party into a position of vulnerability to force him or her to waive his claim.
Crucially, Lord Hodge stated55 that the standard of impropriety “is the high standard of unconscionability” and then added the following56:
Unconscionability is not an overarching criterion to be applied across the board without regard to context. Were it so, judges would become arbiters of what is morally and socially acceptable. Equity takes account of the factual and legal context of a case and has identified specific contexts which call for judicial intervention to protect the weaker party.
On the facts of this case, Lord Hodge ruled that the airline was not guilty of lawful act economic duress because the airline's conduct was not reprehensible.
Notably, it has been stated that the primary significance of the Supreme Court’s decision in Times Travel “was its rejection of that broad standard of whether conduct was “morally or socially unacceptable”, and its renewed emphasis on the link between duress and equitable doctrines, particularly the concept of unconscionability.57
In Australia, the concept of duress appears to be now limited to threats that amounted to threatened or actual unlawful conduct. In Crescendo Management Pty Ltd v Westpac Banking Corporation,58 McHugh JA, speaking on behalf of the Court of Appeal, focussed on legitimacy of pressure whether amounting to unconscionable or unlawful conduct. According to his Honour:
In my opinion the overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any implied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will beillegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress. … It is unnecessary, however, for the victim to prove that the illegitimate pressure was the sole reason for him entering the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement. Once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement. …
The suggestion in the extract from the judgment of McHugh JA that ‘unconscionable conduct’ can amount to illegitimate pressure has since been rejected by the New South Wales Court of Appeal in Australia & New Zealand Banking Group Ltd v Karam59 in the context of the field of industrial relations.60 In that case, which is further discussed, the court61 said:
[First, the] vagueness inherent in the terms “economic duress” and “illegitimate pressure” can be avoided by treating the concept of “duress” as limited to threatened or actual unlawful conduct … Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage … Thirdly, where the power to grant relief is engaged because of a contravention of a statutory provision such as s 51AA, s 51AB or s 51AC of the Trade Practices Act, the Court may been titled to take into account a broader range of circumstances than those considered relevant under the general law.
Further, in Australia& New Zealand Banking Group Ltd v Karam62 the court, in seeking to delimit the boundaries of duress, went on to say that:
[Where] the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Amadio.63 Furthermore], where the power to grant relief is engaged because of a contravention of a statutory provision such as s 51AA, s 51AB or s 51AC of the Trade Practices Act the Court may be entitled to take into account a broader range of circumstances than those considered relevant under the general law. Pursuant to both the Trade Practices Act provisions and the Contracts Review Act, the relative strengths of the bargaining positions of the parties, and their ability to negotiate terms, will be relevant. However, it does not follow that because, for the purposes of s 9(2)(a) of the Contracts Review Act, there was a material inequality in bargaining power, a contract between such parties will necessarily be set aside.