Economic Duress
The test for duress of the person
Barton v. Armstrong
It is enough that the pressure “was a reason (not the reason, nor the predominant reason nor the clinching reason) why the complainant acted the way he did. The person who applies pressure to extract a promise from another is not allowed to excuse his wrongful behavior by using other reasons which the victim may have had for making the promise. Armstrong exerted pressure on Barton by threatening to kill him if he did not enter into an agreement. There were other commercial reasons which might have induced Barton to enter into the agreement even in the absence of the threats from Armstrong. It was held that it was enough that Armstrong threat was a reason that contributed to the decision to enter into the agreement. It was not necessary to show that it was the predominant reason.
A different test for economic duress?
In Admirals Shipping Co. V. International Transport Workers’ Federation [1992] 2 AC 152 in confirming that economic pressure may be sufficient to amount to duress, Lord Goff of Cohesively said that the economic pressure must be “a significant cause” inducing the threatened party to enter into the contract. This led to the view that there is a difference between the test in Barton v. Armstrong and that stated by Lord Goff in Admirals Shipping case and that the test in Barton is less strict than Lord Goofs test. In Hudson AS v. Peter Crème Gumbo & Co [1999] 1 Load’s Rep. 620 Manic J. Kook the IEEE that the more relaxed test in Baron’s case should not apply in the context of economic duress. According to him, in the context of economic duress it should not be enough that the pressure is only a cause or a reason why the threatened party acted as he did. In his view where the threat is not a threat to the person but rather to a person’s economic interest the test for causation should be the “but for test”. He said: “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, t least, in terms in which it was made.
In that sense the pressure must have been decisive or clinching. ” The reason advanced for holding that a different test of causation should be applied in the case of economic duress is that economic pressure is less serious than threats to the person. Therefore, it is argued, the relaxed test of causation adopted in Barton in the context of duress to the person cannot prevail in the less serious context of economic duress. It is true that threats of violence to the person are more serious than threats of economic harm.
But, one may wonder whether it necessarily follows from this that he test for whether the threat caused a person to act the way he did should be different. At one time the view was that only a threat to the person was sufficient to amount to duress. Only duress to the person was actionable. It was assumed that the reasonable person should be able to cope with a threat to his goods or a threat to his economic interests. That notion has now been discredited and abandoned. We may be going back to a similar idea by insisting that there should be a different and more demanding test of causation for economic duress.
Illegitimate pressure
For pressure to amount to duress, the pressure must be one of a kind which the law does not regard as legitimate.
When is pressure legitimate? Universe Townships of Monrovia v. International Transport Workers’ Federation [1983] AC 366, 401 “In determining what is legitimate two matters 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. ” This statement breaks down into two general rules. A. Threat of unlawful action The first general rule is that the threat of any form of unlawful action will be regarded as illegitimate.
For this purpose a threat is unlawful if it is a criminal offence, a tort or a breach of contract. However, there has been some controversy on the question whether a breach of contract or a threat to commit a breach of contract must always be regarded as illegitimate. While some commentators take the view that a threat to commit a breach of contract or a breach of contract should always be regarded as illegitimate, others take the view that in certain circumstances a threat to commit a breach of contract should not be regarded as illegitimate.
The view is that in some cases a threat to omit a breach of contract is used to support a demand for the modification of the contract which, in the circumstances, may be beneficial to both parties. To put it another way, a threat to breach a contract may not be illegitimate if there is a reasonable commercial basis for the threat. The English courts have come down in favor of the view that in certain cases a threat to breach a contract may not be illegitimate. The question then is, how is the court to determine whether or not a threat to breach a contract in a particular case is legitimate or illegitimate?
The court will consider a number of factors. ) Changed circumstances The first is whether there has been a change of circumstances. Where there is a serious change of circumstances which make it extremely difficult for the defendant to continue to perform the contract as agreed, but the circumstances are not serious enough to discharge the contract on the ground of frustration, a threat by the defendant not to continue to perform may be regarded as legitimate. A famous example here is the American case of Watkins & Sons Inc v.
Craig 21 A ad. (1941), where the defendant unexpectedly struck hard rock during excavation. Change to circumstances in this context are rare. The circumstances are likely to be relevant only where they were not foreseen at the time of the contract. Where the supervening circumstances were foreseen at the time of the contract and the risk was assigned to the threatening party then it will not assist that party. This is likely to be the case with fluctuations in prices or currencies.
In such a case if the defendant by his threat to breach his contract is simply trying to use the change in circumstances as an excuse to re-allocate risks which had been assigned to him at he time of the contract, such a threat will be regarded as illegitimate. North Ocean Shipping Co. Ltd v. Hounded Construction Co. Ltd [1979] 1 CB 705. Contract for the construction of a ship. Under the original contract the risk of currency devaluation was with the shipbuilders. There was a devaluation of the US dollar.
The shipbuilders used a threat to commit a breach of contract in order to support a demand for additional payments to make up for the devaluation of the currency. It was held that the threat was illegitimate and so could amount to duress. Whether demand is reasonable Even where there are unanticipated supervening events for which the defendant is not responsible, it is not permissible for him to use the change in circumstances as an excuse to make an unreasonable demand backed by a threat of a breach of contract.
For a threat to commit a breach of contract to be legitimate in such circumstances, the demand must be reasonable. In B & S Contractors and Design Ltd v. Victor Green Publications Ltd [1984] SIR 419, a threat to break a contract was illegitimate because it was used to support an unjustifiable demand. The defendant was contracted to erect some stands for the nonmilitant at a trade fair. The parties were faced with strike action by the defendant’s workforce, who were refusing to work unless they were paid a certain sum. The defendant was prepared to pay the men what they were demanding but said it did not have the money available.
The complainant offered to help to make the money available by paying the defendant an advance on the contract price. But the defendant refused to accept the payment as an advance and insisted on the complainant paying the money as a gift instead. The Court of Appeal held that the threat of a breach of contract unless the complainant paid the extra sum was thoroughly unreasonable behavior” and therefore illegitimate. BY contrast ADDS subset v. Petroleum Gee-services AS [2000] BLUR 530, 546, it was held that a threat to commit a breach of contract by suspending work, did not amount to illegitimate pressure. It was reasonable behavior by a contractor acting bona fide in a very difficult situation”. B. Threat of lawful action As a general rule a threat of lawful action is not regarded as illegitimate and therefore does not give rise to duress. Pressure due to legal compulsion is certainly not illegitimate. Thus in Smith v. Ninetieth (1844) 14 L J. Ex. 22 a promise made in return tort the release to a person who was latterly in the custody to a sheriff under a writ was upheld. A defense of duress based on the imprisonment of the detainee was rejected.
Baron Parke said that the plea did not disclose any ground of duress, since all the apartments in the plea showed that the imprisonment was lawful. However, in certain cases a threat of lawful action may be illegitimate. This is the case where the threat of lawful action is unlawful. In some cases, although the threatened may have a legal right to do what he threatens, it may not be lawful to SE the threat to support a demand. Blackmail is an example of a situation where a threat to do an act which is itself lawful could become illegal because it is used to back a demand.
In Throne v. Motor Trade Association [1937] AC 797 Lord Wright gave the example of a man possessed of knowledge of discreditable incidents in the victim’s life and who seeks to extort money by threatening, if he is not paid, to disclose the information to the victim’s wife or employer. In such a case, although the disclosure may not be illegal, the threat is unlawful (as blackmail) and therefore illegitimate. In the case of blackmail the threat is actually unlawful. A difficult question arises where the threat of lawful action is not unlawful.
Can such a threat ever be illegitimate? In ACT Cash and Carry Ltd v. Gallagher Ltd [1994] 4 All ERE 714 Steen L. J. (as he then was) said that in this complex and changing branch of the law one should not say “never”. An important feature of the case is that it was lawful for the defendants to insist that they would no longer grant credit to the plaintiffs. The defendants’ demand for payment of the invoice, coupled with the threat to withdraw credit, was neither a reach of contract nor a tort. The question was whether such a threat of lawful action could be illegitimate.
Steen L. J. Accepted 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. But there are dangers in going down this road. The potential for uncertainty is huge. If lawful pressures can also be illegitimate, the inquiry becomes not whether the conduct is lawful but whether it is morally or socially unacceptable. The question then is whether a particular conduct which is lawful is morally or socially unacceptable.
Is there any guidance?
Good faith In ACT Cash and Carry it was held that the defendants’ threat was not illegitimate and so did not amount to duress. One factor which the court took into account in arriving at this conclusion is the fact that the defendants bona fide thought that the goods were at the risk of the plaintiffs at the time they were stolen and that the plaints De the attendants the sum in question . The attendants exerted commercial pressure on the plaintiffs in order to obtain payment of a sum which they bona fide considered due to them.
