“No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act” – Lord Mansfield, 1775

Economic duress is a concept in contract law that renders a contract invalid if one party exerts illegitimate pressure on another, compelling them to enter into a contract. Economic duress is a significant concept in English contract law, serving as a critical mechanism for ensuring that contracts are formed under conditions of free will and mutual agreement. For example, in The Atlantic Baron [1979] QB 705, the court held that a shipbuilder’s threat to stop construction unless additional payment was made constituted economic duress, allowing the payer to recover the additional sums paid under duress. Under English law, a contract formed under economic duress is voidable.

Elements of Economic Duress

To establish economic duress, the claimant must prove:

Illigitmate Pressure

The pressure exerted must be illegitimate. This can include threats to breach a contract, threats to withhold goods, or other unlawful threats. Alternatively, where the defendant has behaved in a highly reprehensible way which the court may find as amounting to illegitimate pressure.

Causation

The illegitimate pressure must have caused the coerced party to enter into the contract.

Lack of Practical Choice

The coerced party must have had no reasonable alternative but to submit to the pressure.

Key Case Law

The Supreme Court’s decision in Pakistan International Airline Corporation v Times Travel (UK) Limited is a pivotal case that further clarifies the boundaries of economic duress in English law.

Case Background

Times Travel (UK) Limited (“TT”) was a travel agency that sold tickets for Pakistan International Airline Corporation (“PIAC”). Due to a dispute over unpaid commissions, PIAC terminated its existing contract with TT and offered a new one, which included a waiver of TT’s claims for unpaid commissions. TT signed the new contract under protest, citing economic duress. 

Court’s Decision

The Supreme Court held that while PIAC’s conduct constituted commercial pressure, it did not amount to economic duress. The key reasons were:

Lawfulness of Conduct

PIAC’s actions, although exerting pressure, were lawful. The court emphasized that economic duress requires illegitimate pressure, and merely applying commercial pressure, without unlawful conduct or bad faith, is insufficient.

No Coercion of Will

TT had alternatives, even if they were not attractive. The court reiterated that the coerced party must have no reasonable alternative but to succumb to the pressure.

Implications

This decision underscores the necessity of distinguishing between hard commercial bargaining and illegitimate coercion. It clarifies that lawful acts, even if pressurising, do not typically constitute economic duress unless accompanied by bad faith or illegitimacy. The ruling reinforces the principle that contracts should be voidable only when the pressure applied undermines the contracting party’s free will to the extent that their consent is diminished.

Safeguard

The doctrine of economic duress in English contract law serves as a safeguard against coercive contractual practices, ensuring that agreements are made voluntarily and with genuine consent. The defence of duress in civil proceedings in England is a vital mechanism for ensuring that contracts and other legal agreements are entered into freely and voluntarily. Its application, primarily in contract and tort law, underscores the legal system’s commitment to fairness and justice. However, the defence requires careful navigation due to its evidentiary and doctrinal complexities. Legal practitioners must thoroughly assess the presence of illegitimate pressure, its impact, and the promptness of the claim to effectively utilise this defence.

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