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Economic Duress

Tuesday, 2 October 2012

Economic duress is a notoriously difficult allegation to bring against a defendant. Closely related to the tort of intimidation, it is necessary for a claimant to show that they were pressured into a contract through illegitimate means. If the relevant tests can be met, a contract is voidable.

In tough economic times it is particularly tempting for businesses to try to renegotiate contracts and avoid expensive obligations. Parties with considerable bargaining power will often seek to use their position to their advantage in these circumstances. Parties with limited bargaining power on the other hand may feel that they are forced into new, less advantageous contracts unfairly.

The difficulty for courts is deciding what constitutes legitimate commercial pressure and what amounts to unlawful coercion.

The Tort of Intimidation

The tort of intimidation is separate from economic duress but there is an overlap. The tort of intimidation holds that it is a legal wrong to coerce another person to act in such a way as to cause harm to himself by unlawful means. There are a number of requirements:

  • The communication of a threat to do something unlawful
  • The submission to that threat by the person at which it is directed
  • Intention to cause harm to the claimant

An obvious form is a threat of violence against the person. Although the tort of intimidation is distinct from economic duress, it will often arise in the same circumstances. A threat to breach contractual obligations is sufficient.

Economic Duress

Economic duress does not entail threats of violence against the person but there is normally a threat to breach contractual obligations. Herein lies the overlap with the tort of intimidation. The test for economic duress is slightly different:

  • A threat or economic pressure must be applied to the claimant
  • There is a lack of practical alternative for the claimant
  • The pressure is illegitimate
  • The claimant would not have entered into the disputed agreement but for the illegitimate economic pressure

Illegitimate pressure in economic duress is not as clearly distinguishable as torts of intimidation such as violence against the person. However, where a breach of contract is threatened there are a number of considerations that will be made to determine what is illegitimate:

  • Whether there has been an actual or threatened breach of contract
  • Whether the person exerting the pressure acted in bad faith
  • Whether the claimant protested at the time
  • Whether the claimant affirmed and sought to rely on the contract

If you have any questions about how economic duress might affect your business Rollingsons has experienced lawyers who can assist you. For more information please contact us on 0207 611 4848.