Contracts and illegitimate pressure

An issue which has recently been considered by the courts is what can or can't be said to the other side in order to try to pressure it to enter into a contractual relationship. Where one party imposes "illegitimate pressure" (which includes economic pressure) or makes an "illegitimate threat" to the other, causing the other to enter into a contract, that contract may be voidable. But when is a threat or pressure "illegitimate", amounting to economic duress?

In Pakistan International Airline v Times Travel, the commercially more powerful claimant had threatened to discontinue its contractual relationship with the defendant (which would most likely have put the defendant out of business) if the defendant refused to release the claimant from all claims that might have arisen out of an earlier contract between the parties. There was nothing unlawful about the claimant refusing to continue to transact with the defendant. The fundamental issue was whether its threat had amounted to economic duress if it did not genuinely believe that it would have any defence to a claim brought by the defendant (the so-called "bad faith demand").

By a majority of 4:1, the Supreme Court has confirmed that this was not economic duress. Instead, a threat to do something lawful will amount to duress only if: one party threatens to report the other party's criminal activity to the police in order to obtain a financial benefit, or where one party is liable to the other but forces the other to give up its claim by deliberately making that party "vulnerable" by illegitimate means.

Where one party gives up a claim only because it is the weaker party in a negotiation, that will not itself amount to duress: "It will therefore be a rare circumstance that a court will find lawful act duress in the context of commercial negotiation".

The two circumstances cited by the Supreme Court as amounting to lawful act duress are, in reality, extremely narrow and difficult to prove. This is not really an unexpected result though: English law generally holds parties to their bargain and is reluctant to recognise good faith obligations (in contrast to many other jurisdictions), and this decision recognises that, as a result, arguments of lawful act duress will be extremely limited here too. 

In a subsequent case, Heritage Travel v Windhorst, the threat was of a different nature – namely, to disclose allegedly confidential (and damaging) information to investors if the defendant failed to enter into a further settlement agreement with the claimant.

Although Times Travel was not referred to in this judgment, the judge rejected the lawful act duress argument here too. He found that the claimant had been entitled to disclose this information because the confidentiality provision in the relevant contract no longer applied. Nor was there any need to impose a more extensive equitable duty of confidence here: although it is theoretically possible for the court to go wider than the express confidentiality terms set out in a contract, that will only be done exceptionally. This was not an exceptional case and so the claimant was only threatening to do something it was entitled to do and there was nothing reprehensible in its behaviour.