Introduction

One of the main essentials when it comes to the forming of a contract is the concept of free
consent. The consent of the parties to the contract must be free from any outside influence to
form a valid contract. It is said the two or more persons are said to consent when they agree
upon the same thing in the same sense. This means that there should be Consensus ad idem
and unless and until the parties are at consensus ad idem, there is said to be no contract. They
must agree on the same thing in the same sense. Thus, for a valid contract, both the offer and
acceptance must be in consonance with each other. For example, if the person making the offer
i.e. the offeree is mistaken about the offer or the terms of the offer, then the meetings of the mind
has said to be not taken place, hence no contract can be formed. By this we get to know about the
importance of free consent.
Under Contract Laws, free consent is said to take place when the consent of either of the parties
is not given by :
Coercion or Duress ( differ in Indian and English laws respectively), undue influence, fraud,
misrepresentation, and mistake .

Duress
Under English Law, the equivalent word for coercion is duress. Duress at common law or
English law, means actual violence or threats of violence to the person i.e. threats calculated to
produce fear of loss of life or of causing bodily harm.
The English Law always accepted that some forms of coercion in the making of the contracts
resulted in that contract being set aside and giving remedy to the victim. However, such types of
contracts coming into play were very limited. Even duress was considered to be a form of
coercion and arose significantly through the intervention of equity. In the beginning the doctrine
of duress was of little significance, as the number of cases registered under the Privy Council or
other courts were significantly less. The earliest form of duress that was recognized by law is
duress to the person. In a 1976 Privy Council decision, a land deal was induced following murder
threats to the victims family members. The party in possession of the goods does not release the
goods and arm-twists the owner to agree to his terms. The Court held the contract to be voidable

on the consent of the party, whose consent was so caused. Though this doctrine now finds a
prominent position in the English Contract laws, it is yet to find some place in Indian laws.
It has been settled that forms of threatened or actual violence (Barton v Armstrong1) or a threat
of imprisonment (Williams v Bayley2) constitute duress. Apart from these, a threat to seize
anothers property or to damage it ( called as duress to property ) will also amount to duress was
established in the most famous case of Dimskal Shipping Co. SA v International Transport
Workers Federation, The Evia Luck3. In the D&C Builders v Rees4, the Court did not apply the
doctrine of promissory estoppel but recognized the presence of duress in the subject matter of the
case. The result of all these developments led to the emergence of what is today known as
economic duress.

Economic duress
Complexities in commercial transactions while making or not making a contract, have given way
to a separate yet a more significant doctrine known as the doctrine if economic duress. The
doctrine tells us that the consent of a party to a contract can be taken, not only by pointing a gun
to their head but by threatening the party financially. Certain provisions, such as anti-trust laws
and consumer protection, have been strengthened to protect parties from entering into such
contracts. Apart from these provisions, Courts are also setting aside contracts entered into by
unlawful pressure.
When is the existence of a threat to damage someones financial interests? What remedy exists
for someone who enters a contract through duress, particularly that of a financial character?
What type of economic threats are illegitimate and could make a contract voidable? How can one
1 [1976] 1 AC 104
2 [1886] LR 1 HL 200
3 [1992] 2 AC 152
4 [1996]2 QB 617

protect oneself if one believes to be pressured into an agreement through economical threats?
These are some of the many questions that arise in relation to the doctrine of economic duress.
The doctrine of economic duress is a modern and evolved part of concept of duress under the
Common law. The doctrine was formally applied for the first time in the case of The Siboen and
The Sibotre5 by the Privy Council. But it became more inherent and evolved from the trade
union decisions such as Universe Tankships v International Workers Federation6 ( The Universe
Sentinel ) and Dimskal Shipping Co. SA v International Transport Workers Federation, The
Evia Luck7 cases which were referred to the Privy Council.
In The Universe Sentinel case, Liberian registered ship was black listed by a trade union. As a
result no tug boats would be available, so the ship could not sail and hence disastrous
consequences followed. The union insisted on a payment to its welfare fund as a condition to
remove the name of the ship from the blacklist. The owner of the ship paid the money to the
union but then brought a successful claim for recovery of the money under doctrine of economic
duress. Some important findings of fact by the trial judge included:
It was a matter of the most urgent commercial necessity that the plaintiffs should regain the use
of their vessel. They were advised that their prospects of obtaining an injunction were minimal,
the vessel would not have been released unless the payment was made, and they sought recovery
of the money with sufficient speed once the duress had terminated.
A similar situation arose in The Evia Luck case, where a ship owner was faced with a threat that
the ship would be black-listed unless various union demands, including a payment to the union,
were met. Similar circumstances followed whereby the owner brought a successful claim against
the Union and recovered the money paid.
In the past, a contract which was achieved through unfair pressure or extortion was deemed to be
void by the Courts on the grounds that consideration was absent w.r.t. the other party. But in the
5 [1976] 1 Lloyds Rep 293
6 [1983] 1 AC 366
7 [1992] 2 AC 152

Williams v Roffey Bros8 case, the Court of Appeal also held that economic duress would be
available in such cases as a remedy to void a contract which was achieved by means of unfair
pressure or extortion.
It is important for us to define the doctrine of economic duress but it so becomes difficult for one
to do so as it is still a considerably new doctrine.

Essentials of the doctrine of economic duress

In Pao On v Lau Yiu Lung9 and in DSND Subsea Ltd v Petroleum Geo Services ASA10, the Privy
Council formally approved the concept of economic duress ( though it was applied in the earlier
cases ), and made an attempt to identify the main essentials of this doctrine.

Pressure which is illegitimate;

that the pressure is a significant cause which induced the Claimant to enter into the

particular contract;
Illegitimate pressure meaning that there is compulsion on, or a lack of choice for, the
victim.

What amounts to illegitimate pressure? is the question which arises now. The Court in DSND
Subsea Ltd v Petroleum Geo Services ASA, said that Illegitimate pressure must be differentiated
from the normal commercial pressure that people face in everyday bargaining in the business
world.
The important factors, as observed by the Court are :
1. Whether there has been an actual or threatened breach of contract;
2. whether the person allegedly exerting the pressure has acted in good or bad faith;
8 [1886] LR 1 HL 200
9 [1980] AC 614
10 [2000] BLR 530

3. whether the victim had any realistic practical alternative but to submit to the pressure;
4. whether the victim protested at the time; and
5. whether he affirmed and sought to rely on the contract.

When does a threat to breach the contract constitute economic duress?

In The Siboen v The Sibotre, there was a threat by charterers of two ships to break their
charter-parties by not paying the agreed charter rate unless that rate was lowered. The
owners were informed that the charterers had no substantial assets which was false. The
Court found that it was basically a case of misrepresentation on part of owners who tried

to breach the contract but held that doctrine of economic duress might apply.
In North Ocean Shipping Co v Hyundai11, where the tanker builders, who were being paid
in dollars, insisted on an additional 10% payment as a compensation for the devaluation
of the dollar. The owners, replied to the ship builders that they were not obligated to
make additional payments asked for. Hence payments of various instalments were made
at the increased rate and without protest. The Court held that the ship builders threat to
break the contract without any legal justification unless the owners increased their
payments by 10%, did amount to duress in the form of economic pressure.

The mere fact that one party agrees to a change in the contract after the other side has
threatened to break the contract does not imply that the doctrine of economic duress will
be applied, but there are several cases where a plea of economic duress was given due to
threatened breach of contract. For example:

In Atlas Express v Kafko12 where carriers of goods refused to transport goods unless
additional payment was made.

11 [1979]QB 705
12 [1989] QB 833

Carillon Construction Ltd v Felix13 where a subcontractor threatened not to supply goods
unless the principal contractor agreed a final account sum which was 500,000 more than
the principal contractor thought was a reasonable compromise.

Can a lawful act amount to illegitimate pressure?

In CTN Cash and Carry Ltd v Gallaher Ltd 14, the defendants had mistakenly sent a ship
full of cigarettes to the wrong place of business. Before the plaintiffs could do anything,
the cigarettes were stolen. The defendants mistook the situation and sent an invoice for
price thinking that the plaintiffs had the cigarettes. They threatened to withdraw credit
facilities if otherwise. Due to this, the plaintiffs paid the price but successfully got it back
through duress. While deciding, Justice Steyn laid down three points :
1. The arms length commercial dealings between two trading companies
2. The lawful nature of the threat
3. The bona fide belief in their entitlement on the part of the defendants.
Justice Steyn stated that though I agree that there cant be anything like lawful duress,
the doctrine of economic duress doesnt apply in this case as the defendants have acted

legally.
In GMAC Commercial Credit Ltd v Dearden 15, a claim based on duress caused due to
lawful act was rejected on the basis that the pressure applied was normal commercial
pressure.

Whether there is no realistic choice other than to agree?

The Courts of common law have found that it would be incorrect to say that duress is
based upon consent being given which is not voluntary. In Dimskal Shipping Co. SA v
International Transport Workers Federation, The Evia Luck, it was stated that the party (
victim ) to duress knows exactly what he is doing and hence agrees to the contract
intentionally. In other criminal cases, the House of Lords have laid down that a matter of

13 [2001] BLR 1
14 [1993] EWCA Civ 19
15 [2002] All ER (D) 440 (May)

duress must not be considered due to absence of voluntary act but should be viewed as an

act of intentional submission due to lack of choice.

One may think that doctrine of duress is or not based on absence of consent. However, if
the doctrine of duress is treated as an absence of consent, or absence of a voluntary act,
the cause for absence of consent would seem immaterial, or the act to be involuntary.
Hence duress will be treated as a matter of fact but not of law. Further, absence of consent

would logically render a contract void and not voidable.

Hence it must be clear in cases of contract, that duress has happened due to no realistic
choices being present and not because of absence of consent.

Presence of good or bad faith a factor?

The Court was of the opinion that people, after being prosecuted under duress might take
up the stand that the illegitimate threat that they used was out of good faith. To avoid this

it introduced the causation test.

Causation : The illegitimate pressure must constitute a cause in the other party accepting
to the terms of the contract. The illegitimate pressure so exerted is said to be decisive and
hence the claimant must prove it that if not pressurized by the other party, then they
would not have consented to the terms or the contract in itself.

Remedies available

In Morgan v Fry16 and D&C Builders v Rees17, it was held that whenever a persons

consent is caused by duress, he can sue intimidation.

In Universe Tankships v ITWF18, Lord Scarman held that : duress, if proved, not only
renders a contract voidable, but is actionable as a tort, if it causes damage or loss.

16 [1968] 2 QB 710
17 [1966] 2 QB 617
18 [1983] 1 AC 366

Indian Scenario
The concept of duress, as such derived from the Common Law, finds a small place in the Indian
Contract Act, 1872. Defined in Section 15, duress is co-related to coercion in this case and it
recognizes the concept of duress to goods as well, though there is a definite indication as to that
duress would not apply to certain criminal acts mentioned in the Indian Contracts Act. Section 72
of the act is more relevant to economic duress, providing that \no person shall unjustly enrich
himself at the expense of the other, and recognizing the relief for restitution, where such
enrichment is the consequence of coercion.
In Kanhaiya Lal vs National Bank of India 19, the Privy Council held that the term coercion used
in Section 72, is not controlled by the definition given under Section 15 and must be used in its
general and ordinary sense. Moving on decisions of the Indian courts in some cases have
provided a boundary for determination of economic duress e.g. actual or threatened pressure
against which the party complaints.
As already stated through several Common Law cases decided by the Privy Council, in pleading
economic duress, a party must also have had no reasonable alternative to the action it seeks to
set aside is also a factor to award damages for economic duress. If reasonable alternative was
present, then the damages cannot be claimed. A person so threatened, therefore, can have the
contract declared voidable and has the choice whether or not to perform that contract.

19 [1923] 25 BOMLR 1248

In M/s. Gunjam Cement Pvt. Ltd. v Rajasthan State Industrial Development and Investment
Corporation Ltd20, a loan of Rupees 90 lakh was issued to the plaintiff by the RIICO subject to
terms that IDBI and SIDBI would re-finance the loan to the defendant corporation. On a later
date, a deed of modification was signed by the petitioner agreeing to pay an interest of 18.75%
( 12.5% earlier ). But the plaintiff unable to perform this, filed a case against the defendant
claiming that his consent was obtained through economic duress i.e. the defendant would
withdraw the loan amount given if the plaintiff had not signed the deed of modification.
The Rajasthan High Court held that the plaintiff not being an illiterate but a man of knowledge
and reasonableness could have avoided signing the deed of modification. The plaintiff signed the
deed only after reading the contents and was aware of the consequences thereof. Hence when
there is a chance of having reasonable alternative the complainant cannot take the protectin
under the doctrine of economic duress.

20 AIR 1996 Raj 88

Conclusion
At a time where many companies and many others are facing financial and economic problems,
the doctrine of economic duress seems to clarify the problems related to contracts entered into
through illegitimate pressure. In appropriate cases it can be an effective way for a victim to avoid
a contract, particularly if the terms of the contract were entered into under illegitimate pressure.
Certain Commonwealth countries like the Australia and Singapore have been pro-active in
applying the doctrine economic duress to contracts. Civil law countries are more cautious in
applying this principle to cases which include a contract being entered into where there was no
voluntary act involved.
The Courts here have applied the doctrine sparingly, and more in relation to employee related
contracts also. The reason perhaps is that in Indias liberalized business and legal environment,
the courts perceive difficulty in defining inequality, without appearing to be biased. Indian courts
are, perhaps, trying to undo the judicial activism of the 70s and 80s, in inevitably backing the
underdog.
There is a change in attitude in exercise of discretion. An example we often face in negotiating
cross-border contracts are the dispute resolution, jurisdiction and governing law clauses being
imposed unilaterally by the stronger party.

It is safe to predict that the Courts in India will decline such a plea. Courts these days are more
inclined to enforce contracts, rather than setting them aside, to provide the stability and support
the judiciary is required to.

References

Key Developments in Contract Law : Economic Duress, Dov Ohrenstein

Cases on Duress, Asif Tuful
Contract I and Specific Relief Act, S.K.Kapoor, Central Law Agency Publication, 2012

Mulla on The Contract Law, Mulla