Doctrine of Economic Duress

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Abhishek Rathee 6 Apr 2020

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Doctrine of Economic Duress

Duress can be described as an illegal threat or intimidation that induces another person to perform actions that he would otherwise not perform. Initially, the doctrine of duress was limited to actual or imminent violence. Over the years, this theory has grown to include different types of hardship, including economic hardship, the pressure on public officials, the threat to seize or detain goods, the threat to land, the threat to trade or industry, and so on. Doctrine of Economic Duress The doctrine of economic duress applies when an unconstitutional burden has been applied to a party that has been coerced to enter into a contract that it would otherwise not enter into. Such a contract can be avoided because it is voidable, rather than void, at the discretion of a party compelled or coerced to enter into a contract without his free consent. It is established law that economic pressure that, in fact, amount to duress; and that duress, if true, not only makes null and void a transaction in which a person has entered into a contract, but is also liable to act as a wrong if it causes harm or loss. Puri Construction P. Ltd. and Ors. V. Larsen and Toubro Ltd. and Ors., it was noted that the basis of duress does not depend solely on the lack of approval, but on the combination of coercion and lack of realistic choice. In this context, two things are becoming all-important. The first is whether the pressure or threat is legitimate; and the second is how it affects the victim. There are therefore two widely agreed elements for the establishment of economic duress, namely: 1. the practice of unlawful pressure by one party on the other and, 2. Significant trigger, i.e. a substantial trigger of coercion or pressure on the other party to behave as he/she did. The decision of the Privy Council in Pao On v. Lau Yiu Long stipulated that the economic distress should be a manipulation of will which, in effect, vitiates consent. The typical case of suffering, however, is not the lack of desire to submit, but the deliberate submission of the individual as a result of the knowledge that there is no other realistic option available to him. According to the first item of economic duress, there must be pressure which is deemed unconstitutional by law. Undoubtedly, not all tensions or risks are unconstitutional. Pressure should therefore be of such a high potential that it should be capable of inducing a sense of moral indignation and appear to be outside the norms of ordinary commercial practice, thereby making it unwise enough to be associated with other behavior that the law expressly recognizes as unlawful or even criminal. In DSND Subsea v. Petroleum Geo Services, it was noted that the courts must take into account a variety of considerations in deciding whether or not there has been an unlawful coercion, including whether there has been an actual or attempted breach of contract; whether the person who allegedly applied the coercion acted in good faith or in bad faith; whether the claimant has any reasonable practical alternative. It was also noted that the unconstitutional pressure must be differentiated from the harsh and turbulent stresses of usual commercial bargaining. It must be seen that the strain was such that the consent of the victim to the contract was an involuntary act on his part. In other terms, it must be demonstrated that the payment received or the contract entered into is not a voluntary act. The unconstitutional strain, therefore, must have been such that it was genuinely induced by the termination of the agreement, in the sense that it would not have been done otherwise, either at all or, at least, in the terms of which it was made. It should be remembered that financial pressure alone is not enough to constitute economic exploitation. It must be followed by a threat of or real unlawful behavior. However, it is not enough simply to say that an individual was under duress or intimidation as it is important to identify the words and actions of the alleged person who rendered unlawful threats or acts by presenting proof of the same. It is also difficult to prove the economic hardness. Pressure must be exerted, the practical result of which is compulsion or lack of preference. As far as the second component of the "important causation" is concerned, it must be shown that the illegitimate pressure was a significant cause which led the claimant to enter into the contract. It must be seen that the compromise was caused by duress, even though the extent of the cause can vary depending on the nature of the duress. The courts must apply the test of a fair man to see if the common man of prudence would have behaved in a similar manner in a similar situation and, if so, would have done so because he had no realistic choice but to do, or for other purposes. The minimum basic test of subjective causation in economic duress would tend to be a "but" test. In other terms, the claimant must prove that, "but for" the attack, he would not have entered into a contract. Adopting a "but for" rule would put cases of economic deprivation on par with cases of reckless or non-negligent misappropriation. There has been a divergence of opinion as to whether or not there are other elements of economic hardness. Numerous authorities have claimed that the third element to be economic hardship is to show that the illegal pressure left the innocent party with no fair choice but to consent to the contract in question. In this context, a distinction was made between market pressure and coercive pressure. Commercial pressure can constitute economic duress, particularly when one party to a commercial transaction is in a stronger negotiating position than the other party. In any case, the existence or absence of a feasible functional alternative is at least important evidence to be taken into consideration when deciding whether the contract has been made subject to economic duress. As far as the presumption of proof is concerned, the aggrieved party must, through sufficient cause, prove the prima facie case of economic hardship. That will rely on the facts and circumstances of each case. The facts of any particular case may lead to an inference of inducement or loss, thus shifting the onus to the other party. However, at the end of the day, the burden of evidence rests with the group seeking relief. Thus, the theory of economic duress is an emerging area of law that needs to be studied in greater detail to decide whether or not a prima facie case of duress has been created.

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