References: [1991] 4 All ER 871, [1992] 2 AC 152, [1992] 1 Lloyds Rep 115, [1992] IRLR 78, [1992] ICR 37, [1991] 3 WLR 875
Coram: Lord Goff of Chievely
The Plaintiff shipowners had been induced by industrial action against a vessel in Sweden, which actions would be lawful under Swedish law, to undertake to enter into written agreements with the ITF under which, inter alia, more generous agreements were to be entered into for payment of the crew, back-dated and back pay was to be paid under these. One of the documents signed provided that the undertaking was to be governed by English law. The Plaintiffs purported to avoid the agreements for duress and to recover the monies that they had paid under them.
Held: The House considered the developing law of economic duress. The contract had to be avoided before a claim for restitution could be maintained. The question of whether economic pressure constituted duress of such a kind as to entitle the innocent party to avoid the contract is to be determined by reference to the proper law of the contract. In order to justify avoidance of a contract, the economic pressure must be such as to be called illegitimate.
Lord Goff said: ‘I start from the generally accepted proposition, embodied in rule 184 set out in Dicey & Morris, The Conflict of Laws, 11th ed. (1987), vol.2, p.1213, that the material or essential validity of a contract is governed by the proper law of the contract, which in the present case is English law. Rule 184 is one of a ground of rules (rules 181-187) concerned with the scope of application of the proper law of a contract. It is expressed to be subject to two exceptions. The first exception asserts that a contract is generally invalid in so far as its performance is unlawful by the law of the place of performance; with that exception we are not, in my opinion, here concerned. The second (which is not strictly an exception to rule 184) concerns the primacy of what used to be called the distinctive policy of English law over any provision of foreign law, in so far as such provision might be relevant to the validity or invalidity of a contract; to that topic, I will briefly return in a moment.
Accordingly in the present case we look to English law, as the proper law, to discover whether the contract may, as a matter of principle, be affected by duress and, if so, what constitutes duress for this purpose; what impact such duress must have exercised upon the formation of the contract; and what remedial action is available to the innocent party. We know, of course, that by English law a contract induced by duress is voidable by the innocent party; and that one form of duress is illegitimate economic pressure, including the blacking or the threat of blacking of a ship. I can see no reason in principle why, prima facie at least, blacking or the threat of blacking a ship should not constitute duress for this purpose, wherever it is committed – whether within the English jurisdiction or overseas; for in point of fact its impact upon the contract does not depend upon the place where the relevant conduct occurs.
It follows therefore that, prima facie at least, whether or not economic pressure amounts to duress sufficient to justify avoidance of the relevant contract by the innocent party is a matter for the proper law of the contract, wherever that pressure has been exerted. Here, of course, the proper law is English law. Moreover in the present case there was at the relevant time no applicable statutory provision of English law which required that blacking or the threat of blacking should not be regarded as duress. So, unencumbered by any such provision, we are left simply with an English contract which is voidable by the innocent party if the formation of the contract has been induced by duress in the form of blacking or the threat of blacking a vessel. The question then arises whether there is any basis in law for rejecting this simple approach, on the ground that the conduct in question was lawful by the law of the place where it occurred, viz. Swedish law.
Before your Lordships, it was the primary submission of Mr. Burton on behalf of the I.T.F. that in relation to any duress abroad, in English law the court should, subject to overriding questions of public policy, look to the law of the place of duress to test its lawfulness or legitimacy. I of course accept that, if Mr. Burton’s submission is correct, it must be subject to the qualification that, if it was inconsistent with the distinctive policy of English law to treat the relevant conduct as lawful, the English courts (consistently with the second exception to rule 184 in Dicey & Morris, The Conflict of Laws) would refuse to do so. But the question is whether Mr. Burton’s submission is correct. I have to say that I know of no authority which supports his submission which, if correct, would require the recognition and formulation of a fresh exception to rule 184 in Dicey & Morris.’
This case is cited by:
- Cited – Progress Bulk Carriers Ltd -v- Tube City IMS Llc ComC (Bailii, [2012] EWHC 273 (Comm))
The claimant sought to set aside an arbitration saying that the arbitrator had misapplied the test for economic duress. . . - Cited – Adam Opel Gmbh and Another -v- Mitras Automotive (UK) Ltd QBD (Bailii, [2007] EWHC 3205 (QB), [2008] Bus LR D55)
The parties had agreed for the supply of automotive parts by the defendant to the claimant under a sole supply arrangement. None were in fact ordered for the first few years. The manufacturer then changed its design and made a new arrangement with a . . - Cited – DSND Subsea Ltd -v- Petroleum Geo Services Asa TCC (Bailii, [2000] EWHC 185 (TCC), [2001] BLR 23, [2000] BLR 530)
Dyson J set out the principles applicable in establishing a pleading of commercial duress:
(i) Economic pressure can amount to duress, provided it may be characterised as illegitimate and has constituted a ‘but for’ cause inducing the claimant . .