In Short
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Economic duress occurs when one party uses illegitimate pressure that leaves the other with no real choice but to agree.
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To prove duress, the affected party must show that the pressure was illegitimate, caused the agreement, and left no practical alternative.
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If established, the contract can be set aside or renegotiated, but courts only intervene in serious cases.
Tips for Businesses
During negotiations, avoid conduct that could be seen as coercive or unfair. Give the other party time to consider terms, keep written records of discussions, and seek legal advice if a deal feels forced or one-sided.
When your business negotiates or enters into contracts, commercial or financial pressures can often play a significant role. In most cases, such pressure reflects everyday business practice, where both sides seek to protect their own commercial interests and are driven by commercial considerations. Commercial pressure does not make an agreement unenforceable. In many cases, a business faced with tough or unreasonable terms can choose to walk away or just find another supplier.
However, there are certain exceptional situations where a business has no genuine alternative but to accept illegitimate pressure. When one party imposes such illegitimate pressure that leaves the other party with no real choice, the law may treat that conduct as economic duress, which can provide the victim business with legal remedies. As such, businesses should understand what can give rise to economic duress and how to mitigate associated risks. This article introduces the concept of economic duress and explores practical steps to help reduce risk.
Negotiating Contracts and Considering Duress
There is a distinction between firm commercial bargaining and illegitimate coercion, and this difference can affect whether a contract is enforceable.
Traditionally, duress involved threats or unlawful acts. Over time, the courts have recognised that financial or commercial pressure can also become unlawful when a party uses it to force agreement. The UK Supreme Court confirmed that economic or financial pressure will only amount to duress in extremely limited cases, such as where the conduct is so illegitimate that it crosses the boundary of acceptable commercial behaviour. For example, a supplier might threaten to cancel a contract or withhold key goods unless the customer accepts new terms – leaving them with no practical alternative but to agree. Such scenarios highlight the fine line between robust negotiation and improper pressure.
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How Economic Duress May Affect Contract Validity
A business can challenge the validity of a contract on several legal grounds. Some contracts are void, meaning they have no legal effect from the moment the parties enter into them. Others are voidable, meaning they remain effective until one party chooses to cancel them.
A contract is generally enforceable only when both parties enter it freely and voluntarily. When illegitimate pressure affects the formation of the agreement, the law may allow the affected business to treat the contract as voidable.
Economic duress considers whether illegitimate pressure forced a party to agree to a contract. It usually arises when one side uses such improper conduct, and the other side has no practical alternative.
Businesses negotiating from a position of bargaining strength must act carefully to avoid crossing the line between legitimate pressure and illegitimate coercion thereby avoiding claims of duress.
Continue reading this article below the formWhen a Business Enters a Contract Under Duress
If a business demonstrates that duress caused it to enter into a contract, it may apply to the court for rescission. Rescission cancels the agreement and aims to return both sides to their original positions. In some situations, the court may remove only the terms agreed under pressure or award compensation if full cancellation is impractical. Damages may also be possible.
Courts will intervene only when clear evidence proves that illegitimate pressure was used to remove genuine consent. They do not undo agreements simply because one party later regrets the deal or faces normal commercial difficulty. Judges approach these claims cautiously – recognising that negotiation always involves some level of pressure. Because such disputes often depend on specific facts, litigation can become unpredictable and costly.
How Your Business Can Seek to Avoid Duress Risk as a Supplier
If your business holds a stronger bargaining position in negotiations, remember to use that advantage responsibly and be cautious about where you apply pressure.
Key steps you can take to prevent risk can include:
- Understanding the legal issues around economic duress so you can consider how to avoid them to prevent any potential risks in negotiations.
- Acting openly in contract negotiations and documenting your position.
- Allowing the customer sufficient time to review your position and seek legal advice if necessary.
- Seeking legal guidance on risk prevention in negotiations if you are concerned about ensuring contract enforceability. Duress is extremely complex and legal advice can help your business understand its implications in full.
Key Takeaways
Economic duress arises only in extremely limited circumstances – where one party uses illegitimate pressure that removes the other party’s freedom to choose. A contract made under such pressure is voidable, and the victim business may seek to cancel it. To succeed in a duress claim, a business must prove that the pressure was illegitimate, that it caused the agreement and that no practical alternative existed. Courts consider duress claims carefully and intervene only when the conduct clearly moves from strong negotiation to coercion. Nonetheless – commercial parties should take steps to mitigate potential duress risks, and suppliers with strong bargaining power should ensure their conduct mitigates risks of claims.
This article covers a high-level introduction to a complex legal topic. If you need legal advice on an economic duress claim, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
You should quickly record what happened, including all discussions, dates and correspondence and seek urgent advice from a dispute resolution solicitor. A dispute resolution solicitor can assess whether the pressure applied was truly illegitimate and guide you on your options. It is vital to seek legal advice as these claims are highly fact-sensitive and challenging to prove in practice.
When assessing whether conduct amounts to duress, the courts consider both the nature of the pressure and the manner in which it was applied. Judges decide each case on its specific facts. Since strong negotiation is a part of business, the bar for proving duress is exceptionally high in practice.
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