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Many business owners agree to numerous commercial contracts during their lifetimes. However, very few believe they have signed a new contract under duress. In saying this, our law recognises situations where individuals are forced to sign a document against their will. This article will explore what constitutes duress and the situations in which your business can avoid performing the agreement.
What is Duress?
The most commonly pleaded version of duress is where a business owner is threatened with violence against themselves or others if they refuse to agree to a commercial arrangement. However, our law also recognises a threat of violence against property (such as a threat to burn down business premises).
What Happens if a Court Believes Duress?
Our courts will not enforce any contract or written agreement which comes into being because someone coerced one party into signing it. Put simply, if the signature of the contract was not voluntary, it is unlikely to be binding on that individual.
However, there is a slightly blurred line between situations in which an individual truly has no choice but to agree and scenarios in which they feel high levels of peer pressure or minor intimidation. Every situation is highly fact sensitive.
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Example
Let us consider two examples of unusual contract signatures. The first example will contain an instance of duress, while the second will not.
- A business owner negotiates the rental of commercial premises to another businessman. However, they begin to suspect the other company is a front for money laundering, so they look to pull out before signature. The businessman makes a realistic death threat against their family and threatens to burn the business premises down.
- A company director seeks to sell their shares to an individual but turns down the individual’s final offer. The individual then states that he does not react well to disappointment but implies nothing further.
A court will hold the first scenario to be duress because it involves a realistic threat of unlawful, violent conduct against an individual to force them to sign a contract.
In contrast, the second scenario involves vague language. Furthermore, there is no specific threat of unlawfulness, and the individual uses words that may have an innocent meaning.
How Common Are Commercial Duress Claims?
These claims are relatively rare because most commercial transactions take place lawfully. Furthermore, the continuing threat of violence during the contract may prevent individuals from coming forward.
It is also notable that duress claims tend to be quite challenging to win, as courts only allow this defence under exceptional circumstances. This is to avoid opening the floodgates and encouraging businesses in dire financial situations to plead ‘duress’ erroneously.
So, with this in mind, courts also tend to consider the following points:
- whether the individual obtains help from a third party, such as the police or National Crime Agency;
- whether the individual considers any reasonable alternatives to signing the contract, such as disposing of the goods in the meantime to make performance impossible;
- whether the individual considers pushing back at any stage and why they may not;
- the severity of the threat and how realistic it is in practice; and
- whether the threats are unlawful or violent.
What Issues Do Courts Consider in Duress Claims?
Most judges seek to tread the difficult line between legitimate bargaining pressure and threats of unlawfulness. This is most notable in cases of potential economic duress. However, some situations fall between the two extremes, making it tricky to predict a court’s verdict on a contract.
Overall, English law excludes the usual confrontational statements within commercial bargaining. Instead, it hones in on exceptionally illegitimate and unlawful pressure. In this way, they will consider:
- the bargaining power between parties;
- undue influence;
- illegitimate threats; or
- economic pressure.
Key Takeaways
Thankfully, situations in which business owners suffer unlawful threats to agree to commercial deals are rare in practice. Due to this, only a handful of businesses in England obtain legal advice regarding potential duress during contract negotiations. However, when it occurs, it is vital to obtain speedy legal advice as to your options and regarding possible options under the existing contract.
If you need advice on whether a contract may be invalid due to duress, our experienced contract 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
This depends on all the facts, including whether negotiations were carried out in good faith or involved unconscionable bargains and bad faith.
Outside rare exceptional cases, these claims tend to have low prospects. The High Court and Supreme Court value the certainty of contract and need significant persuading to judge contractual negotiations as unlawful.
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