Progress Bulk Carriers Ltd v Tube City IMS LLC

Economic duress may arise from pressure which is not unlawful in itself, although this will be unusual in a commercial context. The question is whether the pressure was illegitimate, assessed by the circumstances of the particular case rather than by technical unlawfulness alone. Relevant factors include any actual or threatened breach of contract, practical compulsion or lack of realistic choice, good or bad faith, protest, and subsequent affirmation. A prior repudiatory breach may be central to the assessment where subsequent conduct exploits the position created by that breach. The pressure must have caused the claimant to enter the impugned agreement.

The claimant shipowners appealed under section 69 of the Arbitration Act 1996 against a majority arbitration award. The arbitrators had found that the owners repudiated a charterparty by fixing the named vessel elsewhere, then assured the charterers that a substitute vessel would be provided and losses compensated. When the substitute was offered, the owners made a take-it-or-leave-it demand that the charterers waive their claims for the repudiatory breach. The charterers accepted under protest. The central question was whether those facts could amount to illegitimate pressure sufficient to make the settlement agreement voidable for economic duress.

1. The appeal was dismissed. The arbitrators had applied the correct legal test and were entitled to find that the settlement agreement was procured by economic duress.

2. Economic duress requires illegitimate pressure and causation. The pressure must be a significant cause inducing entry into the impugned contract. The absence of a reasonable alternative is a relevant factor, but need not necessarily be treated as a separate ingredient.

3. Illegitimate pressure can consist of conduct which is lawful in itself. In a commercial context, lawful-act duress will be rare and requires careful attention to the facts. The court must distinguish improper pressure from the ordinary pressures of commercial bargaining. No additional test requiring conduct equivalent to moral outrage, unconscionability or criminality was warranted.

4. The relevant assessment included the owners’ actual repudiatory breach, their subsequent assurances, their conduct in manoeuvring the charterers into a position of practical compulsion, the lack of a realistic alternative, the charterers’ protest, and their failure to affirm the settlement once the pressure ceased. The later refusal to provide the substitute vessel unless the charterers waived their rights had to be viewed in the context of the earlier breach and the position thereby created.

5. The owners’ argument that only unlawful pressure could constitute duress was unsustainable. Their alternative high threshold was unsupported by authority. The arbitrators’ finding that the owners’ conduct amounted to illegitimate pressure was therefore both legally permissible and correct on the facts. Costs were to follow the event unless consequential matters were agreed otherwise.

• High Court (Commercial Court): On an appeal under section 69 of the Arbitration Act 1996, the court dismissed the owners’ appeal from the majority arbitration award dated 10 June 2011.