The case of Progress Bulk Carriers Limited v Tube City IMS LLC1 involved a dispute between the owners of a cargo ship (“PBC”) and its hirers (“TC”). TC had chartered a vessel owned by PBC for the purpose of fulfilling an arranged purchase of goods by a third party buyer. In repudiatory breach of charter, PBC delivered the contract vessel to another third party operator, and consequently it was unavailable for TC to ship the goods to their buyer. When these facts emerged, PBC promised to provide an alternative vessel and to pay full compensation for any loss. A substitute ship was identified and dates for its availability were suggested. In reliance on these promises TC took no further steps to find another carrier, and persuaded their buyers to accept the deferred arrival date now offered by PBC. The buyers accepted the delayed delivery, but only on the condition that they received a discount because of the delay.
In addition to the discount for late delivery, the price of the cargo was falling, and TC were facing daily charges for delay from the barges waiting to load the goods onto the chartered ship. Therefore, TC accepted the offer from PBC, reserving all rights in respect of a damages claim. TC had no alternative means of shipping the goods, and was facing substantial losses if there was any further delay. At this point, PBC informed them that they would only charter the vessel if TC agreed to waive all claims against them resulting from the breach. This stance by PBC was not unlawful, since the promises made to supply a substitute vessel and pay damages was not contractually binding.
Since they had no other alternative to avoid catastrophic losses, TC, under protest, accepted the demands of PBC. However, they later sought to claim their loses from PBC, arguing that their agreement to waive their claim had been obtained under economic duress and should be set aside.
At arbitration, it was held that the agreement to waive all claims for damages had been procured by economic duress. This was appealed by PBC on the grounds that their behaviour was lawful, and that lawful acts could not amount to illegitimate pressure or economic duress.
The Court agreed with the decision at arbitration and found in favour of TC. The judge accepted that the act of PBC was lawful, but held that “illegitimate pressure” for the purposes of economic duress could be met by conduct which was not in itself unlawful. The judge was of the opinion that through the unlawful repudiatory breach of contract by PBC, coupled with their unethical behaviour in withdrawing the help offered at the last minute, had maneuvered TC into a corner in which they had no alternative. This, it was held, did amount to illegitimate pressure for the purposes of economic duress.
Evidently, when deciding whether illegitimate pressure may have taken place for the purposes of economic duress, each case will turn on the facts. But the decision in this case makes it abundantly clear, that the scope of “illegitimate pressure” is not limited to unlawful acts. In certain circumstances lawful conduct will be held to amount to economic duress. Unethical conduct and misleading behaviour are just a few of the factors that may indicate to a court that a party has stepped over the line of normal commercial bargaining, and result in that agreement being set aside following a finding of duress.
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The above is not legal advice; it is intended to provide information of general interest about current legal issues.