Monday, July 15, 2024

London Arbitration: economic duress and quantum meruit

London Arbitration 14/22 recently considered issues related to economic duress & quantum meruit under a voyage charter party about laytime, additional premiums, and others. This practice area only cites general observations from settled cases, not the above award.

General comments- observations

Economic duress cases are extremely fact-heavy and sensitive and will likely not succeed. Therefore, parties should be cautious when raising a plea of economic duress. Even if they succeed on other issues, they risk having a split costs award because they run a problematic and costly case and lose.

It is normal commercial practice for the parties to discuss a potential variation of the charter-party terms and reach a ‘special agreement’ during the performance of the charter party. However, it is not uncommon for the parties to disagree later on the ‘special agreement’ terms. Past cases reflect some of the common issues on laytime & demurrage due to special agreements reached: See London Arbitration 3/92; Arb 6/12; 12/15; 22/03 ; 24/95; 1/10; 18/17; 7/17; 20/82; 10/99; 12/90; 21/00, etc.

The previous London arbitration decisions, 11/08 and 18/17, discussed and considered issues of contract variation.

The ‘quantum meruit’ was argued as well in the below decisions:

  • London arbitration 7/17 – call at the intermediate port;
  • London arbitration 18/17- waiting off port pending instruction to call another port;
  • London arbitration 12/90-drop anchor pending disport declaration ;
  • London Arbitration 19/98-owners to be compensated for all waiting time allowed; and
  • More recently, in London Arbitration 14/21 -delays before berthing to be compensated by way of quantum meruit; the argument failed.

Economic duress in general

Duress in the law of contract focuses on an illegitimate threat (or illegitimate pressure) which induces a party to enter into a contract. If duress is established, the remedy for the threatened party is rescission of the contract (sometimes referred to as the avoidance, or setting aside, of the contract). In this case, we are concerned with that form of duress that has been labelled “economic duress”. Economic duress was first recognised in English law in first instance cases in the 1970s…

-Lord Burrows , 2021

A contract that is entered into under duress is voidable. The third type of duress, and the most difficult one to stabilize, is economic duress. In line with the authorities, the present decision shows that a party would not easily seek to set aside an agreement on the grounds of duress. It may also be exposed to costs if one tries to argue it unsuccessfully. It should be remembered that while courts have recognized a doctrine of economic duress, it is still applied cautiously by the courts (See Pakistan International v Times Travel [2021] UKSC 40).

The previous mechanism to prevent such promises from being enforceable was the doctrine of consideration, but it is likely to be diminished. The courts will be more willing to find consideration and leave it to duress to regulate the fairness of the renegotiation.

Turning to London arbitration decisions, there are limited published decisions dealing with arguments on economic duress: London Arbitration 5/93, 18/93 & 20/03.

Lastly, previous decisions support that a party that unsuccessfully argues economic duress will be likely exposed to costs. In some cases that settled commercially, the duress defence was unsuccessful. In particular, some issues related to tug expenses( re-float a ship), the payment of shore cranes ( alleged defective crane) and alleged fines due to purported stevedore equipment damage. In addition, there was a threat to delay the ship’s departure in all three cases, but this is insufficient to raise a potential defence on duress and set aside the agreement.

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