Posted on behalf of Alex Andrews and Jacqueline Zalapa.

Alex Andrews and Jacqueline Zalapa represented the successful Respondent, Charterers of the vessel “CENK KAPTANOGLU”, in Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] EWHC 273 (Comm).This was an appeal by the Appellant Owners against an Award issued by a London tribunal which held in favour of Charterers that a settlement agreement was voidable because it had been procured by economic duress.

After fixing the “CENK K” to Charterers, Owners fixed the vessel without notice to someone else in circumstances where our client’s charter did not include a right to substitute the vessel. Charterers elected not to accept Owners’ repudiatory breach as terminating the charter. Instead, Charterers relied in good faith upon Owners’ representations that they: (a) would find a substitute vessel; and (b) would compensate Charterers for all damages arising out of Owners’ breach. Owners found a substitute vessel, and Charterers’ receivers accepted it but with freight at a discounted rate. Owners then retracted their offer (b) and made a “take it or leave it” offer to Charterers to accept the substituted vessel at a reduced freight rate, but one that did not reflect the reduction agreed with receivers, and to waive all claims arising out of Owners’ unauthorised re-fixture of the “CENK K”. Under protest, Charterers accepted those terms.

The Court was asked to decide if Owners’ conduct amounted to “illegitimate pressure” required to establish economic duress as a matter of law. Owners argued that the correct legal test for economic duress required the illegitimate pressure to be unlawful whereas Charterers argued the opposite, i.e. illegitimate pressure in a commercial context need not be unlawful. Owners further argued that if lawful conduct could be illegitimate then the bar must be set very high. It must provide such a sense of moral outrage and be so far beyond the norms  as to be on a par with illegal or criminal conduct.

The Court accepted Charterers’ argument, dismissed the appeal and held that “illegitimate pressure” could be constituted by conduct which was not in itself unlawful even though such cases will be very rare. It rejected Owners’ alternative argument. Each case is fact sensitive and each case must be determined by applying the relevant criteria. There is no precedent for the limitation proposed by Owners.

As was said in CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All E.R. 714, judges are prepared to be the arbiters of social evaluation: that is, apply a standard of impropriety rather than technical unlawfulness.