Sign This Or Else! Economic Duress Under Bermuda Law

Economic distress leads to economic duress

When the ratings agency, Moody's, downgraded Bermuda in June 2016, it noted that the Bermudian economy had suffered a recession from 2009 to 2014, in the wake of the global financial crisis.

Although the Bermudian economy has been growing again since 2015, the effect of 5 years of recession has been felt both by international and local businesses based in Bermuda, and by local residents.

As a result, a number of Bermudian businesses have had to restructure, close, or cut costs (whether by way of merger, consolidation, termination of employees, arrangements with creditors and shareholders, liquidation or receivership).

In turn, and partly as a result of job losses and a decline in rental incomes, a significant proportion of local residents have defaulted on, or had to renegotiate, their debt obligations and their mortgages.

Against this background of economic distress, the Bermuda courts have started to see, and are likely to see an increasing number of, commercial and contractual disputes in which one of the parties seeks to avoid its contractual obligations on the basis of an argument that it only entered into the relevant contract under "economic duress", or as the result of illegitimate commercial pressure.

It is not surprising, of course, that at a time of widespread economic hardship, many individuals and businesses may feel that they have been 'bullied' into agreements which they would not have agreed to if they had been in a position of greater commercial strength. But while the Court has an important role to play in regulating the improper use of illegitimate pressure or duress, it is not the Court's function to renegotiate all commercial contracts, nor to ensure that all contracting parties negotiate from positions of absolute commercial equality.

The doctrine of "economic duress" is a relatively modern part of English and Bermuda law, having first emerged in the English case law in the 1970s and 1980s, and then in the Bermuda case law in the late 1980s1 and early 2000s2. However, the kinds of disputes in which claims of economic duress have been asserted and considered are wide-ranging, and include cases such as these:

a building contractor refuses to complete building works unless the employer agrees to make additional payments or to waive accrued rights; an employer threatens to dismiss an employee unless the employee agrees to revised terms of employment and a lower wage for the same work; a bank threatens to repossess and sell a family home or other valuable asset unless the borrower (or a third party) agrees to provide additional security and agree to increased capital or interest payments3; a husband threatens to litigate indefinitely and unreasonably, and cuts off all sources of income, unless the...