Arguing intimidation and duress during commercial negotiations: a high bar

The Court of Appeal’s recent judgment in Oliver Dean Morley (t/a Morley Estates) v The Royal Bank of Scotland Plc¹ confirms the traditional approach of the English Court that strong evidence is required to demonstrate that an act amounts to intimidation and/or duress during negotiations rather than simply amounting to “a robust (and even aggressive) negotiation [tactic] between commercial parties each of which had legal advice and each of which was well able to look after itself in that negotiation" ².

Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining³

This update:

1. sets out the high bar facing commercial parties when seeking to establish intimidation/duress during commercial negotiations in circumstances where they have the benefit of legal advice;
2. sets out examples of steps that a party should take at the time if it considers that it is being intimidated during commercial negotiations;
3. explains that in circumstances where a party is in default in repayment of a loan, and the loan agreement has expired, a bank is under no implied duty to exercise reasonable care and skill; and
4. acts as a reminder that properly advised commercial parties will find it difficult to persuade a Court that a properly executed commercial agreement should be unwound.

Background

Mr Morley, a commercial property developer, entered into a three-year £75m loan facility (the Loan) with the Royal Bank of Scotland (the Bank) in 2006. The Loan was secured against Mr Morley’s property portfolio.

Following an event of default under the Loan, Mr Morley and the Bank entered into negotiations in relation to Mr Morley’s default which resulted in a written agreement (the Agreement). The Agreement, among other matters, provided that a number of Mr Morley’s properties would be transferred to West Register, a subsidiary of the Bank.

Following the Agreement, Mr Morley sued the Bank. Mr Morley made a number of allegations including that:

1. he had been intimidated by the Bank to enter into the Agreement. The specific “threat” that Mr Morley pointed to was a statement made by the Bank at a meeting that unless Mr Morley signed up to the Agreement, the Bank would enforce its security by appointing receivers to sell the portfolio on a pre-pack basis to West Register; and
2. when negotiating and concluding the Agreement, the Bank had acted in breach of its duty to act with reasonable skill and care, and in good faith, towards Mr Morley pursuant to section 13 of the Supply of Goods and Services Act 1982.

At first instance, the High Court dismissed Mr Morley’s claims. Mr Morley appealed to the Court of Appeal.

The Court of Appeal dismissed Mr Morley’s appeal.

Intimidation and economic duress

In relation to the claims of intimidation and economic duress⁴, the Court of Appeal endorsed the essential ingredients of the tort of intimidation set out in Berezovsky v Abramovich⁵ and in applying it to the present case summarised it as follows:

1. a threat by the Defendant to do something unlawful or "illegitimate";
2. the threat must be intended to coerce the Claimant to take or refrain from taking some course of action;
3. the threat must in fact coerce the Claimant to take such action; and
4. loss or damage must be incurred by the Claimant as a result.

The Court also held that “coercion is an essential ingredient of economic duress, regardless of whether the threat is to do an unlawful or a lawful act”.⁶

In considering whether or not Mr Morley was coerced into entering into the Agreement, the Court of Appeal held that the first instance judge was “plainly right to decide that Mr Morley was not coerced"⁷ in this respect and that the Agreement was simply “…the result of a robust (and even aggressive) negotiation between commercial parties, each of which had legal advice and each of which was well able to look after itself in that negotiation”.⁸

Reasonable skill and care

The Court of Appeal held that the Bank was not under any implied duty to act with reasonable skill and care in the refinance negotiations with Mr Morley in circumstances where he was in default of his obligations under the Loan and where the Loan had expired. The Court of Appeal endorsed the decision of the first instance judge, who had held that all of the Bank’s actions “were rationally connected to its commercial interests”⁹ and that the Bank was not “at fault in the conduct of restructuring negotiations. They were at arm’s length and commercial…The [B]ank’s duty of skill and care did not require it to negotiate the restructuring [of the Agreement] any differently from the way it did so. It was not required by its duty to the Claimant [Mr Morley] to advise him how to resist its attempts to get more money out of him"¹⁰.

Evidential factors that the court may take into account when considering a claim of coercion/duress

In Morley, and in previous decisions, the English court has provided useful guidance in relation to the evidential factors that may be relevant to a claimant seeking to demonstrate that it was coerced and/or that it entered into an agreement under duress. Such factors include:

• whether the parties had the benefit of legal advice;
• the duration of negotiations (in Morley it was a relevant factor that negotiations took place over a significant period of time);
• whether compromises were made in substance and/or in drafting by the parties to an agreement;
• whether the aggrieved party complained at the time;
• how quickly the aggrieved party took steps to set aside any agreement (in Morley it was a relevant factor that it took five years before Mr Morley took steps to set aside the Agreement); and
• the conduct of the aggrieved party (in Morley it was a relevant factor that Mr Morley had made threats of his own, including that he was prepared to commence an adverse media campaign against the Bank).

Our view

The English court will be very slow to offer a commercial party a way out of a bad bargain. The English Court accepts that commercial negotiations may be aggressive, with a party seeking to achieve a better outcome than its counterparty – the court will not interfere with this. The English court’s starting point is that commercial parties, who are properly advised, are deemed to have taken into account all commercial factors/risks and are big and tough enough to hold their own in robust commercial negotiations.

For a commercial party to demonstrate that it was intimidated to enter into an agreement, it will need strong contemporaneous evidence supporting its position. Such evidence could include: (i) written notes of meetings/calls of the negotiations; and (ii) the aggrieved party’s lawyers making a complaint at the time to the counterparty. The aggrieved party should also act quickly as any delay may undermine its claim.

This case also confirms that a bank is not under an implied duty to act with reasonable skill and care towards a defaulting party in any refinance negotiations. A bank’s obligations to its customers are limited to the express and clear terms of the loan agreement itself rather than to any implied duty.

¹ [2021] EWCA Civ 338.
² Paragraph 54 of the Court of Appeal’s judgment.
³ DSND Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530.
⁴ The Supreme Court’s awaited judgment in Times Travel (UK) Ltd v Pakistan International Airlines Corporation will provide further clarity in relation to the test for economic duress.
⁵ [2011] 1 WLR 2290
⁶ Paragraph 52 of the Court of Appeal’s judgment.
⁷ Paragraph 4 of the Court of Appeal’s judgment.
⁸ Paragraph 54 of the Court of Appeal’s judgment.
⁹ Paragraph 5 of the Court of Appeal’s judgment.
¹⁰ As above.