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“I’m going to make him an offer he can’t refuse”, was Vito Authors/Presenters
Corleone’s favourite negotiating tactic. While his methods are a far cry from how things are done in the construction industry, commercial pressure can be used to force a party to accept an unfavourable deal. When does such behaviour cross the line and become illegitimate pressure or duress? Is it where a party, possibly a monopoly, tells the other it will never deal with it again unless it gives up all its claims? That is the situation that the Supreme Court looked at recently but it is worth looking at how this works in a construction context.
The Denning approach
If you are the sort of person who asks “What would Lord Denning do?”, D&C Builders Ltd v Rees [1966] 2 QB 617 is a good example of his approach to construction disputes. The claimant contractor was a company made of two individuals, a decorator and a plumber, and the defendant had a shop where he sold builders’ materials. The contractor pressed for months for a debt of £482 13s 1d to be paid, only to be told by the defendant’s wife, who knew they were in financial difficulties, they could agree to be paid £300 in settlement of the debt or they would get nothing. They accepted payment but then sued for the balance.
The case raised interesting issues about consideration and estoppel but Lord Denning MR made it clear that while a genuine settlement would be enforceable, this was not the case where this would be inequitable and undue pressure was being placed by threatening to break the contract (by paying nothing) to compel the creditor to do what it was unwilling to do. As he put it:
Shy Jackson
Partner London shy.jackson@bclplaw.com
October 8, 2021
Hobson’s choice, the latest on economic
duress
“No person can insist on a settlement procured by intimidation.”
This was the background to the doctrine of economic duress, where it is necessary to show causation and that the effect of the pressure is that there is no practical alternative. But the biggest difficulties have concerned the need to identify what amounts to illegitimate commercial pressure.
It’s all about the facts
It always helps to look at specific examples when considering general principles. In Williams v Roffey Bros and another , a sub-contractor asked for more payments, knowing the main contractor would otherwise be exposed to delay damages. The Court of Appeal considered duress but noted there was no finding of duress on the facts as it was the main contractor who offered to pay the additional sum. But the opposite conclusion was reached on similar circumstances in another construction case 12 years later in Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1.
Here the cladding sub-contractor threatened to stop supplies unless the final account was agreed at the amount claimed. A note disclosed by the sub-contractor stated under “Carillion weaknesses” that “[t]hey need to finish the work” and “[n]o deliveries until we get agreement”.
The judge held that the pressure applied by the sub-contractor was illegitimate, relying on the fact it knew there was a number of trades that were dependent on the cladding works, that Carillion could not complete the main contract works without the cladding and that it would be impossible to find an alternative supplier in time.
It is not only sub-contractors who sometimes take advantage of their position. In Adam Opel GmbH, Renault SA v Mitras Automotive (UK) Ltd , it was Mitras, Opel’s sole supplier of a mount for the front bumper who, when given a valid six months’ notice of termination, demanded to be paid compensation and threatened to suspend supplies until this was agreed.
When Opel realised they only had 24 hours’ worth of supplies remaining and that the potential losses could be substantial (and having failed to obtain an injunction), it agreed to Mitras’ demands. The judge followed the approach in the Carillion decision and held that the pressure created by the threat to stop supplies was illegitimate, which meant the agreement to pay compensation was voidable.
Lawful act duress – the Supreme Court decision in Times Travel
One can only wonder if the Carillion decision would have been decided on the same basis, especially as when the demands were first made the sub-contract was yet to be signed so arguably the sub-contractor was acting lawfully, but it continued its demands after the sub-contract was signed, when the threats would have amounted to a breach of contract. This is not unusual in construction when works can start without a full formal contract in place.
Nonetheless, the Supreme Court made it clear the doctrine exists and should exist. Despite some signs of recovery from COVID 19, the current economic climate will put pressure on the supply chain and parties may well end up accepting unfavourable terms. In a small number of such cases, economic duress may still have a role to play.
This article first appeared on the Practical Law Construction blog dated 6 October 2021.
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This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.
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