Where a party agrees to pay another a sum of money, can it refuse to pay on the ground that it was financially coerced into the agreement, and what is meant by economic duress?
Money agreements are sometimes squeezed out by financial pressure. Whether the paying party is bound, or can escape for economic duress, depends on whether the pressure was illegitimate and left no real choice.
Yes where the agreement was procured by illegitimate pressure, usually a threat to break the contract, that left the victim no practical alternative and induced the agreement, as in Carillion v Felix, but ordinary hard bargaining is not duress, and a promise to pay more that yields a practical benefit without duress is binding, as Williams v Roffey Bros shows
Yes, where the agreement was procured by economic duress. The courts will not enforce an agreement obtained by illegitimate pressure, usually a threat to break the contract, that left the victim no realistic practical alternative but to submit and that induced the agreement. Ordinary hard bargaining does not meet that test, and a promise to pay more that yields a genuine practical benefit without duress is binding: in Williams v Roffey Bros and Nicholls (Contractors) Ltd an agreement to pay a subcontractor extra was upheld because the contractor gained a practical benefit and there was no duress. Where the pressure is illegitimate the agreement falls: in Carillion Construction Ltd v Felix (UK) Ltd a subcontractor's threat to withhold cladding deliveries until its final account was agreed was illegitimate and left the main contractor no alternative, so the settlement was set aside, and in Adam Opel GmbH v Mitras Automotive (UK) Ltd a threat to stop supply where the manufacturer had only 24 hours' stock allowed recovery of the excess. A coerced party need not protest at the time; the payment is not voluntary and the excess may be recovered later, as in Kolmar Group AG v Traxpo Enterprises PVT Ltd.
| The test | Illegitimate pressure, no practical alternative, inducement |
| Not duress | Ordinary hard commercial bargaining |
| Williams v Roffey | A practical benefit without duress makes the promise binding |
| Carillion v Felix | A threat to withhold deliveries was illegitimate; settlement set aside |
| Recovery | The victim need not protest at the time; the excess is recoverable |
The problem
Agreements about money are sometimes extracted by financial pressure. A contractor short of money accepts less than it is owed because it will otherwise be paid nothing; a subcontractor on a fixed price forces the main contractor to pay more by threatening to stop work that no one else can readily take on. Whether the paying party is bound by such an agreement, or can have it set aside for economic duress, turns on the nature of the pressure.
The test, and what is not duress
The courts will not enforce an agreement obtained by economic duress, but they set a demanding test. Financial pressure alone is not enough, because parties are constantly bargaining and haggling. To set an agreement aside it must be shown that the pressure was illegitimate, usually because it was accompanied by a threat to break the contract, that submission was the only realistic course open to the victim, and that the pressure induced the agreement. Hard commercial bargaining does not meet that test.
A carpentry subcontractor underpriced the work, got into difficulty and threatened to stop unless the contractor increased the price. The contractor agreed, because losing the subcontractor would cost more and expose it to a penalty for late completion. On those facts the court held the agreement binding: the contractor obtained a practical benefit in retaining the subcontractor and avoiding those costs, and there was no economic duress.
When pressure is duress
Where the pressure crosses the line into an illegitimate threat, the agreement will not stand.
A cladding subcontractor, in dispute over the value of its work, refused to make deliveries until its final account was agreed. Facing delay to the main contract and liability for liquidated damages, the main contractor agreed a full and final settlement at close to the subcontractor's figure, then resisted it. The court held that the pressure was illegitimate: the subcontractor had no right to have its final account paid before completion, and no right to suspend deliveries, so the threat left the main contractor no practical alternative, and the settlement was set aside.
A sole supplier of a component, told its supply would end when the design changed, demanded a large price increase for continued supply. With only 24 hours' stock under a just-in-time system, the manufacturer agreed, then recovered the excess. The threat to stop supply was illegitimate and left the manufacturer no realistic alternative.
The victim position
The victim of illegitimate pressure is not fixed with the agreement merely because it did not object at the time. Where a party submits to a threat to break the contract because it has no practical alternative, the payment is not made voluntarily, and the party may recover the excess later, as a supplier that gave in to a coerced price increase did in Kolmar Group AG v Traxpo Enterprises PVT Ltd. It is not necessary to protest when the threat is made, and doing the work or paying under protest does not make the payment voluntary.
Practical steps
Ask whether the pressure was illegitimate, usually a threat to break the contract, or merely hard bargaining, which is not duress.
Show that submission was the only realistic course open to you, and that the pressure induced the agreement.
Remember that a promise to pay more that yields a genuine practical benefit, without duress, is binding, as Williams v Roffey shows.
If coerced, record the position, but know that you need not protest at the time to recover the excess later.
As the party seeking a variation of price, avoid threats to withhold performance you are contractually bound to give; that is what makes the pressure illegitimate.
Authorities
| Authority | Citation | What it decides |
|---|---|---|
| Williams v Roffey Bros and Nicholls (Contractors) Ltd | (1990) 48 BLR 69 | A promise to pay a subcontractor extra was binding where the contractor obtained a practical benefit in retaining it and avoiding a penalty, and the facts did not amount to economic duress |
| Carillion Construction Ltd v Felix (UK) Ltd | [2001] BLR 1 | A subcontractor threat to withhold deliveries it had no right to suspend, to force agreement of its final account, was illegitimate pressure leaving the main contractor no practical alternative, and the settlement was set aside |
| Adam Opel GmbH v Mitras Automotive (UK) Ltd | [2007] EWHC 3205 (QB) | A sole supplier threat to stop supply unless the price was increased, where the manufacturer had only 24 hours stock, was illegitimate and allowed recovery of the excess paid |
| Kolmar Group AG v Traxpo Enterprises PVT Ltd | (2010) | A supplier refusal to supply at the contract price unless it was increased, with no alternative available, entitled the buyer to recover the excess |