When making an agreement, it is important that parties feel free to consent to the agreed terms. If there has been duress exerted upon an innocent party, the resulting contract or variation to a contract is voidable, i.e. capable of being set aside. The only remedy for duress is recission.
Duress
Duress may come in the form of violence/illegitimate threats/pressure that coerces a party into entering/varying a contract.
Legitimate commercial pressure, like a threat to take business elsewhere, will not affect the contract. To amount to economic duress, the threat must be an improper or illegitimate threat, such as a threat to breach a contract or to commit a tort.
The case of Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1 set out what must be proved in order to establish that economic duress had been present. There must be pressure, which:
- Results in compulsion or lack of practical choice for the victim;
- Is illegitimate; and
- Is a significant cause inducing the claimant to enter into or vary the contract.
In determining whether there has been illegitimate pressure, the Court will take into account a range of factors, including whether:
- There has been an actual or a threatened breach of contract;
- The threat was made in good or bad faith; or
- The victim protested at the time.
Economic duress
Company A entered into a contract with Company B to do some construction works for Company B within a certain period of time. Halfway through the works, Company A realised that the cost of the construction works was higher than its original cost estimate and threatened Company B to make additional payment or it would stop the construction works. Given that the construction works had to be completed on time so its reputation and contractual relationships with its clients would not be compromised, Company B agreed to make additional payment to Company A but later refused to do so after the construction works were completed.
The general principle is that performance of an existing contractual duty owed to the other party is not consideration for a promise of extra money. If a party who promised to pay more was effectively forced into the agreement, he/she could simply argue that there had been no consideration given for that promise.
However, in the case of Williams v Roffey Bros Ltd [1991] 1 QB 1, the Court decided that performing an existing contractual obligation could be good consideration for a promise of more money provided the person promising the money obtained a practical benefit in return. In the absence of such practical benefit, the promise to pay more was only made under duress.
Effect of duress
As mentioned above, duress makes the resulting contract or variation to a contract (not the original agreement) voidable. A voidable contract is a valid, binding contract unless, and until, it is rescinded by the innocent party. The innocent party can either rescind or affirm the contract but once he/she affirms the contract, the innocent party cannot then change his/her mind.
How can Nelsons help?
Ronny Tang is an Associate in our expert Dispute Resolution team, specialising in defamation claims, contentious probate and inheritance claims, Trusts of Land and Appointment of Trustees Act 1996 claims, Equality Act 2010 claims and Protection From Harassment 1997 claims.
If you need any advice concerning the subject discussed in this article, please do not hesitate to contact Ronny or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online enquiry form.
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