Economic Duress or Practical Benefit which one is it
A critical discussion of the difficulty of identifying the necessary elements of economic duress.
Introduction
In their textbook The Law of Contract (5th edition at p257) Janet O’Sullivan and Jonathan Hilliard assert that: Since Williams v Roffey Brothers & Nichols (Contractors) Ltd (1991), in effect even a unilateral variation is enforceable unless it was made as a result of economic duress, so economic duress has assumed greater importance by replacing consideration as the limiting principle in such cases.... Overall, this means that it is now crucial to be able to identify the necessary elements of economic duress.”
This article discusses whether the doctrine of consideration has been affected and superseded by the development of a clear doctrine of economic duress. This article will discuss the traditional position of consideration. Second the decision in Williams v Roffey and the unsatisfactory result it seems to seem to permit any variation of a contract. Third, it will highlight how the decision has been criticised. Fourth it looks at the development of economic duress. Lastly this article asks if economic duress is preferred by the courts over consideration as a way of resolving disputes?
Traditional position of consideration
Consideration was defined in the case of Dunlop v Selfridge as “an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the price thus given for value is enforceable.” It is an essential ingredient of enforceability of agreements. The traditional position was outlined in the case of Stilk v Myrick where a ship master promised the crew members that the wages of the deserters would be shared amongst them. The court held that the promise to pay by the shipmaster was not enforceable on the basis that the seamen provided no consideration for the new promise made. The crew was already under contract to complete the voyage and they were therefore not doing more than what they were bound to do. This can be said to be a good decision because it prevents unscrupulous crew members from blackmailing the ship's master into agreeing to make extra payments. The decision in Stilk's case can be interpreted as an early attempt by the courts to protect the shipmaster from the possibility of economic duress.
In the U.S case of Alaska Packers Association v Domenico, the court held that it was a model of economic duress, and even if the seamen had provided consideration for the new promise, the court could have equally held that they applied illegitimate pressure and the defendant had no realistic option but to agree to their demands. It could possibly be argued that if the case of Stilk v Myrick was to repeat itself today, the court may hold that even though the crew members did provide consideration by doing the work, the promise made by the shipmaster may be voidable because it was done under duress by the crew members. This shows that the doctrine of economic duress has some overlap with consideration and is preferred by the courts in their reasoning.
In contrast with the case of Stilk, it was held in the case of Hartley v Ponsonby that the promise made by the captain was binding. This was because the seamen were going over what they were contractually bound to do as it was dangerous putting to sea a ship so undermanned, therefore, they were free to enter a new contract. Again, we can see an overlap between both doctrines. However, the courts decided Stilk on the basis of consideration. The general principle in Stilk v Myrick and the exception in Harley v Ponsonby were approved in (The Atlantic Baron) a duress case.
Williams v Roffey an unsatisfactory result?
However, a more remarkable development has been made in the important case of Williams v Roffey Brothers & Nicholls (contractors) Ltd. Here, Roffey contracted with, Williams, to do some carpentry work for an agreed price. Williams found themselves in severe financial difficulties. Roffey were concerned that they would be liable under a penalty clause in the main building contract with the housing association and therefore, they promised to pay Williams an additional sum for each flat to be completed on time. Roffey then declined to make any further payments and the plaintiff sued for the additional sum promised. Roffey argued that Williams will be doing nothing more than what he is contractually bound to do.
However, the court held that the promise to pay more was binding, and Williams had provided consideration for Roffey's new promise as he received a practical benefit by finishing the work on time, thus, avoiding the penalty and wasting time having to find a new sub-contractor. Glidewell LJ held that Williams had provided good consideration even though he was performing an existing duty. He said that the idea of promissory estoppel was not properly argued and "not yet been fully developed". The concept of economic duress provided an answer for stilk's old problem. The test for understanding whether a contract could legitimately be varied was set out as follows:
“if A has a contract with B for work
before it is done, A has reason to believe B may not be able to complete
A promises B more money to finish on time
A ‘obtains in practice a benefit, or obviates a disbenefit’ from giving the promise
there is no economic duress or fraud.”
Even with a pre-existing duty to do so, a practical benefit of completion on time, constitutes good consideration. Glidewell LJ stated on the case of Stilk v Myrick that “now that the concept of duress has been developed, the principle in Stilk v. Myrick is neither necessary nor desirable and should no longer be regarded as good law”. Adams and Brownsward argued that the court has extended the principle outside of the traditional doctrine of consideration. However, it could be argued that the case of Roffey ensures that a contracting party that makes a promise voluntarily and under no illegitimate pressure in a commercial context will be bound by this promise, even if there is no consideration provided.
It may be possible to say that sometimes judges go to extreme lengths to conjure up considerations, such as in the case of Roffey. Here, it was held that the benefit of the other party needs not to be legal, but factual benefit is sufficient consideration. This judgement resulted in a much wider definition of what constitutes sufficient consideration. In Stilk v Myrick and Williams v Roffey, both cases included a promise to pay more under a contractual obligation, however, the ruling was different. With such a big difference in understanding the doctrine of consideration.
It may be argued that this makes it harder on judges and other cases after to base their judgement upon a decision. As a result of such inconsistency in approaches and what counts as sufficient consideration, the effectiveness of the doctrine of consideration itself may be questioned. In the recent judgement of Colman J in the case of South Caribbean Trading Ltd v Trafigura Beeher, he noted that the decision made in Roffey's case is consistent with the long-standing rule that consideration must move from the promisee. He further noted that the House of Lords had yet to declare that the decision made in Roffey's case was wrongly decided.
Some might say that Williams v Roffey is a special case, which is limited to business contracts and where a party freely volunteers to make an additional payment so that the performance is finished on time and successfully, and has no application outside this context and therefore has no impact on the general requirement of consideration. It may also be argued that even in the context of renegotiation it only applies to a promise to pay more, and has no application to other cases where a party freely agrees to accept a lesser sum in settlement of a debt.
The court of Appeal confirmed that Roffey's case is indeed very limited, in the case of Re Select move Ltd. Here, the company argued that a promise to perform an existing duty could amount to good consideration if there was a practical benefit, according to the decision in Roffey's. The court of Appeal held that the agreement to accept payment of the debt by instalments was not binding on the Inland Revenue. The decision was distinguished from that of Williams v Roffey on the basis that the case of Re Selectmove Ltd was concerned with an existing obligation to pay a debt, whilst Roffey's case was concerned with a contract for a service. The court confirmed the principle in Williams v Roffey does not apply where one party agrees to accept a lesser payment, and approved the decision made in Foakes v Beer as they were bound to under precedent. Also, it has been decided that only parliament or the House of Lords can provide any extension to Roffey's principle, in this area.
The Development of economic duress
However, cases where a claim for additional payment has been made can be dismissed by the courts with the development of the doctrine of economic duress, either by holding there is no consideration or that it was made under duress and therefore the promise made as voidable. Economic duress was recently defined in the case of DSND Subsea Ltd v Petroleum Geo Services ASA, in which Dyson J stated:
‘[…] there must be pressure, (a) whose practical effect is that there is compulsion on, or lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant case inducing the claimant to enter into the contract.’
The theme identified in this case is the important distinction between illegitimate pressure and “the rough and tumble of normal commercial bargaining”. It is always necessary to gain further information to determine whether the pressure applied amounts to duress, because it may be possible to argue that in some cases the pressure applied resulting in the victim’s choice was not illegitimate, but the expected pressure applied in a normal commercial agreement.
In the case of Occidental Worldwide Investment corporation v Skibs ALS Avanti (the siboen and the sibotre) the idea that a contract can be set aside on the basis of economic duress was first recognised. Here, Mr Justice Kerr stated “a contract can be set aside for duress to the person but not in any other case of duress”. In this case, the plea of duress failed because it was held that even though there was pressure on the manager, it did not amount to something the law would consider to vitiate consent. He mentioned, “The court must in every case at least be satisfied that the consent of the other party was overborne by compulsion so as to deprive him of any animus contrahendi.”
Adam Opel GMBH and Renault S.A. v. Mitras Automotive
In Adam Opel GMBH and Renault S.A. v. Mitras Automotive (UK) Limited, the claimants (Adam Opel GMbH and Renault SA) were van manufacturers and the defendant (Mitras Automotive (UK) Limited) was a component supplier that produced front bumper mountings for a particular design of van. Problems started when Opel to change the shape of the front of the bumper which eventually led Mitras losing its role as a supplier. After Mitras were informed of Opel's intentions, they demanded a new and increased sum for the on-going supply of the product. They also threatened to suspend any supplies to the claimants if no resolution is put in place. A failure to supply would cause great consequences and losses for Opel, therefore, they agreed to make the payment as they felt they had no choice but to meet their demands. After the completion of the contract, Opel argued that the decision was made under duress and sought repayment of the sum they had already paid.
Mr Justice Donaldson Q.C found that indeed the claimants would have suffered great losses if they had not made the payment and the van production was interrupted, and decided that the requirements for economic duress had been met. The defendants applied illegitimate pressure such as not delivering any more components, which resulted in the claimants making the payment, as they had no other choice. We can see that the Claimant was not left with an alternative than to accept the price increase, because they were stuck between a rock and a hard place. Illegitimate pressure is a question of fact and degree and a consideration for the court. It is evident in this case that the behaviour of the defendant that it went beyond “the rough and tumble of normal commercial bargaining”.
Mitras relied heavily on the case of Williams v Roffey as their defence for increasing prices. They also argued that a promise to perform an existing contractual obligation can be considered legal consideration. It is not clear why the judge did not highlight as this being and bad argument and line to follow as this case is prima facie a case about economic duress. Thus considering the case of Roffey has caused problems in the past, he should not have been approved of it in this way because in order to benefit from the principle in Roffey, the absence of economic duress is vital. There cannot be a variation for the case if economic duress is present. Nevertheless, the judge has confused things by approving Roffey and saying “In terms of its result and the reasons advanced by the judges, however, Williams v Roffey would seem to permit any variation of a contract, even if the benefits and burdens of the variation move solely in one direction, and I am bound to apply the decision accordingly, whatever view I might take of its logical coherence.” He should have just said economic duress is present which he attempts to do when he says: “The law of consideration is no longer to be used to protect a participant in such a variation. That role has passed to the law of economic duress”.
Conclusion
Is economic duress is preferred by the courts over consideration as a way of resolving disputes? This articles asks has the doctrine of economic duress some overlap with consideration? However, consideration was preferred in Stilk v Myrick. this decision and the exception in Harley v Ponsonby were approved in North Ocean Shipping v Hyundai (The Atlantic Baron) a duress case. It has been shown the case of Roffey has caused problems in the past, he should not have been approved of it in this way because in order to benefit from the principle in Roffey, the absence of economic duress is vital. It has been argued, it was misleading for the judge in Mitras to say “I am bound to apply the decision [of Williams] accordingly, whatever view I might take of its logical coherence”. He did then make a wide ranging statement alerting judges and decision makers to sidestep the law of consideration is when deciding the variation case. The judge (his honor) highlights the correct formula is the application of economic duress, which provides a more refined control mechanism. The question which now follows is, if the law on economic duress will fit in all variation cases, then a case may arise where extra consideration is provided and it will be have to be seen if the court reverts back to Roffey. It could be Mr Justice Donaldson Q.C in the lower courts was bound by this troublesome Court of Appeal case of Roffey. It needs to go to the Supreme Court once and for all.
