Spot the difference? Well, these two scenarios recently came before the courts and in one the agreement was held to be void for economic duress, whereas in the other it wasn't. What makes it more interesting is that both cases were decided using the same test – and by the same judge.
The test applied by the judge was as follows: the ingredients of actionable duress are that there must be pressure: (a) the effect of which is compulsion on, or a lack of practical choice for, the victim; (b) which is illegitimate; and (c) which is a significant cause inducing the claimant to enter into the contract.
Although there were key differences in the demands being made by the two subcontractors, it is also clear from the judgments that a crucial factor differentiating the cases was the behaviour of the "victim".
The first of the cases referred to above, in which Mr Justice Dyson set out his test, was DSND Subsea Ltd vs Petroleum Geo-Services ASA (also discussed by Tim Elliott on 20 October 2000, page 87). In that case it was found that the pressure exerted by the subcontractor amounted to "reasonable behaviour by a contractor acting bona fide in a very difficult situation" and was part of the rough and tumble of normal commercial bargaining.
The conduct of the "victim" - PGS in this case - which proved crucial was as follows. First, it took no steps to see whether an alternative vessel was available (which, the judge said, strongly suggested that it did not feel it was being blackmailed). In addition, it was felt that PGS would have had no difficulty in terminating the contract and claiming the costs resulting from termination (particularly given that it had a parent company guarantee from DSND).
Further, it was found that there was plainly an amicable atmosphere between the parties (they even went out to dinner together after the vital meetings). Finally, and crucially, there was no evidence in any of the documents that the collateral agreement had been entered into under duress (in particular, there was no reference to duress in PGS's internal memos).
The second case, in which Judge Dyson once again set out and applied the above test, was Carillion Construction Ltd vs Felix (UK) Ltd [2000 74 Con LR 144]. Here it was found that the case on economic duress had been made out. But then, Carillion acted rather differently. First, it explored the possibility of using alternative suppliers – for various reasons, this was not practicable. It also discussed its options with in-house counsel and considered an injunction (which, it was felt, was unlikely to succeed) and adjudication proceedings (which would take too long) before deciding to agree the final account and subsequently seek to set it aside for duress.
Carillion made it clear at a vital meeting that it was only progressing the account to ensure that the works would be completed (and even went as far as recording part of the meeting). It also made it clear in correspondence that the agreement had been reached under duress. Crucially, as soon as Felix made its final delivery, Carillion started proceedings to set aside the agreement.
So, should you ever find yourself in the position where you consider that you are effectively being blackmailed into an agreement and your inclination is to sign now and fight later, you would do well to make sure that:
- You have fully explored any alternative options – including using alternative suppliers and pursuing an injunction or an adjudication.
- You record (at least internally) that agreement has been reached under duress.
- You seek to void the agreement as soon as possible after the illegitimate pressure is lifted.
- You don't have dinner with the other party.
Nick Kippax is senior solicitor at Masons.