Duress or Commercial Reality?

Article Loss Prevention by

By Zita Mansi, BLM Solicitors

An AGS member queried whether he has any redress in circumstances where he is obliged to sign a contract with onerous terms in order to receive payment for work he has already carried out.  The onerous terms might include, for example, provision of a Limit of Indemnity of £5million where the fee is only £5,000, the risk of which had not been priced into the fee agreed for the work, or long payment periods of 60 or 90 days.

In such a situation, the member must choose between agreeing to the onerous terms or suing the client for its unpaid fees (which is often a commercially unattractive option).  The member queried whether this qualified as “duress”.

The necessary ingredients for a successful economic duress claim are:

  1. Pressure which is illegitimate;
  2. This pressure is a significant cause inducing the “victim” to enter into the contract; and
  3. The practical effect of the pressure is that there is compulsion on or a lack of practical choice for, the victim.

If the above ingredients are established then the victim of the duress is entitled to accept the term and later pursue a claim for undue influence in order render the contract void.

The courts have held, that “illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.”  Cases where pressure has been considered “illegitimate” are those where the perpetrator has committed a crime, a tort or a breach of contract.

Establishing that the victim had no realistic practical alternative but to submit to the pressure is also a high hurdle to overcome. In the scenario described above, the AGS member could (a) refuse to commence work until satisfactory terms are agreed or (b) carry out the work and then sue the client for payment if reasonable terms cannot be agreed.  Although these options are commercially undesirable, they are practical options nevertheless

Ideally, no AGS member would carry out any significant work unless and until satisfactory contract terms had been agreed in writing.  However, there are many reasons why this may not happen in practice.  For example, the works may be required urgently so that only the most basic terms, such as the scope of works, price and timescale, are discussed verbally beforehand.  AGS members would do well to have a set of their own standard terms and conditions that can be quickly adapted and sent to their clients before commencing work, for use in such situations.

Members can also refer their clients to the AGS Client Guide on Limitation of Liability Clauses, and Professional Indemnity Insurance which may assist their negotiations.