Article Loss Prevention

Duress or Commercial Reality?

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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.

Article Loss Prevention

Charging Interest on Late Payments

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Tim White of Marquis & Lord (Consulting Scientists) writes about his experience in maintaining a positive cash flow

  • Are you aware of your business’ legal right to claim interest on late payments from other businesses?

  • Despite all business to business transactions since August 7, 2002, being applicable, many businesses are still unaware of their rights under the Late Payment of Commercial Debts (Interest) Act 1998.

  • Make sure you know about your businesses rights, and use them to help make sure you are paid on-time, every time.

These are the messages being put out by schemes promoting the use of the legislation. Many companies do not attempt to enforce their rights for fear of alienating clients. However, it is often the threat of enforcement of this statutory right which can improve your cash flow [This has been the experience of Marquis & Lord]. In all but a few cases late payment is as results of slipshod or non existent purchasing procedures in client organisations, rather than any malicious attempt to defraud. The constant threat of late payment charges causing embarrassment to the purchaser, for unauthorised expenditure, does wanders for their concentration in terms of ensuring prompt payment processing.

It is the ability to claim interest rather than the act of enforcement that has the most benefit. However, there are some pitfalls that must be avoided.

  1. Prior notice of your intent to invoke your rights under the Late Payment of Commercial Dept Act 1998 must be given prior to the issuing of an invoice.

  2. If you link your interest charges to an index bee sure to change your finance charge rate when the index alters, otherwise criticism could affect your chances of recovery.

  3. Keep the message live, i.e. make sure you mention your policy in your terms and conditions and place a footnote on every invoice.

  4. Send out statements of account two weeks before the payment is due carrying the same warning message that interest will be charged on late payment.

  5. Do not be shy about sending out invoices for interest charges, but do put a limit on their value; for example do not send them out for less than a minimum sum determined by you as a matter of policy.

If you feel uncomfortable about the process think of how you feel when you get your credit card bill and a finance charge has been applied. You don’t stop using it do you?

Finally, the practice of charging for late payment can have one supreme advantage if you are forced to negotiate payment of fees, for example if a client is in receivership, it is far less painful to accede to a lower amount than original charged if you can agree to write off the interest and get what you originally asked for.