Contract Law The WritePass Journal

Contract Law Introduction Contract Law : 316). In spite of this, the practical application of economic duress has been subject to much confusion and it has been questioned when, if ever, renegotiations should be enforced. It would seem, under the doctrine of consideration, that renegotiations can never be enforced on the basis that no additional consideration supports the promise to pay more or accept less (Chen-Wishart, 2012: 316). Under the promissory estoppel doctrine, the promise to pay the same for less can be enforced in limited circumstances, though this does not apply if illegitimate pressure has been exerted. Therefore, if it can be demonstrated that illegitimate pressure has been applied to the renegotiation of a contract, that contract will not be enforceable. Because commercial contracts are extremely competitive, it is likely to be the case that some form of pressure will always be applied. Though the question to be determined is whether the pressure that has been applied is legitimate or not. This is likely to be ex tremely problematic and thus cause a great deal of complexity for the courts. As exemplified in the cases above, threats to blacklist a ship and refuse its release may constitute duress. Further examples of where economic duress has occurred can be seen in the cases of North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 and Pao On v Lau Yiu Long [1979] UKPC 17 where threats to terminate a contract in the absence of a renegotiation is also illegitimate unless it can be legally justified. What will be deemed legally justified is largely a matter to be determined based upon individual facts and circumstances, though there is likely to remain a lot of confliction in this area. In Williams v Roffey Brothers Ltd [1991] EWCA Civ 5 the Stilk case was severely limited by the courts.   Here, the consideration requirement was extended to include practical benefits and thereby covered the promise to perform an existing contract. Here, a number of contractors promised to refurbish 27 flats with a sub-contractor performing the carpentry. Before the flats were finished, the sub-contractor realised that he had under-priced the contract and was resultantly facing financial difficulty. The main contractors offered the sub-contractor a financial inducement to finish the contract on time. It is trite law that consideration is needed for a party to that contract to be able to sue on it. Since the sub-contractor was doing no more than he was already bound to do under the contract, consideration was lacking. Surprisingly, it was held by the court that because the contractors had received a benefit from the sub-contractor, in that they avoided the penalty clause of the main contract, the sub-contractors claim was successful. This did not mean that consideration was present as the benefit did not move from the promisee, although there was a clear departure from the orthodox principle of consideration principle. The doctr ine of consideration maintains that a contract will not be supported by the performance of an existing duty unless that duty exists by virtue of a third party contract (Noble, 1991: 141). This decision conflicts with the decision in Stilk which demonstrated that consideration needs to be of economic value to be deemed good consideration and that it needs to move from the promise as also shown in; White v Bluett (1853) 23 LJ Ex 36; Thomas v Thomas (1842) 2 QB 851; Shadwell v Shadwell (1860) 9 CBNS 159; and Scotson v Pegg (Scotson v Pegg (1861) 6 H N 295). It has also been argued by Cheshire et al; that; the time has come to recognise formally the alternative definition of consideration and admit that the rationale behind the refusal to enforce some types of consideration is pure policy (Cheshire et al; 2012; 77). Arguably, it appears that the consideration principle is rather outmoded and in need of reform so that a more robust approach to economic duress can be taken by the courts. At present, much confusion arises as to when economic duress can be used as a defence. Judges thus need to err on the side of caution to prevent commercial pressure being mistaken for economic duress and vice versa. Still, as stressed by the court in Adam v Opel Gmbh v Mitras Automotive [2007] EWHC 3481; â€Å"the list of matters to be considered in assessing legitimacy is not exhaustive, and the weight to be attached to each of them will depend on the facts of the individual case. Furthermore, it was also stated in the case that the decision to be made will involve some element of value judgement when considering whether the pressure that was exerted on the claimant crossed the line from that which must be accepted in normal robust commercial bargaining. It is clear from the decision in this case that the courts have made some attempts to provide clarity in this area and that each case will be decided on its own facts. In the more recent case of Kolmar Group AG v Traxpo Enterprises Pyt Ltd [2010] EWHC 113 it was evidenced that a contract variation between a supplier and a customer will unlikely amount to duress if the supplier is unable to perform a contract as a result of financial difficulties that will cause the supplier to become insolvent. Another problem that arises when it comes to economic duress is whether lawful conduct can amount to illegitimate pressure. Whilst it is possible, it is also extremely rare as shown in CTN Cash and Carry Ltd v Gallaher Ltd [1993] EWCA Civ 19; GMAC Commercial Credit Ltd v Dearden [2002] All ER (D) 440 (May) and Wright v HSBC Bank plc   [2006] EWHC 930 QB. Consequently, economic duress will continue to pose many problems as there will always be a debate as to whether particular circumstances may or may not give rise to a claim for economic duress. Because of the uncertainty within this area, it is evident that a more robust approach needs to be taken so that greater clarity and consistency can be provided. Economic duress has also been criticised for being causation-led, thereby meaning that a lack of causation will prevent a successful claim from being made. In Pao On v Lau Yiu Long [1979] UKPC 2 it was pointed out by Lord Scarman that in deciding whether causation was present, it will need to be considered whether the claimant; a) protested; b) had a practical alternative open to him; c) received independent advice; and d) acted promptly. This decision has been criticised for being inconclusive and failing to take into account the fact that claimants may not think that there is any point in protesting. This was recognised by Chen-Wis hart when it was argued that; these factors are inconclusive. The victim may not protest because he sees no point in it or he may not wish to antagonise the coercing party whose performance he needs (Chen-Wishart, 2012: 318). It is clear that the facts and circumstances of each case will be the determining factor as to whether the claimant has suffered economic duress or not. Because of the uncertainty that exists in this area, however, it is often difficult for those entering into commercial contracts to acknowledge that they are exerting pressure that is considered illegitimate, especially when there is a possibility that lawful pressure will also be capable of amounting to economic duress. As a result of this, Young warns against exerting commercial pressure that the courts may possibly consider economic duress: Abusing your upper hand can leave the strong open to claims (Young, 2012: 23).   Conclusion Overall, whilst the doctrine of duress is well established in English law, the doctrine of economic duress still remains largely uncertain. This generally arises from the difficulty of distinguishing between legitimate and illegitimate economic duress. As such, it is up to the courts to decide when a persons economic interests have been damaged from being forced or coerced into entering into a contract. Hence, the court will be required to consider whether the re-negotiation of the terms of the contract were lawful and whether the person being subjected to the economic duress, should be entitled to rescind the contract that they entered into. This is an important defence in ensuring that parties to a contract have equal bargaining power. Nevertheless, the practical application of economic duress has been subject to much confusion over the years, which may result from the reasoning that has been provided by the courts. There appears to be a lack of consistency that is being provided, which highlights the need for future reform to this area. Whilst there is a difference between commercial negotiation and illegitimate pressure, it has proven extremely difficult to distinguish between the two, especially since lawful conduct can also amount to illegitimate pressure. In order to provide clarity to this area, it seems as though a more robust approach is therefore needed by the courts. References Business Dictionary. (2014) Economic Duress, [Online] Available: businessdictionary.com/definition/economic-duress.html [07 July 2014]. Card, R. Murdoch, J. and Murdoch, S. (2003) Estate Management Law, OUP, 6th Edition. Carr, N. (2011) Walking the Line – The Balance Between Legitimate Negotiation and Economic Duress, Available [Online]: lexology.com/library/detail.aspx?g=ee935c57-32ac-471f-ae37-4f65a4912b9c [07 July 2014]. Chen-Wishart, M. (2012) Contract Law, Oxford University Press. Cserne, P. (2009) Duress in Contracts: An Economic Analysis, Contract Law and Economics, Volume 6, 2nd Edition. Furmston, M. P.   Cheshire, G C. and Fifoot, C H. (2012) Cheshire, Fifoot and Furmstons Law of Contract, Oxford University Press: London. Dictionary. (2014) Duress, [Online], Available: yourdictionary.com/duress [07 July 2014].    Noble, M. (1991) For Your Consideration, New Law Journal, Volume 141, Issue 1529. Ohrenstein, D. (2013) Key Developments in Contract Law: Economic Duress, Radcliffe Chambers, [Online] Available: radcliffechambers.com/media/Misc_Articles/Key_Developments_in_Contract_Law_-_Economic_Duress_2013.pdf [07 July 2014]. Young, A. (2012) When Pressure Turns to Duress, Construction Law Journal, Volume 23, Issue 5.   Cases Adam v Opel Gmbh v Mitras Automotive [2007] EWHC 3481 Collins v Godefroy (1831) 1 BAd 950 CTN Cash and Carry Ltd v Gallaher Ltd [1993] EWCA Civ 19 Dimskal Shipping v International Works Federation (The Evia Luck) [1992] 2 AC 152 DSND Subsea Ltd v Petroleum Geo Services ASA [2000] EWHC 185 GMAC Commercial Credit Ltd v Dearden [2002] All ER (D) 440 (May) Kolmar Group AG v Traxpo Enterprises Pyt Ltd [2010] EWHC 113 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 Pao On v Lau Yiu Long [1979] UKPC 17 Scotson v Pegg (Scotson v Pegg (1861) 6 H N 295) Shadwell v Shadwell (1860) 9 CBNS 159 Siboen and The Sibotre [1976] 1 Lloyds Rep 293 Stilk v Myrick (1809) 2 Camp 317 Thomas v Thomas (1842) 2 QB 851 Universe Tankships v International Workers Federation (The Universe Sentinel) [1983] 1 AC 366 White v Bluett (1853) 23 LJ Ex 36 Williams v Roffey Brothers and Nicholls (Contractors) Ltd [1991] 1 QB 1 Wright v HSBC Bank plc   [2006] EWHC 930 QB