International Construction Law Review
COMMERCIAL EXPLOITATION IN CONSTRUCTION CONTRACTS: THE ROLE OF ECONOMIC DURESS AND UNJUST ENRICHMENT*
HAMISH LAL
B Eng, BA (Oxon), Ph D Pupil Barrister, Keating Chambers, London
INTRODUCTION
In the construction industry it is not difficult to think of “real-life” instances where one party to an existing construction contract has threatened to breach that contract or sought to exercise commercial pressure upon the other party in order to secure a “new” (more beneficial) contract or even a collateral agreement. For example1
:
- (a) Suppliers (or subcontractors) will not deliver or supply pre-agreed products/services unless payments are revised upwards;
- (b) An employer insists that the contractor execute (onerous) collateral construction contracts before it will consider the contractor’s extension of time claims under the initial contract;
- (c) The Contractor refuses to carry out certain (essential) variations unless the original contract price is increased.
This paper considers whether the above scenarios are simply the “rough and tumble of the pressures of normal commercial bargaining”2
or whether the pressure is illegitimate. The issue addressed here is: should the innocent party or “victim”3
argue that the “new” contract is voidable4
due to economic
* This paper received a commendation in the 2004 Hudson Prize awarded by the Society of Construction Law. The author acknowledges the kind permission of the Society of Construction Law to publish this paper.
1 Of course, it is not possible to draft a definitive list of all the circumstances where economic or commercial pressure is “misused” to obtain preferential contractual terms. Other examples include: (i) an employer withholding consent (not in breach of contract) until the contractor agrees to carry out certain additional work; (ii) a contractor refusing to complete the works (knowing that the employer will become liable for damages for delayed completion to the overall scheme/development) unless the employer agrees to make additional payments to the contractor or a third party supplier.
2 DSND Subsea Ltd
v. Petroleum Geo-Services
ASA [2000] BLR 530 at 545, per
Dyson J.
3 In this paper, the party who has been pressured into agreeing “new” contracts or collateral agreements is referred to as the “victim”.
4 In Lynch
v. DPP of Northern Ireland
[1975] AC 653 the House of Lords clarified the point that duress does not mean a contract is void but that it is voidable. Although Lynch
was primarily concerned with the law of duress in criminal law, Lord Simon of Glaisdale said (at p. 695) that in the law of contract: “Duress again deflects without destroying, the will of one of the contracting parties. There is still an intention on his part to contract in the apparently consensual terms; but there is coactus volui
on his side. The contract is with non est factum
. The contract procured by duress is therefore not void: it is voidable—at the discretion of the party subject to duress.
” [Emphasis added.] Similarly Atiyah stated “A victim of duress does normally know what he is doing, does choose to submit and does intend to do so” in “Economic Duress and the ‘Overborne Will’ ” (1982) 98 LQR 197 at 200.
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