Legal Blog

Duress

“I didn’t want to sign, but he made me do it; I would have lost a fortune had I refused.” This is the cry of a person who signs a document under economic duress and then wants out of the deal. The law allows for relief when a document is signed under economic duress, but only if stringent criteria are met. A claim for relief due to duress was the subject of Ekum-Sekum Inc. v. Bel-Air Excavating & Grading Ltd., a 2017 Ontario Superior Court of Justice decision.

Norm

A claim for relief based on economic duress is usually seen in general contractor – subcontractor scenarios, although it can arise anywhere in the construction ladder. The general asks a sub to perform work; the sub balks unless it gets something (usually money); the general realises it has no alternative and agrees to the sub’s demands; the sub does the work; and the general refuses to pay, citing economic duress.

This case presented a variation on a theme. The contract specifications required a minimum air temperature for paving. Because of delays to the project, the general waited until November 2018 before directing the paving contractor to apply the third and final paving application. The sub informed the general that it was unlikely that the temperature would be warm enough to meet the minimum temperature specifications and that paving should be postponed until spring.

The general refused that request because it had a liquidated damages clause in its contract with the owner, a city, and needed to complete the project ASAP. The city demanded that the contract be completed quickly because it wanted the road open for public access. We do not really understand the city’s position in that regard because the road would have been quite usable after the first two paving applications – but so be it.

Release

The sub and general had numerous discussions and meetings regarding the general’s demand that the sub pave regardless of temperature. The sub refused to do so without being absolved of damages if the final product were inferior due to the cold weather. The sub drafted a release, essentially a waiver of liability, for the general to sign.

The general requested advice from the city. Its representative told the general not to sign the release and suggested, oh so helpfully, that the general could use other subs in the area – as if the other subs would magically agree to assume the risk of paving contrary to the specifications.

The general refused to sign the release, but the sub stuck to its guns: no release, no paving. The general caved and signed the release and, in early December, at a temperature slightly below the minimum required, the sub completed the paving. Then, surprise surprise, the pavement had problems and the city, ever so accommodating, demanded that the general remove the asphalt and re-pave the road. The general requested that the sub do the work – gratis – and the sub, relying on the general’s release, politely declined to do so. The general refused to pay the sub $41,000 otherwise owed to it and, adding insult to injury, when the sub commenced an action for payment, the general counterclaimed for its re-paving costs that exceeded the money it already owed to the sub.

Consideration

No. This does not mean holding a door open for an elderly person. It means that, when forming a contract, each party has to give something to the other party. That something is called consideration. If one party is obliged to do something, but the other party has given nothing in return, then there is no contract.

The general argued it received no consideration for signing the release. If that allegation were correct, then the general was not bound by its obligations under the release. However, the allegation was incorrect and misplaced. The judge noted that the release permitted the general to direct the sub to proceed with the paving work outside of the parameters of the contract and that, accordingly, the general received consideration for entering into the release/new contract.

Economic Duress

The general’s real argument rested with the proposition that it had signed the release under economic duress. Indeed, when the sub refused to rectify the failed asphalt, the general responded “that’s what I thought you would say. That waiver was signed under duress which makes it not worth the paper it is written on.”

To succeed with a claim of economic duress, a party must prove that (a) the party was coerced and (b) the pressure exerted was not legitimate.

Four factors have to be considered in determining whether a party’s will was coerced:

1. Did it protest?

2. Did it have an available alternative?

3. Was it independently advised?

4. After entering the contract, did it take steps to avoid it?

Even if, upon analysing the four factors, the protesting party is able to prove that it was coerced , it must still prove that the coercion was improper.

Analysis

Factor #1 – the general most certainly protested before it signed the release.

Factor #2 – regardless of the city’s suggestion that the general contact other paving subs to do the work, the general did not do so. It believed that no one would be available at that time of the year. It was probably correct and, regardless, even if available, no paving sub in its right mind would take on the job contrary to the specifications. The judge, however, noted that the contractor could have delayed the paving work and incurred a $1,500/day penalty for doing so. The judge stated that the “penalty was relatively nominal when compared to the cost of correcting the defective asphalt.”

Factor #3 – the city advised the general not to sign the release and, even after signing the release, the general had a window of 4 days to seek independent advice before the paving work commenced. It failed to do so.

Factor #4 – the judge noted that even though the general knew that the sub would rely on the release, the general did not raise the issue of duress until well after the work had been completed. The general had always intended that the sub bear the risk of working outside of the specifications, but failed to tell the sub of this intention. Further, the general failed to take any steps to avoid the work being done outside of specifications; it did not note the temperature on the day that the work was performed and did not request that the sub confirm that the specifications were met before proceeding with the paving.

The judge held that the general did not meet the final three of the four factors.

Legitimate

Merely because a contracting party signs a contract under pressure for terms that are abysmal and in circumstances that meet all of the factors set out above, does not mean that the pressure was improper. Consider an oil rig owner whose well has blown up and is spewing oil into nearby waterways. It signs a contract with an expert who can cap the well for a price of $10 million a day for its services. Even if the owner meets all of the factors to establish coercion, nothing is improper about an expert demanding an inflated price for his or her services.

The judge noted, again, that if the general had not signed the release, the sub would have been within its rights to refuse to do the work until the temperature met the specifications; the general had no right to force the sub to do otherwise. Rather than refusing to do the work, the sub gave the general notice of its concerns and the general chose to direct that the work proceed, despite the risks. Accordingly the sub exerted its pressure for a legitimate purpose. In doing so, it was relying on, not breaching, its existing contract.

 

Image courtesy of duane_j.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.