The law’s take on ‘the survival of the fittest’

In this recession, we in the legal profession (not well-known as vegetarians ourselves) are seeing increasing evidence of similar behaviour patterns in the property development and construction markets. Developers and contractors; contractors and sub-contractors; and sub-contractors and suppliers; all are competing for the same limited food supplies.  

It is now not uncommon for (say) a principal contractor to speak thus to (say) a specialist mechanical and electrical sub-contractor: “I know that I agreed to pay you £100,000 for that job you have just finished; but it’s a jungle out there, and now I can’t afford to pay you £100,000. So you will agree to accept £60,000 in full and final settlement of your bill, won’t you?”

When the answer is “Er, no” the next stage is for the contractor to remind the sub-contractor just how much the latter relies on him for his daily meal, and how unfortunate it would be if their long-standing and mutually beneficial relationship were to end with the contract under discussion. So the sub-contractor agrees to accept substantially less than he thought he was going to get, but lives to trade another day, and does not have to tell his understanding bank manager (who is already eyeing his overdraft facility hungrily) that he has fallen out with a major client.

Is this lawful? Can a contractor be forced to accept less than what he is entitled to under his contract for the work he has performed? The answer ought to be no, but (as is so often the case with the law) the correct answer is ‘”it depends”.

If the contractor can show that there has been no ‘consideration’ given by his customer in return for his agreement to accept a lower payment, then regardless of the agreement, he may be able to sue for the unpaid balance – or, for many construction contracts, he may be able to take advantage of the quick-fire redress provided by the statutory adjudication system. 

A tough employer may, however, be able to argue that the promise of more work in the future was good ‘consideration’ for the granting of what he might (euphemistically) call a ‘discount’ on the previous bill. Generally speaking, the law does not concern itself with the adequacy or reasonableness of the consideration given for an agreement – even an agreement altering previously-established entitlements. So even if the ‘consideration’ is pretty ephemeral, the tough employer may often get away with this argument, unless the truth is that the consideration was illusory or completely non-existent. 

The contractor may also be able to argue that the agreement he made to accept less than his dues was one he made under ‘economic duress’, and one that ought not to be enforced. This argument occasionally succeeds, but the courts do not really like it. It feels too much like interference with the law of the jungle. A claimant must show that he was put under ‘illegitimate pressure’ – so much so that he had ‘a lack of practical choice’ when deciding to do the disadvantageous deal. Merely showing that he has come off second-best in ‘the rough and tumble of commercial bargaining’ will not, however, be enough to get an agreement set aside.

There are contractors and subcontractors dying of starvation out there. It will be interesting to see whether the judges will catch the mood of the financial sector, and decide that a little more control of the rough and tumble may be justified.