23es

Economic duress relating to a flat sale ?….

Avon Freeholds v Garnier [2016] UKUT 477 (LC)

On 28th October 2016, HHJ Hodge QC sitting in the Upper Tribunal (Lands Chamber) acceded to an appeal thereby reversing an interesting attempt to extend the circumstances in which monies could be recovered under the principles of economic duress.

The Respondent (“R”) was formerly the lessee of a flat in Drummond Way, London N1. In the summer of 2015 he undertook alterations to the property including the installation of a shower cloakroom and the associated plumbing, believing that the same did not require the consent of the freeholder (the Appellant –  “A”).

A took the view that the works were either a breach of an absolute covenant not to cut, maim or injure or otherwise cut into the structure of the flat, or alternatively, a breach of the qualified covenant not to make alterations save without the consent of A, such consent not to be unreasonably withheld.

Notwithstanding R’s confident view that no consent was needed, he sought to regularise the position during his marketing of the property for sale in late November/early December. Arrangements were made for inspection by A’s surveyor at the cost of R, and following that inspection a date was fixed for a meeting between A and R – a postponed date of 17th December 2015 having been agreed.

On 11th December, and before any meeting took place, R emailed to say that the consent was all that was holding up the exchange of contracts with the buyer. There was no response to that email, or subsequent emails on 17th and 18th December, until matters came to a head when R became increasingly concerned that the sale would fall through without the consent issue being resolved. Indeed, an email from R on 21st December (@ 9.35am.) indicated that progress was required that day (a deadline seemingly imposed by the purchasers).

There then followed a series of emails in which R sought to negotiate a figure for retrospective consent to be provided in writing that day.

A indicated (email timed @ 2.25pm) a figure of £5,000 + Vat for the consent and £1000 + Vat for the urgent drawing up of the documentation that day.

R replied (3.11p.m.) stating that he had taken legal advice, and that whilst he was prepared to pay a proportion of the consent fee the fee for the consent itself was not permitted by statute, but that he was prepared to pay £1,000 + Vat by way of a compromise.

Faced with a legal issue as to their right to charge for retrospective consent, A replied (@ 3.45pm) that they wanted to seek legal advice from their solicitors but that the firm was closed for the holidays, but that it would be actioned in the New Year.

Faced with the risk of losing a purchaser, R accepted (@3.49pm) the terms as follows:

“This really needs to be done today (I will lose the sale if we wait until new year), so I will make the £6,200 payment now, that’s fine. If I send this now via faster payment, can the documentation be started and sent today ? Thank you.”

 

After receipt of confirmation from A, R replied (4.02pm) thanking A and stating that the payment would be with it shortly (if not already).

The deed was duly executed that day and was expressed to be made in consideration of the £5,000 paid by R to A. Having arranged for the consent, R then sought the repayment of the sums on the basis, inter alia, that the sums were procured by economic duress. The first tier tribunal agreed with him, and A appealed.

Economic duress usually involves the application of wrongful or illegitimate threats or other pressure resulting in their being no practical alternative for the paying party (ie. causation). Indeed, although not discussed in this case, the law is flexible enough to extend to cases where the pressure is legitimate or lawful where the threatened act is calculated to seriously injure another or goes substantially beyond what is normal or legitimate-  see Chitty on Contracts (31st Ed) Vol 1 @ para 8-046. However, outside of protected relationships and in a purely commercial context, it would be a relatively rare case where ‘lawful act duress’ can be established – especially so where the demand was bona fide considered valid by the maker – CTN Cash and Carry Ltd v Gallagher [1994] 4 All ER 715 (CA) where a defendant threatened to remove credit facilities from a purchaser who had failed to pay an invoice for goods which, unbeknownst to the defendant, had been delivered to the wrong warehouse.

R asserted that he was effectively held ransom, that the threats were illegitimate and wrongful, and that this was set against a background that, for a number of weeks, it was made clear to A that this needed to be resolved quickly otherwise the loss to R would be substantial.

In this case, the judge emphasised the situation that R had created for himself and was unimpressed by the allegation of the assertion of a threat that was unlawful or illegitimate. It was not in doubt that A could not be compelled to provide consent, yet R waited until selling his flat (some 4-5 months after renovation) before taking any steps. It may also be noteworthy that A did not even purport to exercise rights – it was being asked to enter into a new agreement.

The court further found that there were practical alternatives open to R including making the payment under protest or expressly reserving the right to invoke the statutory determination of the payment, and that by not doing so, A, in exercising its decision as to whether to give consent operated in the belief that the payment was agreed. Had rights been reserved, A could have decided whether to accept payment subject to R’s later challenge.

Often, in cases of economic duress, the court is required to examine the gravity of the threat. Not only did R not make any explicit threats (whether lawful or otherwise), any delay contributing to the impact upon A was attributable R’s explicable inability to take legal advice and A’s failure to grasp the nettle at an earlier stage.

Without the pressure created by A’s decision to sell, and the imposition of a timetable outside of R’s control, R’s position would have been unimpeachable. There is no suggestion that the payment of £5,000 was substantially beyond what would be expected for consent or that (in line with Alf Vaughan & Co Ltd v Royscot Trust Ltd [1999] 1 All ER 856) A acted either immorally or unconscionably.

Jonathan Smith

23 Essex Street Commercial, Manchester.

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