Contract Law

Atlas Express Ltd. v. Kafco (Importers and Distributors) Ltd.

[1989] 1 QB 833

Facts

Kafco had a valuable contract to supply basketware to Woolworths.
It contracted with Atlas Express to deliver the goods at an agreed price per carton.
Atlas later realised that it had underestimated the size and cost of the deliveries.
It asked Kafco to accept a substantially higher minimum charge.
Kafco initially refused.
Atlas then sent an empty vehicle to Kafco’s premises with a written demand.
It threatened that unless the increased charge was accepted immediately, the vehicle would leave without carrying the goods.
Failure to deliver to Woolworths would have exposed Kafco to serious loss and potentially destroyed its business.
Kafco signed the variation but later refused to pay the increased amount.

Whether Kafco’s agreement to the increased delivery charge had been obtained through economic duress.
Whether Atlas provided consideration for the contractual variation.

A threat to breach an existing contract may amount to illegitimate pressure.
A contractual variation is voidable for economic duress where:
the pressure is improper or illegitimate;
it is a significant cause of consent;
the victim has no realistic alternative;
the victim does not later affirm the variation.
Ordinary commercial pressure is insufficient.
Performance of an existing contractual obligation may also fail to provide fresh consideration for a promise to pay more.

Atlas deliberately created a crisis at the precise moment Kafco had to dispatch the Woolworths order.
Kafco could not locate a substitute carrier at such short notice.
Refusing the demand would have meant immediate default under its principal supply contract.
The variation was therefore not the product of an equal arm’s-length renegotiation.
Atlas used the threat of its own contractual breach to exploit Kafco’s vulnerability.
Kafco’s representative signed unwillingly and expressed protest.
The Court considered that Kafco had no genuine practical option.
The pressure was also illegitimate because Atlas was already legally bound to perform the deliveries at the original rate.
It was not responding to a new service requested by Kafco.
Atlas merely promised to do what it had already agreed to do.
The purported variation therefore suffered from two defects:
it was procured by economic duress; and
Atlas supplied no fresh consideration under the pre-existing duty rule.
Kafco’s refusal to pay after the immediate pressure had passed was consistent with avoidance rather than affirmation.

The High Court held that the price variation was voidable for economic duress.
Kafco was not required to pay the increased charge.
Use this case for: a threatened contractual breach used at a commercially critical moment can constitute economic duress.