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The art of law - the legal effect of payment "under protest"

Does paying a disputed debt "under protest" give you any protection?

There are many circumstances in which a person who disputes a debt nonetheless feels that he or she has no choice but to pay or to sign an undertaking to pay. The creditor may have issued some kind of threat, or merely exerted pressure.

In such circumstances, does the aggrieved debtor have a legal right to demand that the payment be reversed or, at least, not regarded as an implicit admission of liability?

The concept of 'duress'

The simple answer is that the law does indeed recognise the concept of payment under duress and the law in this regard was recently restated by the KwaZulu-Natal High Court in Firstrand Bank Ltd v Samgram Holdings (Pty) Ltd [2013] ZAKZDHC 41 in which judgment was given on 26 August 2013.

In this case, a company was opposing an application that it be wound up as insolvent on the grounds that it had bona fide and reasonable grounds for denying its indebtedness to the applicant bank, in that it had, allegedly under duress, signed certain addenda to a loan agreement with the bank, involving variations to that agreement, providing for further advances of funds to facilitate the development of certain land as a residential township in circumstances where the bank had failed to advance previously agreed loan amounts.

The debtor claimed that it had paid under duress, though without any overt protest

The debtor company averred that the duress in question resulted from the economic consequences it would suffer if it failed to sign the disputed loan documents, in that it was faced with the prospect that the entire development project would collapse unless it signed the documents required by the bank.

In his judgment, Lopes J pointed out that it is settled law that -

'where improper pressure is exerted through duress of goods, it is necessary for the party claiming duress to show that he or she expressly reserved their rights when making payment. There must be an unequivocal protest, and an unexpressed mental reservation is of no avail'.

Consequently, even leaving aside other weaknesses in the debtor's contention that the circumstances in question amounted to duress in the legal sense of that word, the failure of any expression of payment under protest was a fatal lacuna in its case. Consequently, said the court -

'In the circumstances of this matter there can be no suggestion of duress of any kind.'

It is of course clear that payment under protest does not, in and of itself, constitute proof that there was unlawful duress. But the absence of protest, when making payment, is fatal to a subsequent claim of duress.

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