NORTH OCEAN SHIPPING CO LTD V HYUNDAI CONSTRUCTION CO
LTD AND ANOTHER THE ATLANTIC BARON
QUEEN'S BENCH DIVISION
[1978] 3 All ER 1170, [1979] 1 Lloyd's Rep 89
20 JULY 1978
HEADNOTE:
By a shipbuilding contract dated 10th April 1972 the shipbuilders ('the builders') agreed to build a tanker for the
shipowners ('the owners') for the price of US $30,950,000. The contract provided that the price was not to be subject to
adjustment except in certain events which did not occur. The price was payable in five instalments. The contract
required the builders to open a letter of credit to provide security for repayment of instalments in the event of their
default in the performance of the contract. The owners duly paid the first instalment on 28th April 1972. On 12th
February 1973 the US dollar was devalued by ten per cent and on 23rd April the builders put forward a claim for an
increase of ten per cent in the remaining four instalments. The owners were advised that there was no legal basis for the
claim and rejected it, but in May 1973 they reached an advantageous agreement with an important client to charter the
tanker for three years, and being anxious to fulfil the charter they proposed that the builders' claim be submitted to
arbitration.The builders did not wish to go to arbitration, and by telex dated 26th June 1973 requested the owners to
give a final and decisive reply by 30th June to their claim for the increased price, failing which they threatened to
terminate the contract. The owners agreed by telex dated 28th June to pay the increased price in order to maintain
amicable relations with the builders but 'without prejudice to [the owners'] rights', and requested the builders to increase
their letter of credit to correspond with the increased price. On 29th June the builders replied acknowledging the
settlement of the parties' differences, and assured the owners that the letter of credit would be increased. The owners
paid the remaining four instalments, together with the additional ten per cent on each instalment, without protest. They
also accepted delivery of the ship on 27th November 1974 without protest, and signed the protocol of delivery and
acceptance without protest. There was no evidence that if the owners had protested and withheld the final instalment,
the builders would not have delivered the ship. In fact the owners never intended to affirm the agreement to pay the
increased price made on 28th/29th June, or to waive any of their rights in regard to payment of the increased price, and
on 30th July 1975 they claimed the return of the additional ten per cent on the contract price and nominated an
arbitrator. They contended that the agreement made on 28th/29th June was void for lack of consideration and that the
ten per cent was recoverable as money had and received or, alternatively, that the agreement of 28th/29th June was
voidable because it had been made involuntarily under economic duress, and that the agreement had been avoided.
Held - (i) Although the rule that a promise by one party to a contract to fulfil his existing contractual duty towards
the other party did not constitute good consideration was still good law, so that the builders' original contractual liability
to build the ship did not constitute good consideration for the agreement of 28th/29th June to pay the further ten per
cent, the increase by the builders in the amount of their letter of credit was sufficient consideration on their part for that
agreement since by agreeing to increase the letter of credit they had undertaken an additional obligation, or had
rendered themselves liable to an increased detriment, and were not merely fulfilling their existing contractual duty.
Accordingly, there was consideration for the agreement of 28th/29th June (see p 1176 j to p 1177 b and e and p 1178 c
d, post); Stilk v Meyrick (1809) 2 Camp 317 followed; Ward v Byham [1956] 2 All ER 318 and dictum of Denning LJ
in Williams v Williams [1957] 1 All ER at 307 considered.
(ii) The recovery of money on the ground that it had been paid under duress, other than under duress to the person,
was not limited to cases where there had been duress to goods: the duress could also take the form of economic duress,
which could be constituted by a threat to break a contract. Accordingly, where a threat to break a contract had led to a
further contract, that contract, even though it was made for good consideration, was voidable by reason of economic
duress. If, however, a party who had entered into a contract under economic duress later affirmed the contract he was
then bound by it. On the facts, the owners had entered into the agreement of 28th/29th June to pay the further ten per
cent under economic duress by the builders to terminate the original contract, and the agreement was initially voidable.
However, by failing to take any action by way of protest between the date of that agreement and the commencement of
the arbitration in July 1975, the owners had affirmed the agreement, and the fact that it was not their intention to affirm
it did not entitle them to avoid the agreement if that intention had not been indicated to the builders. It followed that the
owners were not entitled to claim the return of the ten per cent on the contract price (see 1182 e to g, p 1183 a to c and f
to p 1184 b, post); dictum of Isaacs J in Smith v William Charlick Ltd (1924) 34 CLR at 56 applied; Skeate v Beale
(1840) 11 Ad & El 984 considered.
INTRODUCTION:
Special case. By a shipbuilding contract dated 10th April 1972 and made between the claimants, North Ocean
Shipping Co Ltd as prospective owners ('the owners'), and the respondents, Hyundai Construction Co Ltd and Hyundai
Shipbuilding and Heavy Industries Co Ltd ('the yard'), as builders the yard agreed to build for the owners a single steel
screw steam turbine tanker of 259,000 tons deadweight, subsequently named the Atlantic Baron ('the vessel'). The
shipbuilding contract incorporated all the terms and conditions of a memorandum of agreement ('the memorandum')
made on 2nd February 1972 with such modifications and amendments as were provided for in the contract. Article XIII
of the memorandum called for arbitration in London in the event of disputes arising between the parties, each party to
appoint an arbitrator. Disputes arose between the parties and a claim by the owners for US $3,010,250 in respect of
alleged overpayments to the yard was referred to arbitration. The owners contended that during June 1973 they were
compelled to submit to the yard's illegitimate demand for an increase of ten per cent in the purchase price of the vessel
and that their agreement to do so was made under duress and voidable for that reason By way of an amended pleading
made after the conclusion of the hearing the owners contended that alternatively their agreement to submit to the
demand for an increase in the purchase price was void for lack of consideration. The yard denied liability in full,
contended that the agreement of June 1973 was valid and binding on the owners, and counterclaimed US $209,678.03.
The owners admitted liability in this respect subject to a set-off against the sum claimed by them. The arbitrators (C A
L Clarke Esq and D Davies Esq) held that the owners' claim failed completely and the yard's counterclaim succeeded in
full; and awarded and adjudged that the owners should pay to the yard the sum of US $209,678.03 plus interest in the
sum of US $31,400.70 in full and final settlement of the matters in this reference. At the request of the parties the
arbitrators stated their award in the form of a special case. The question of law for the opinion of the court was:
Whether the owners were entitled to recover from the yard sums paid by the owners to the yard in excess of the price
provided in the memorandum dated 2nd February 1972 and the agreement dated 10th April 1972, less the sum admitted
to be due from the owners to the yard under the yard's counterclaim.
JUDGMENT-1: MOCATTA J […] Having reached the conclusion that there was consideration for the agreement
made on 28th and 2th June 1973 I must next consider whether even if that agreement, varying the terms of the original
shipbuilding contract of 10th April 1972, was made under a threat to break that original contract and the various
increased instalments were made consequentially under the varied agreement, the increased sums can be recovered as
money had and received. [...]
Before proceeding further it may be useful to summarise the conclusions I have so far reached. First, I do not take
the view that the recovery of money paid under duress other than to the person is necessarily limited to duress to goods
falling within one of the categories higherto established by the English cases. I would respectfully follow and adopt the
broad statement of principle laid down by Issacs J cited earlier and frequently quoted and applied in the Australian
cases. Secondly, from this it follows that the compulsion may take the form of 'economic duress' if the necessary facts
are proved. A threat to break a contract may amount to such 'economic duress'. Thirdly, if there has been such a form
of duress leading to a contract for consideration, I think that contract is a voidable one which can be avoided and the
excess money paid under it recovered.
I think the facts found in this case do establish that the agreement to increase the price by ten per cent reached at
the end of June 1973 was caused by what may be called 'economic duress'. The yard were adamant in insisting on the
increased price without having any legal justification for so doing and the owners realised that the yard would not
accept anything other than an unqualified agreement to the increase. The owners might have claimed damages in
arbitration against the yard with all the inherent unavoidable uncertainties of litigation, but in view of the position of the
owners vis-a-vis their relations with Shell it would be unreasonable to hold that this is the course they should have
taken: see Astley v Reynolds . The owners made a very reasonable offer of arbitration coupled with security for any
award in the yard's favour that might be made, but this was refused. They then made their agreement, which can truly I
think be said to have been made under compulsion, by the telex of 28th June without prejudice to their rights. I do not
consider the yard's ignorance of the Shell charter material. It may well be that had they known of it they would have
been even more exigent.
If I am right in the conclusion reached with some doubt earlier that there was consideration for the ten per cent
increase agreement reached at the end of June 1973 and if it be right to regard this as having been reached under a kind
of duress in the form of economic pressure, then what is said in Chitty on Contracts , to which both counsel referred me,
is relevant, namely that a contract entered into under duress is voidable and not void -'that a person who has entered into the contract may either affirm or avoid such contract after the duress has ceased;
and if he has so voluntarily acted under it with a full knowledge of all the circumstances he may be held bound on the
ground of retification, or if, after escaping from the duress, he takes no steps to set aside the transaction, he may be
found to have affimed it.' […]
On the other hand, the findings of fact in the special case present difficulties whether one is proceeding on the basis
of a voidable agreement reached at the end of June 1973 or whether such agreement was void for want of consideration,
and it were necessary in consequence to establish that the payments were made involuntarily and not with the intention
of closing the transaction.
I have already stated that no protest of any kind was made by the owners after their telex of 28th June 1973, before
their claim in this arbitration on 30th July 1975, which was shortly after, in July of that year, the Atlantic Baroness, a
sister ship of the Atlantic Baron, had been tendered, though, as I understand it, she was not accepted and arbitration
proceedings in regard to her are in consequence taking place. There was therefore a delay between 27th November
1974, when the Atlantic Baron was delivered and 30th July 1975, before the owners put forward their claim.
The owners were, therefore, free from the duress on 27th November 1974 and took no action by way of protest or
otherwise between the important telex of 28th June 1973 and their formal claim for the return of the excess ten per cent
paid of 30th July 1975, when they nominated their arbitrator. One cannot dismiss this delay as of no significance,
though I would not consider it conclusive by itself. I do not attach any special importance to the lack of protest made at
the time of the assignment, since the documents made no reference to the increased ten per cent.However by the time
the Atlantic Baron was due for delivery in November 1974 market conditions had changed radically, as is found in the
special case and the owners must have been aware of this. The special case finds, as stated earlier, that the owners did
not believe that if they made any protest in the protocol of delivery and acceptance the yard would have refused to
deliver the vessel or the Atlantic Baroness and had no reason so to believe. Counsel for the owners naturally stressed
that in the rather carefully expressed findings in the special case, there is no finding that if at the time of the final
payments the owners had withheld payment of the additional ten per cent, the yard would not have delivered the vessel.
However, after careful consideration, I have come to the conclusion that the important points here are that (i) since there
was no danger at this time in registering a protest, (ii) the final payments were made without any qualification, and (iii)
were followed by a delay until 31st July 1975 before the owners put forward their claim, the correct inference to draw,
taking an objective view of the facts, is that the action and inaction of the owners can only be regarded as an affirmation
of the variation in June 1973 of the terms of the original contract by the agreement to pay the additional ten per cent. In
reaching this conclusion I have not, of course, overlooked the findings in the special case [that the owners never
intended to affirm the agreement for extra payments] but I do not think that an intention on the part of the owners not to
affirm the agreement for the extra payments, not indicated to the yard, can avail them in view of their overt acts. As
was said in Deacon v Transport Regulation Board in considering whether a payment was made voluntarily or not: 'No
secret mental reservation of the doer is material. The question is -- what would his conduct indicate to a reasonable
man as his mental state.' I think this test is equally applicable to the decision this court has to make whether a voidable
contract has been affirmed or not and I have applied this test in reaching the conclusion I have just expressed.
I think I should add very shortly that having considered the many authorities cited, even if I had come to a different
conclusion on the issue about consideration, I would have come to the same decision adverse to the owners on the
question whether the payments were made voluntarily in the sense of being made to close the transaction.
I accordingly answer the question of law in the negative with the consequences set out in the award.