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North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd
This case, North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, concerns economic duress and the validity of a contract modification. Understanding this case requires grasping the interplay between consideration, duress, and affirmation.
I. The Facts:
The judge considered three key aspects:
A. Consideration:
This case, North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd, concerns economic duress and the validity of a contract modification. Understanding this case requires grasping the interplay between consideration, duress, and affirmation.
I. The Facts:
- Contract: North Ocean Shipping (owners) contracted with Hyundai (yard) to build a ship for US$30,950,000, payable in five installments.
- Devaluation: The US dollar devalued by 10%, leading Hyundai to demand a 10% increase in the remaining installments.
- No Legal Basis: There was no contractual basis for this increase.
- Time Charterparty: The owners secretly secured a lucrative three-year charter with Shell. This created a strong incentive to complete the ship construction.
- Hyundai's Threat: Hyundai threatened to breach the contract unless the owners agreed to the price increase.
- Owners' Payment: Under duress, the owners agreed to the increase, stating it was "without prejudice to our rights." They paid the extra amount.
- Delivery & Claim: The ship was delivered. The owners subsequently sought to recover the 10% overpayment.
The judge considered three key aspects:
A. Consideration:
- Insufficient Consideration: The court found that Hyundai's completion of the existing contract (following Stilk v Myrick) and maintaining an amicable relationship were not sufficient consideration for the price increase. Existing contractual obligations cannot be consideration for a new agreement.
- Sufficient Consideration: However, the court held that the increase in the letter of credit provided sufficient consideration. This alteration benefitted Hyundai (increased security).
- Economic Duress: The court determined that Hyundai's threat to breach the contract constituted economic duress. This illegitimate pressure forced the owners to agree to the increased price.
- Voidable Contract: This meant that the contract modification (the 10% increase) was voidable due to duress. The owners had the right to rescind (cancel) the agreement.
- Delay: The owners waited from November 1974 (delivery) until July 1975 to make their claim.
- Loss of Right: This delay was deemed an affirmation of the contract modification. By accepting the benefit (the completed ship) and waiting so long, they lost their right to rescind.
- Consideration: A promise must be supported by consideration to be legally binding. Pre-existing contractual duties generally do not constitute good consideration.
- Economic Duress: Illegitimate pressure (threats to breach contract, etc.) that forces a party into an agreement can render the contract voidable.
- Affirmation: If a party with the right to rescind a voidable contract takes action inconsistent with rescission (e.g., accepting benefits or delaying action), they lose their right to rescind.
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