North Ocean Shipping v Hyundai

Legal Case Summary

North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705

Duress; contract validity; economic pressure

Facts

Shipbuilders Hyundai Construction (HC) agreed to build a tanker for North Ocean Shipping (NOS) for a fixed price, which was to be paid in five instalments, in US dollars. HC opened a letter of credit as security repayment of instalments in the event of default. After the first instalment was paid, the US dollar’s value went down by 10%, so HC claimed a 10% increase in the building price in response. NOS rejected the claim and paid the following two instalments based on the original price. HC returned these payments. HC also rejected the idea of arbitration and gave an ultimatum to NOS – they either accept HC’s demand for a 10% price increase or HC will terminate their contract.

Issues

At the time of the dispute, NOS was close to reaching a lucrative agreement regarding the tanker’s chartering, so to avoid losing this deal, NOS agreed to the increase “without prejudice” to their rights. HC, in turn, agreed to increase the letter of credit. NOS started a claim for the return of the 10% increase a year after the tanker’s delivery on grounds of economic duress.

Decision/Outcome

The Court found in favour of HC. HC’s increase of the letter of credit served as consideration for NOS’s increased payments under the original contract. While HC’s demand for a 10% price increase did amount to economic presure and made the original contract voidable, NOS’s payments without protest affirmed the contract. NOS’s claim based on economic duress thus had to fail.