Facts: Hyundai Construction, a ship builder, agreed to build a ship for North Ocean Shipping. The contract price was fixed in USD and to be paid in five instalments. H provided a letter of credit in favour of NOS to secure repayment in case H defaulted. After the first instalment was paid, the USD depreciated 10% and H refused to continue with the contract unless NOS paid 10% more of the remaining instalments. NOS reluctantly agreed, as they had entered into a contract with Shell to charter the ship. NOS insisted that H provide something of value in return for the price increase. H increased letter of credit by the same margin. H delivered the ship to NOS on time. Eight months later, NOS claimed the extra 10%.
Held: The pressure to pay the additional 10% was economic duress (duress in the form of threat to break an existing contract). They had no legal justification for doing so. The other contract also contributed as NOS had no other choice but to accept the contract variation. Therefore, the contract was voidable and the remedy available is rescission. However, here, the right to rescind was barred due to affirmation. NOS affirmed the new contract, evidenced by the 8 month delay. This was beyond ‘reasonable time’, so the contract was taken to be affirmed. Affirmation is a bar to rescission.
Held (Mocatta J, at 719): ‘A threat to break a contract may amount to ... “economic duress”. ... [T]he facts found in this case do establish that the agreement to increase the price by 10 per cent ... was caused by ... “economic duress.” [Hyundai] were adamant in insisting on the increased price without having any legal justification for doing so and [NOS] realised that [Hyundai] would not accept anything other than an unqualified agreement to the increase. [NOS] might have claimed damages in arbitration against [Hyundai] ... but in view of ... their relations with Shell it would be unreasonable to hold that this is the course they should have taken.’