#6774 - North Ocean Shipping Co. V. Hyundai Constructions - Restitution of Unjust Enrichment BCL

North Ocean Shipping Co. Ltd. V. Hyundai Shipping Ltd.

Facts

A shipbuilding company entered into a contract by which they agreed to build a tanker for ship owners for a fixed price in United States dollars, payment to be made in five instalments. The company agreed 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. After the owners had paid the first instalment, the United States dollar was devalued by 10 per cent. upon which the company put forward a claim to an increase of 10 per cent. in the remaining instalments. The owners, asserting that there was no legal ground on which the claim could be made, paid the second and third instalments without the additional 10 per cent., but the company returned both instalments. The owners suggested that the company should subject their claim to arbitration, but they declined to do so, and requested the owners to give them a final and decisive reply to their demand for an increase by a certain date, failing which they would terminate the contract. The owners, who at that time were negotiating a very lucrative contract for the charter of the tanker, replied that although they were under no obligation to make additional payments, they would do so "without prejudice" to their rights, and requested that the company arrange for corresponding increases in the letter of credit. The company agreed to do so in June 1973, and the owners remitted the remaining instalments, including the 10 per cent. increase, without protest. The tanker was delivered to the owners in November 1974 but it was not until July 1975 that the company knew that the owners were claiming the return of the extra 10 per cent. paid on the four instalments with interest and the matter was referred to arbitration.

Holding

Mr. Longmore's alternative argument that the increased price agreement and the additional payments made in consequence thereof resulted from a form of duress.

Recognising Economic Duress

Perhaps their greatest importance, however, is the quotation in the first mentioned from the judgment of Isaacs J. in Smith v. William Charlick Ltd. (1924) 34 C.L.R. 38, 56 where he said:

“It is conceded that the only ground on which the promise to repay could be implied is 'compulsion.' The payment is said by the respondent not to have been 'voluntary' but 'forced' from it within the contemplation of the law … 'Compulsion' in relation to a payment of which refund is sought, and whether it is also variously called 'coercion,' 'extortion,' 'exaction' or 'force,' includes every species of duress or conduct analogous to duress, actual or threatened, exerted by or on behalf of the payee and applied to the person or the property or any right of the person who pays. … Such compulsion is a legal wrong, and the law provides a remedy by raising a fictional promise to repay.”

These cases do not, however, expressly deal with the position arising when the threat or compulsion result in a new or varied contract.

The second point argued was that a payment could not be said to have been made under "practical compulsion" where a threat was made by the payee to withhold from the payer a contractual right as distinct from a right of possession of property, a statutory right or some proprietary right. These arguments were rejected by the court who cited the passage from the judgment of Isaacs J. set out above emphasising by italics the words "or any right" of the person paying under compulsion. It would seem, therefore, that the Australian courts would be prepared to allow the recovery of excess money paid, even under a new contract, as the result of a threat to break an earlier contract, since the threat or compulsion would be applied to the original contractual right of the party subject to the compulsion or economic duress.

First, I do not take the view that the recovery of money paid under duress other than to the person is...