Kolmar Group AG v Traxpo Enterprises PVT Ltd

Economic pressure may constitute duress where it is illegitimate and induces a payment or contractual variation. A threat to breach an existing contract will generally be illegitimate. The court considers whether the claimant had any real or practical alternative, including effective legal redress; protest is relevant but not essential.

In a classic f.o.b. sale requiring payment by letter of credit, the buyer must ordinarily provide a conforming credit by the beginning of the shipment period. That obligation may be waived by the seller’s conduct. A variation obtained by economic duress is voidable and does not amount to a freely agreed renegotiation.

The claimant buyer sought restitution and damages from the defendant seller following the seller’s failure to supply the contracted quantity of methanol at the agreed price. The seller demanded increased prices and reduced quantities while the vessel was awaiting and undertaking loading. The buyer amended the letters of credit and accepted the documents under protest to avoid demurrage, deadfreight, loss of an important customer and further delay.

The court considered economic duress, intimidation, the buyer’s obligation to provide an acceptable letter of credit, alleged rejection of cargo, short delivery, demurrage and shifting expenses.

1. Economic duress. The seller’s refusal to supply the contracted quantity at the agreed price, coupled with demands for substantially increased prices, amounted to illegitimate pressure. The buyer had no practical alternative because it faced escalating demurrage, substantial deadfreight, exposure to claims from its customer and the absence of speedy or effective legal redress. The buyer’s amendments to the letters of credit and payment for the documents were therefore induced by economic duress and were voidable.
2. Letter of credit. In a classic f.o.b. contract, the buyer was required to provide a conforming letter of credit by the beginning of the shipment period. The credit was acceptable in its amended form because the incorporated UCP rules did not require the credit expressly to permit all third-party documents, including the invoice. In any event, the seller waived any entitlement to rely on late provision by requesting and negotiating amendments, confirming that the credit appeared acceptable, continuing to seek extensions and never treating the contract as terminated.
3. The alleged rejection of cargo from tank USTTL 204 was unsupported. The tank had originally been approved and was later used for loading.
4. The increased prices did not result from a freely agreed variation. They were extracted by economic duress. The seller therefore gave no consideration for the additional payment beyond a promise to perform an existing obligation accompanied by a threat not to perform.
5. The elements of intimidation were established: an unlawful coercive threat backed the demand, the buyer complied because of it, the seller knew that compliance would cause loss, and intended that result.
6. The buyer had agreed, without duress, that the seller could deliver 95 per cent of the nominated 17,500 metric tonnes. Damages for short delivery were therefore calculated by reference to 16,625 metric tonnes. The buyer also recovered demurrage of $356,424.60 and shifting expenses of $5,162.13.
7. Judgment was entered for the buyer in the total sum of $2,235,737.27, subject to submissions on interest and costs.

First-instance judgment. No prior appellate decision is stated in the judgment.