Huyton SA v Peter Cremer GmbH & Co
Citations:  1 Lloyd’s Rep 620.
The claimant agreed to sell wheat to Sudanese buyers. They then agreed to buy the wheat to fulfil the order from the defendant on FOB terms. The contract entitled the defendant to be paid only once they presented certain documents. Property in the goods would only pass at this point. The defendant delivered the wheat to a Sudanese port on a vessel chartered by the claimant. The vessel incurred a demurrage (late unloading) charge of $500,000.
The defendant then presented the relevant documents to the claimant. However, the claimant rejected them due to various discrepancies. The defendant argued that the claimant had waived the right to reject the documents when they delivered the cargo. The claimant refused to pay. They later claimed that the defendant’s failure to remedy the non-conforming documents was a repudiatory breach allowing them to terminate the contract.
The parties entered arbitration and began negotiating to settle the dispute. The claimant agreed to pay the defendant if they re-presented the documents and dropped arbitration claims relating to the demurrage charge. The defendant agreed. However, the defendant later pursued the arbitration claims any way, claiming that the settlement agreement was voidable for economic duress. The claimant brought proceedings to restrain the defendant from pursuing arbitration.
- Did the claimant exert illegitimate pressure on the defendant to secure the settlement agreement?
The High Court held for the claimant. The claimant’s pressure to settle was legitimate, because it was lawful and its stance was reasonable. The claimant was under no legal obligation to pay against non-conforming documents. It was entitled to terminate the contract for repudiatory breach. Once the contract was terminated, the defendant lost their right to present conforming documents and be paid unless the parties reached a new agreement.
Even if the pressure had been illegitimate, it was not a significant cause of the defendant’s decision to agree to the contract. To the extent that the defendant felt pressured to accept the agreement, this was due to its own misunderstandings of its legal position. This was not the claimant’s responsibility.
This Case is Authority For…
To establish economic duress, the innocent party must show that the other exerted illegitimate pressure which was a ‘significant cause’ inducing the contract. For the pressure to be a significant cause, it must be the case that ‘but for’ the pressure, the innocent party would not have agreed to the contract.
The defendant in this case also disputed the existence of consideration, on the grounds that they did not ever subjectively intend to abide by the settlement agreement. The High Court rejected this, holding that the existence of the contract is a matter of objective fact. The defendant’s subjective intention to provide the consideration promised (giving up their arbitration claim) was not relevant.