Kolmar v Traxpo

DMC/SandT/10/16

England and Wales

Kolmar Group AG v Traxpo Enterprises Pvt Limited

English High Court: [2010] EWHC 113 (Comm)

Mr Michael Ashcroft, instructed by Arbis LLP, for the Claimant

The defendant was not represented

INTERNATIONAL SALE OF GOODS: FOB CONTRACT: ECONOMIC DURESS BY DEMANDING PAYMENT FOR LESSER AMOUNT OF GOODS AT HIGHER PRICE THAN AGREED UNDER THE CONTRACT: TORT OF INTIMIDATION: DAMAGES FOR BREACH OF CONTRACT

Summary

The Court held that the Defendant’s demand to amend the contract and supply a lesser amount of goods at a higher price than those stated under the contract constituted economic duress and the tort of intimidation. Therefore, the Claimant was entitled to recover the extra payment by way of restitution and damages for intimidation.

This note has been contributed by Ken Lee To-ching, LLB(Hons), PCLL (University of Hong Kong), BCL Student at Oxford University.

Background

On about 27 or 28 August 2007, the Claimant, Kolmar Group AG (“Kolmar”), entered into a contract to buy from the Defendant, Traxpo Enterprises Pvt Limited (“Traxpo”), 15,000 m.t. methanol +/- 5% at buyer’s option, and an optional 2-3,000 metric tons of cargo +/- 5% in buyer’s option. Kolmar wanted to sell the methanol to its customer in America which needed the goods urgently.

The contract was FOB Kandla for shipment within September 2007. Payment was to be at sight against an irrevocable documentary letter of credit payable against presentation of specified documents. The laytime allowed and the demurrage rate were to be agreed upon vessel nomination and all other maritime conditions were to be in accordance with the Asbatankvoy Charter Party form. It also provided that Incoterms 2000 should apply where not in conflict with the other conditions of the contract.

On 29 August 2007, Traxpo requested an amendment to the effect that the quantities be at Seller’s option, but this proposed amendment was never agreed to. On the same day, Kolmar nominated a vessel for the carriage of goods under the contract (“the Vessel”).

On 12 September 2007, ING in Geneva opened a letter of credit (“the Letter of Credit”) on behalf of Kolmar in favour of a company named by Traxpo, PEC Ltd, in respect of the goods with a latest date for shipment of 30 September. The Letter of Credit was subject to UCP 600 which provide that they are binding on parties unless expressly modified or excluded. Article 14k provides that the shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit.

Traxpo discussed the terms of the Letter of Credit with PEC. It requested various amendments to the terms of the Letter of Credit. The Letter of Credit was so amended, including the description of the goods, which now stated that the 5% variation of the goods would be at seller’s option.

In the meantime, the Vessel arrived at Kandla. However, its berthing was delayed due to delay in submitting the shipping documents to the port and to the outstanding payment of wharfage.

Arrangements were finally made to berth the Vessel on 3 October but loading did not commence, pending resolution of a demand by Traxpo. Traxpo’s representative explained to Kolmar that Traxpo had to purchase on a piecemeal basis from the local market in order to fulfil its obligation to Kolmar and that, due to the substantial increase in the price of methanol, it would suffer a huge loss. Traxpo would not keep to the contract but would only be providing an amount of methanol less than that specified and at a price higher than that agreed. After some negotiations between the two parties, Traxpo finally presented this as a “take it or leave it” proposal.

At that time, Kolmar had already incurred about US$140,000 in demurrage. Kolmar protested to Traxpo as the new price was much higher than that agreed under the contract. However, Kolmar finally agreed to the proposal, stating that “we have no other alternative but to accept”. The vessel duly loaded the revised quantity of Traxpo cargo. Kolmar later obtained goods from the domestic market to make up for the shortfall.

In December 2007, Kolmar started proceedings against Traxpo to recover the extra payment of about US$1.4 million by way of restitution for economic duress or as damages for intimidation.

Judgment

Christopher Clark J. allowed the claims made by Kolmar.

On the claim for economic duress, the Court noted the relevant principles established in cases like DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530: (i) economic pressure can amount to duress if it may be characterised as illegitimate and constitutes a “but for” cause inducing the claimant to enter into the relevant contract; (ii) a threat to break a contract will generally be regarded as illegitimate, particularly where the defendant knows that it would constitute a breach if the threat was implemented; (iii) it is relevant to consider whether the claimant had a “real choice” or “realistic alternative”, or whether it could have resisted the pressure and pursued practical and effective legal redress; and (iv) the presence, or absence, of protest, is relevant to the question whether the threat had coercive effect. However, absence of protest does not mean that the payment was voluntary.

Applying these principles, the Court held that Kolmar had no practical choice but to agree to amend the Letter of Credit to increase the price and reduce the quantity, and to accept and pay for the documents tendered. This was the result of Traxpo’s economic duress. Kolmar purchased the methanol to supply it to a very important customer. Arguing with Traxpo would probably have delayed the loading of the vessel, which might have necessitated taking it off the berth again. Kolmar would then be exposed to ever increasing claims from the shipowners in respect of demurrage If a full cargo was not loaded, Kolmar would also have faced a very large claim for deadfreight. Kolmar had made contemporaneous protests to Traxpo, but this was all that it could do as Traxpo had threatened to walk away from the contract completely.

Similarly, Traxpo’s demand for the price increase was backed by coercive and unlawful threats that it would not perform its obligations. It intended that Kolmar should comply with the demand which it knew would cause loss to Kolmar. Kolmar did comply with the demand as a result of the threat. This constituted the tort of intimidation.

Traxpo argued that as Kolmar failed to provide an acceptable letter of credit, it had no obligation to perform the contract and thus made no illegitimate threat. However, the Court rejected this submission. It noted the decision of the Court of Appeal in Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce [1997] 2 Lloyd’s Rep 386, where it was held that, under a FOB contract, the buyer was obliged to open a letter of credit in accordance with the contract requirements before the shipment period began. If the obligation were simply to provide a letter of credit within a reasonable time after the contract date, it would introduce commercial uncertainty, and it might leave the seller without the security of a credit at the beginning of the shipment period. On the facts, Kolmar did not open an acceptable letter of credit by the beginning of the shipment period. However, Traxpo waived Kolmar’s obligation to do so by repeatedly asking for further amendments to the Letter of Credit.

Therefore, Kolmar was entitled to recover the additional payment of US$1.4 million by way of restitution for economic duress, and as damages for intimidation. Further, that sum was not supported by any consideration from Traxpo, as it had only promised to perform a contractual obligation to which it was already subject.