Atlas Express v Kafco [1989]: Facts and Decision

Case name & citation: Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] 1 All ER 641; [1989] QB 833; [1989] 3 WLR 389

Year of the case: 1989
Court and jurisdiction: High Court, England and Wales
The learned judge: Tucker J
Area of law: Economic duress

What is the case about?

This is a contract law case that deals with economic duress.

Facts of the case (Atlas Express v Kafco)

The plaintiff came to an agreement with the defendant for delivering basket ware to the Woolworth chain of stores at a price of 1.10 pounds per carton. However, the plaintiff afterward realized that the pricing was uneconomical and attempted to negotiate a minimum charge of 440 pounds per trailer load. The minimum charge was not agreed upon.

Atlas Express, the plaintiff, was a reputable carrier in the United Kingdom, while Kafco, the defendant, was a small manufacturer of basket ware that had received a huge order from Woolworth.

The defendant’s ability to deliver goods to Woolworth on time was crucial for the defendant’s economic survival. It would have been challenging, if not impossible, for the defendant to find a substitute carrier in time to fulfill delivery deadlines.

When the driver of the plaintiff came to collect the goods, he carried a document (the updated contract) with the minimum charge of 440 pounds per trailer load printed on it. The driver threatened that if the defendant did not sign the updated contract, the trailer would be taken away empty & unloaded.

The defendant made vain attempts to get in touch with the plaintiff’s manager. The defendant signed the updated contract because he reasonably believed that it would be extremely challenging, if not impossible, to find and engage a new carrier.

If the defendant hadn’t been able to provide the items, Woolworth would have filed a lawsuit. Because of the plaintiff, the defendant was “over a barrel.”

Kafco later declined to pay the additional money to Atlas Express, citing economic duress.

The plaintiff filed a lawsuit to recover the greater amount that was supposedly due under the “updated contract.”

Issue raised

The Court had to decide whether the defendant was obligated to the “updated contract” or not.

Judgment of the Court in Atlas Express v Kafco

The judge ruled that the “updated contract” was not binding for two reasons: economic duress and a lack of consideration.

The judge said:

I find that the defendant’s apparent consent to the agreement was induced by pressure which was illegitimate and I find that it was not approbated. In my judgment, that pressure can properly be described as economic duress which is a concept recognized by English law and which, in the circumstances of the present case, vitiates the defendant’s apparent consent to the agreement.

In any event, I find that there was no consideration for the new agreement. The plaintiffs were already obliged to deliver the defendant’s goods at the rates agreed upon under the terms of the original agreement. There was no consideration for the increased minimum charge of 440 pounds per trailer.

It was noted that Kafco was a small business that would have been financially disrupted had Atlas Express, the larger business, been allowed to demand the additional payment. Kafco had practically no choice but to agree, under economic duress, to pay Atlas Express since they wanted to keep their contract with Woolworths, had hired more employees, and had increased their operating capacity to produce the necessary quantity.

Thus, it was decided that because the agreement for the extra money was made under duress, hence it was not binding.

Conclusion

The defendants won on both grounds of economic duress and consideration.

However, some critics contend that if the plaintiff had not acted so improperly, the outcome of Atlas Express v. Kafco would have been different. There was bad faith in the plaintiff’s behaviour in sending the truck and threatening to drive it away empty if the variation in contract rate was not agreed to. If they were aware of their underquoting and explained their circumstances & business point of view, it might be argued that the variation in the contract rate was attributed to commercial pressure and not economic duress.

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North Ocean Shipping v Hyundai (1979): The Atlantic Baron

Case name & citation: North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705; (The Atlantic Baron)

Year of the case: 1979

Jurisdiction: Queen’s Bench Division, UK

The learned judge: Mocatta J

Area of law: Duress (Economic duress)

What does the case talk about?

North Ocean Shipping v Hyundai is an English contract law case that deals with economic duress.

Facts of the case (North Ocean Shipping v Hyundai)

“North Ocean Shipping Co Ltd” (abbreviated as “NOSC”) and “Hyundai Construction Co Ltd” (abbreviated as “Hyundai”) came to an agreement under which Hyundai would construct a tanker specifically for NOSC. The price of the tanker was specified in the contract to be paid in US dollars, and NOSC was required to make the purchase price payment in five installments. Hyundai opened a letter of credit as security repayment of instalments in the event of default.

The value of the US dollar dropped by 10% after the first installment was paid; consequently, Hyundai demanded that the price of building the tanker be increased by 10% in order to account for this change. They asked for an increase of 10% in each of the last four installments that were to be made. The claim was denied by NOSC, and it continued to make payments based on the original price for the next two installments. But Hyundai refused to accept these payments and maintained its position regarding the price hike. Hyundai made it very clear to NOSC that it would not proceed with the construction of the tanker unless it was granted the increase. In addition, the proposal of using arbitration to settle the dispute was also dismissed.

At the time of the dispute, NOSC was on the verge of concluding a lucrative agreement regarding the tanker’s chartering. As a result, in order to prevent the loss of this deal and to ensure that the tanker would be finished on time in order to be in compliance with the charter, NOSC agreed to the increase. In response, Hyundai agreed to extend the amount available under the letter of credit.

The tanker was delivered on time, and the remaining payments (with the additional sums) were paid without any objections being raised.

Eight months after the tanker was delivered, Hyundai was informed that NOSC was claiming the return of the additional 10% that was paid on the tanker’s final four instalments. They argued that the contract was voidable because it was obtained under duress and, secondly, that adequate consideration was not offered for the price increase.

Issues that were raised

Was the contract voidable for duress?

If so, could NOSC be granted a refund of the additional sums paid?

Judgement of the Court in North Ocean Shipping v Hyundai

The decision was taken in favor of Hyundai.

Hyundai Construction’s increase of the letter of credit served as consideration for NOSC’s increased payments under the contract.

In addition, it was determined that NOSC had impliedly affirmed the agreement in question because it had paid the final delivery instalment without raising any objections and had delayed making a claim for the return of the extra payments by more than six months.

Therefore, despite the fact that the contract was voidable on the grounds of duress, the claimants had delayed bringing their case for such a long period of time that it was considered that they had accepted the terms of the agreement and lost their right to cancel it.

The reasoning behind the decision

A party to a contract who enters into the contract in the context of threats affecting their economic interests or well-being will be able to exercise their right to economic duress.

However, because a contract that was entered into under duress is voidable but not void, the failure of the party who was subject to the duress to take action to have the contract set aside after the duress has ceased may be construed as an affirmation of the continuation of the contract by the party who was subject to the duress. As a direct consequence of this, the party subject to duress will be deprived of their ability to cancel the contract.

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Skeate v Beale (1840): A Case Outline

Case name & citation: Skeate v Beale (1840) 11 Ad and El 983

Decided on: 01 January 1841

Jurisdiction: England & Wales

Area of law: Duress to goods

What is the case about?

This case considered the issue of duress to goods and whether or not a contract that was entered into for the payment of outstanding rent was void on the basis that it was only entered into because the landlord had threatened to sell some of the tenant’s goods.

Facts of the case (Skeate v Beale)

A tenant owed money to the landlord of the property. He took possession of the tenant’s belongings and threatened to sell them right away if the tenant did not enter into an agreement with him for the prompt settlement of the amounts owed. The tenant gave his assent to the terms of the payback. After that, he breached the agreement by failing to pay the overdue rent, and the landlord filed a lawsuit to collect the money owed.

The tenant then attempted to have the agreement voided on the grounds that it had been obtained under duress. The tenant asserted in their defense that the distress was unjustified because they were only liable for a small amount. It was because the landlord had threatened to sell the goods right away if the agreement wasn’t made that he had agreed to the terms of the contract.

Issue raised

Could the agreement of repayment be set aside for duress?

Judgement of the Court in Skeate v Beale

The Court came to the conclusion that the threat did not amount to duress because it was directed toward a property.

The application of duress to goods alone will not suffice to nullify a contract.

Hence, the promise given in return for the recovery of goods that had been unlawfully detained was held to be valid.

Criticism

This principle was criticized in Maskell v Horner (1915).

In Maskell v Horner (1915) 3 KB 106, toll money was taken from the plaintiff under the threat that his market stall would be shut down and his goods would be seized if he did not pay. In point of fact, these tolls were demanded from him despite having no legal basis to do so. The plaintiff was granted permission by the Court of Appeal to recoup the entirety of the toll money that had been paid.

It was decided that there was a wider restitution rule that allowed for the recovery of money paid to prevent goods from being seized or to obtain their release. This rule allowed for the money to be recovered.

The Skeate v. Beale line of cases says that an agreement to pay money under duress of goods (when one party threatens to damage or destroy property unless the other party agrees to a certain course of action) is enforceable, whereas the decision in Maskell v. Horner says that amounts paid under such agreements can be recovered in an action for money had and received under the law of restitution.

This results in a distinctive outcome, as it indicates that even while the agreement can be enforced, the money that was paid in accordance with it can still be recovered.

Duress of goods

Traditionally, the term “duress” solely referred to “duress to the person”, which meant that there had to be actual violence or the threat of actual harm against the person or party to the contract.

Since that time, the use of the term “duress” has broadened, and it is now generally accepted that the term may have an economic context and refer to situations including threats to harm property or goods as well as demands or threats over monetary matters.

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