Lloyd's Maritime and Commercial Law Quarterly
COMPROMISE AND COERCION
Pey-Woan Lee*
The Cenk Kaptanoglu
The Commercial Court’s recent decision in Progress Bulk Carriers Ltd v Tube City IMS LLC (The Cenk Kaptanoglu)
1 is an interesting example of economic duress founded (in part) on a lawful threat. The claimants in this case were the disponent owners of the vessel Cenk Kaptanoglu. On 2 April 2009, they chartered the vessel to the respondent-charterers for the carriage of shredded scrap but delivered the vessel to a third party shortly thereafter. This constituted a repudiatory breach of the charterparty, which was not accepted by the charterers even though there was then no realistic chance of the Cenk Kaptanoglu’s fulfilling the charter. Conceding their error, the owners promised to provide an alternative vessel and compensate the charterers for their loss. A substitute vessel (the Agia) was subsequently identified, but by that time it was clear that a delay in shipment could not be avoided. The charterers then sought, unsuccessfully, to negotiate a discount on the freight as a condition for accepting the Agia and the late shipment. On 28 April 2009, the owners made a “take it or leave it” offer, requiring the charterers to accept the Agia at a $2 per metric ton discount and waive all claims connected to the owners’ repudiatory breach. The charterers eventually agreed under protest.
In the arbitration that ensued, the charterers obtained a majority award to set aside the 28 April agreement on the ground that it was procured under economic duress. The arbitrators found that the charterers were not obliged to mitigate their losses by looking for another vessel in the market because they had acted reasonably in relying on the owners’ assurance to provide a substitute vessel. By these assurances, the owners lulled the charterers into a “false sense of security”2 and exploited that position to extract a favourable settlement by issuing the “take it or leave it” offer.3 By that time, the charterers had no reasonable alternative but to accept the offer, because they were confronted by a rapidly falling market and fast-accruing demurrage as well as a real risk of breaching their forward contract of sale.4 It was thus the combination of the prior repudiatory breach and the subsequent assurances that improperly coerced the charterers into accepting the owners’ offer.
On appeal the arbitrators’ decision was affirmed by Cooke J in the Commercial Court. Cooke J reiterated the principle laid down in CTN Cash & Carry Ltd v Gallaher Ltd
5 that “illegitimate pressure” could be constituted by lawful acts, although it would be unusual in a purely commercial context.6 In identifying operative duress, the critical test was “not whether the conduct is lawful but whether it is socially or morally unacceptable”.7 This is necessarily an evaluative exercise, requiring the court to “discriminate between different factual situations … by focusing on distinctive features of the particular case and deciding whether or not it did amount to a case of duress”.8 The applicable standard
* Associate Professor of Law, Singapore Management University
1. [2012] EWHC 273 (Comm); [2012] All ER (D) 122.
2. At [12].
3. At [16].
4. At [17].
5. [1994] 4 All ER 714.
6. At [36].
7. At [30], citing CTN [1994] 4 All ER 714, 719 (Steyn LJ).
8. At [32].
CASE AND COMMENT
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