CTN Cash and Carry v Gallaher

Factual and Procedural Background

The Plaintiff operated a "cash and carry" business with warehouses in several towns, including Preston and Burnley, selling cigarettes purchased from the Defendant, who was the sole distributor in England of certain popular cigarette brands. The parties dealt under the Defendant's standard terms, which included discretionary credit facilities granted to the Plaintiff.

On 20th November 1986, the Plaintiff ordered a large consignment of cigarettes intended for the Preston warehouse. Due to a mistake by the Defendant's employee, the goods were delivered to the Burnley warehouse and subsequently stolen in a robbery before being transferred to Preston. The Defendant invoiced the Plaintiff for the stolen goods, believing in good faith that the goods were at the Plaintiff's risk, but the Plaintiff rejected the invoice, leading to a dispute.

In late 1988 or 1989, the Defendant's representative threatened to withdraw credit facilities unless the Plaintiff paid for the stolen goods, which the Defendant considered the lesser of two evils. The Plaintiff paid the disputed sum of approximately £17,000 under this threat but later claimed repayment, alleging economic duress. The trial judge ruled against the Plaintiff, and this appeal challenges that decision.

Legal Issues Presented

1. Whether the doctrine of economic duress enables the Plaintiff to recover a payment made to the Defendant under threat of withdrawal of credit facilities.
2. Whether the Defendant's threat to withdraw credit facilities, combined with a demand for payment of a sum the Defendant bona fide believed was owed, constitutes illegitimate pressure amounting to duress.

Arguments of the Parties

Appellant's Arguments

• The payment was made under illegitimate pressure amounting to economic duress.
• There was objectively no legal basis for the Defendant's demand for payment.
• The threat to withdraw credit facilities was used solely to extort payment for a sum not truly owed.
• The threat was powerful and illegitimate because removal of credit would seriously jeopardise the Plaintiff's business.
• The law should recognize this as duress, allowing recovery of the payment.

Respondent's Arguments

• The Defendant acted in good faith, genuinely believing the Plaintiff owed the sum.
• The Defendant was legally entitled to refuse future contracts or withdraw credit facilities at its discretion.
• The demand for payment and threat to withdraw credit were lawful commercial pressures, not unlawful or illegitimate.
• Recognizing this as duress would unsettle commercial dealings and encourage reopening of bona fide settled accounts.
• The Defendant's conduct did not amount to duress under current law.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined three critical features: first, the Defendant's monopoly position does not itself create duress under English commercial law; second, the Defendant was lawfully entitled to refuse future dealings or withdraw credit facilities at its discretion; and third, the Defendant bona fide believed the Plaintiff owed the disputed sum.

The court acknowledged that lawful commercial pressure can sometimes amount to duress if it is illegitimate, but emphasized that the Defendant's demand was made in good faith and was not unlawful or morally unacceptable under prevailing standards. The court expressed concern that extending economic duress to cover lawful-act duress in such commercial contexts would introduce uncertainty and potentially destabilize settled commercial accounts.

Although the result was described as unattractive, the court held that the law compelled dismissal of the Plaintiff’s claim for repayment on the basis of duress. The judges recognized the possibility of growth in this area of law but refrained from extending duress to the present facts.

The court further noted that the Defendant's mistaken belief about entitlement to payment, while unfortunate, did not amount to duress. The possibility of a restitution claim for unjust enrichment was mentioned but not pursued in this appeal.

Holding and Implications

DISMISSED

The appeal was dismissed with costs. The court held that the Plaintiff’s payment was not made under economic duress because the Defendant acted in good faith and within lawful commercial rights. The decision means the Defendant may retain the payment despite the mistaken belief regarding entitlement. No new precedent was set, and the ruling maintains the existing balance in commercial law by limiting the scope of economic duress in arm's length transactions involving lawful-act pressure.