CTN Cash and Carry v Gallaher [1993] EWCA Civ 19 (15 February 1993)

A supplier threatened to withdraw future credit facilities from a customer unless a disputed invoice was paid. The customer paid under protest and sued, claiming economic duress. The court held the threat, being a lawful act made in good faith, was not duress.

Facts

The plaintiff, CTN Cash and Carry Ltd (CTN), was a wholesaler of tobacco products. The defendant, Gallaher Ltd, was a major cigarette manufacturer and CTN’s supplier. The parties had a long-standing commercial relationship, but no overarching supply contract. Gallaher provided credit facilities to CTN, but this was at Gallaher’s sole discretion and could be withdrawn at any time. A consignment of cigarettes worth approximately £17,000 was mistakenly delivered by Gallaher to the wrong CTN warehouse. Before Gallaher could collect the goods, they were stolen from that warehouse. A dispute arose over who bore the risk for the stolen goods. Gallaher, acting under a genuine but mistaken belief that the risk had passed to CTN upon delivery, invoiced CTN for the goods. When CTN refused to pay, Gallaher threatened to withdraw all credit facilities. For CTN, the loss of credit would be commercially disastrous. To avoid this, CTN paid the sum but immediately brought proceedings to recover it on the basis that it was paid under economic duress.

Issues

The central legal issue for the Court of Appeal was whether the pressure exerted by Gallaher, specifically the threat to lawfully withdraw discretionary credit facilities, constituted illegitimate pressure sufficient to establish a claim for economic duress. This required the court to consider whether a threat to perform a lawful act could amount to duress, particularly when the threat was made in good faith.

Judgment

The Court of Appeal unanimously allowed Gallaher’s appeal, overturning the trial judge’s decision and holding that there was no economic duress. Lord Justice Steyn delivered the leading judgment.

Reasoning of the Court

The court’s reasoning focused on the distinction between illegitimate pressure and the ‘rough and tumble’ of normal commercial bargaining. Key factors were the lawfulness of the threatened act and the bona fide belief of the party exerting the pressure.

Lord Justice Steyn acknowledged the possibility of ‘lawful act duress’ but noted its radical nature and the need for caution in extending the doctrine:

I also readily accept that the fact that the defendants have used lawful means does not in itself remove the case from the scope of the doctrine of economic duress … But it is a radical doctrine, and the court should not lightly be disposed to extend its scope.

A critical element was Gallerher’s good faith. They genuinely believed they were entitled to the payment for the stolen cigarettes. The court distinguished this from a situation where a party uses a lawful threat to enforce a demand they know to be invalid. Steyn LJ stated:

Outside the field of protected relationships, and in a purely commercial context, it might be a relatively rare case in which ‘lawful-act duress’ can be established. And it might be particularly difficult to establish duress if the defendant bona fide considered that his demand was valid.

The judgment also emphasised the nature of the commercial relationship. As Gallaher was not contractually obliged to provide credit, the threat to withdraw it was a threat to do something they were legally entitled to do. The court was unwilling to introduce a principle of ‘inequality of bargaining power’ as a ground for judicial intervention in arm’s length commercial transactions, viewing such regulation as a matter for Parliament. Steyn LJ concluded:

In our case the defendants were bona fide, i.e. they thought they were entitled to the money. They were not seeking to exploit the plaintiffs. They were in a monopoly-type position but there is no finding of an abuse of a dominant position. In these circumstances I have come to the conclusion that the plaintiffs’ claim must fail because the defendants’ conduct did not in my judgment, cross the line which separates the rough and tumble of the pressures of normal commercial bargaining from illegitimate pressure.

Implications

The decision in CTN Cash and Carry v Gallaher significantly clarifies the boundaries of economic duress in English contract law. It establishes that a threat to perform a lawful act, such as refusing future business or withdrawing discretionary credit, will generally not constitute illegitimate pressure, especially where the party making the threat acts in good faith. The case reinforces the principle of commercial certainty and the reluctance of courts to police the fairness of bargains between commercial parties of seemingly equal standing, even if one holds a stronger bargaining position. It sets a high bar for successfully claiming ‘lawful act duress’, requiring something more than a bona fide threat made in a commercial context.

Verdict: The appeal was allowed; the plaintiff’s (CTN’s) claim to recover the money paid under alleged duress failed.

Source: CTN Cash and Carry v Gallaher [1993] EWCA Civ 19 (15 February 1993)