CTN Cash & Carry Ltd vs Gallagher Ltd (1994) 4 ALL ER 714
Gallagher Ltd. (hereinafter referred to as ‘G’) regularly sold cigarettes to CTN Cash & Carry Ltd. (hereinafter referred to as C) on a contract basis. The cigarettes were delivered to the wrong warehouse and got stolen before Gallagher could take them back and deliver them to the right warehouse.
G said that the risk of the cigarettes was passed to C as soon as it was delivered. G demanded payment from C despite the cigarettes not being delivered which were G’s own mistake. In case of non-payment Gallagher threatened to cancel the credit facility (threatened not to continue contracting) for upcoming or future dealings. To prevent the loss of its credit facilities C paid.
Later, C sued for reclaiming the money arguing that the transaction took place on the grounds of economic duress. In simple words, the contract between C and G would stand null or void if C didn’t make the payment.
- Whether the payment was made under economic duress?
- Whether the threat not to contract was legitimate?
- Whether the money paid by C could be recovered?
The application of the English Contract Law specifically:
- Lawful act duress
- Threat not to contract
- The court ruled against C.
- The court held that the threat not to contract made by G was legitimate.
- Money paid by C was not recovered.
The court based this decision on three things:
First, the agreement was not a protected relationship like that of supplier and a consumer, it was merely a commercial transaction i.e. between two companies.
Second, G was entitled in law to refuse to contract for any reason or no reason. Therefore, G’s threat to not contract was a lawful threat.
Third, G, when it demanded payment from C – Genuinely felt entitled. Therefore, G acted in good faith. Since there was an absence of bad faith the lawful threat was legitimate and economic duress could not be established.
Current Day Significance
This case raised the question of whether an act could be economic duress if the act would, in any event, be lawful. In a commercial context, the honest pursuit of a claim would introduce too much uncertainty in the commercial bargaining process. It highlighted that the threat not to contract might be illegitimate if the accompanying demand seeks a sum of money the purpose of which is not the honest pursuit or furtherance of the duressor’s business interests. Good faith is critical in determining a threat not to contract. This was the only case that discussed the possibility of lawful act duress.
A recent case that is similar to the above-discussed case was that of Times Travel (UK) Limited vs Pakistan International Airlines Corporation which was heard on 2 and 3 November 2020. The Court of Appeal referred to the above-discussed case which had not been referred by the lower court. Here, the Court of Appeal overruled the decision of the High Court and concluded that “on the central legal issue…the doctrine of lawful act duress does not extend to the use of lawful pressure to achieve a result of which the person exercising pressure believes in good faith it is entitled, and that is so whether or not, objectively speaking, it has reasonable grounds for that belief”. It also established that “The common law and equity set tight limits to setting aside other valid contracts. In this way, undesirable uncertainty in a commercial context is reduced”.