England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
(COMMERCIAL LIST)
(HIS HONOUR JUDGE KERSHAW Q.C. SITTING AS A DEPUTY HIGH COURT JUDGE)

		Royal Courts of Justice
		15th February 1993

THE VICE-CHANCELLOR: I ask Steyn L.J. to give the first judgment.

LORD JUSTICE STEYN: A buyer paid a sum of money to his supplier. The sum of money was in truth not owed by the buyer to the supplier. The buyer paid the sum as a result of the supplier's threat to stop the buyer's credit facilities in their future dealings if the sum was not paid. The supplier acted in the bona fide belief that the sum was owing. Does the doctrine of economic duress enable the buyer to recover the payment? In a judgment given on 8th August 1991 His Honour Judge Michael Kershaw Q.C. gave a negative answer to this question. This appeal challenges the correctness of the judge's conclusion.

The plaintiffs used to carry on a "cash and carry" business from warehouses in six Lancashire towns, including Preston and Burnley. A feature of the plaintiffs' "cash and carry" business was the sale of cigarettes. The plaintiffs bought consignments of cigarettes from the defendants. The defendants were apparently the sole distributors in England of popular brands such as Silk Cut and Benson & Hedges. The dealings between the plaintiffs and the defendants took place on the defendants' standard terms of business. It was not a case of what is sometimes called a "requirements contract", i.e. a transaction obliging the seller to make periodic deliveries of goods ordered pursuant to its terms. The defendants were not contractually bound to sell any cigarettes to the plaintiffs. The terms of business regulated separate contracts made from time to time. In their absolute and unfettered discretion the defendants sometimes granted credit facilities to customers. Such facilities were effective until withdrawn. The defendants granted such credit facilities to the plaintiffs.

On 20th November 1986 the manager of the plaintiffs' warehouse in Preston placed an order for a large consignment of cigarettes. The invoice value of the order inclusive of V.A.T. was of the order of C17,000. By mistake an employee of the defendants put the address of the plaintiffs' warehouse in Burnley on the delivery note. On 24th November 1986 the defendants' driver delivered the goods to the plaintiffs' warehouse in Burnley. The goods were unloaded. Mr Nuttall, an Assistant Branch Manager of the plaintiffs, signed the delivery note. Shortly afterwards Mr Nuttall discovered that the delivery was intended for the Preston warehouse and not the Burnley warehouse. He telephoned the defendants' despatch department about the matter. Eventually it was agreed that the defendants would arrange for the carriage of the goods from Burnley to Preston. The defendants were to undertake the carriage of the goods to Preston on 28th November 1986. Unfortunately, there was a robbery at the Burnley warehouse on the day before. The entire consignment of cigarettes was stolen. In due course the defendants delivered a new consignment of cigarettes to the Preston warehouse and the plaintiffs paid for it.

The question was who should suffer the loss resulting from the theft of the goods at the Burnley warehouse? On 8th December 1986 the defendants invoiced the plaintiff for the price of the stolen goods. Although property in the goods had not passed to the plaintiffs, the judge found that the defendants thought in good faith that the goods were at that time at the plaintiffs' risk. The judge's finding is not challenged on this appeal. The plaintiffs rejected the invoice. The dispute about the price of the stolen goods lingered on for some time.

In the second half of 1988 or in 1989, Mr Hayes of the defendants discussed the matter with Mr Kitt, the Financial Director of the plaintiffs. There was an issue of fact as to what was said. The judge found as a matter of fact:

(a) that Mr Hayes made it clear to Mr Kitt that unless the plaintiffs paid for the stolen goods the defendants would not in future grant credit to the plaintiffs;

(b) that the defendants regarded payment for the stolen goods as the lesser of the two evils and paid the disputed invoice for that reason.

By a writ issued in September 1989 the plaintiffs claimed repayment of the £17,000. The parties continued to deal with one another until January 1991. The plaintiffs deducted the sum in question from their last payment to the defendants.

The judge said that at the end of the trial the only issue was whether the plaintiffs were entitled to recover the original payment of €17,000 and to set off that sum against their admitted liability for under-payment in respect of the goods ordered and received in the final weeks of trading. That issue was unfortunately not pleaded, but the defendants were content for the judge to decide the issue.

On appeal the plaintiffs accept that, if the case of duress does not succeed, the claim for repayment must fail. It seems to me not to matter whether the correct analysis of the facts is that an agreement was made that the plaintiffs would pay the sum in question or whether payment is to be regarded simply as a unilateral act of the plaintiffs. In either event the claim must succeed if the case of duress is made out; if that case is not made out the claim must fail.

Miss Heilbron Q.C., who appeared for the plaintiffs, submitted that the judge erred in rejecting the plea of duress. She submitted that the payment was made under illegitimate pressure. She emphasised that there was objectively no legal basis for demanding the price of the goods, and the threat of withdrawing the credit facilities was made solely in order to obtain the payment. The threat was powerful because the removal of credit would have seriously jeopardised the plaintiffs' business. The clear purpose, she said, was to extort money to which the plaintiffs were in truth not entitled. In the circumstances, the threat was illegitimate and the case of duress was made out.

Miss Heilbron cited a number of authorities which illustrate developments in this branch of the law. While I found the exercise of interest, I was reminded of the famous aphorism of Oliver Wendell Holmes that general propositions do not solve concrete cases. It may only be a half-truth, but in my view the true part applies to this case. It is necessary to focus on the distinctive features of this case, and then to ask whether it amounts to a case of duress.

The present dispute does not concern a protected relationship. It also does not arise in the context of dealings between a supplier and a consumer. The dispute arises out of arm's length commercial dealings between two trading companies. It is true that the defendants were the sole distributors of the popular brands of cigarettes. In a sense the defendants were in a monopoly position. The control of monopolies is, however, a matter for Parliament. Moreover, the common law does not recognise the doctrine of inequality of bargaining power in commercial dealings. See National Westminster Bank Pic v. Morgan [1985] AC 686. The fact that the defendants were in a monopoly position cannot therefore by itself convert what is not otherwise duress into duress.

A second characteristic of the case is that the defendants were in law entitled to refuse to enter into any future contracts with the plaintiffs for any reason whatever or for no reason at all. Such a decision not to deal with the plaintiffs would have been financially damaging to the defendants, but it would have been lawful. A fortiori it was lawful for the defendants, for any reason or for no reason, to insist that they would no longer grant credit to the plaintiffs. The defendants' demand for payment of the invoice, coupled with the threat to withdraw credit, was neither a breach of contract nor a tort.

A third, and critically important, characteristic of the case is the fact that the defendants bona fide thought that the goods were at the risk of the plaintiffs and that the plaintiffs owed the defendants the sum in question. The defendants exerted commercial pressure on the plaintiffs in order to obtain payment of a sum which they bona fide considered due to them. The defendants' motive in threatening withdrawal of credit facilities was commercial self-interest in obtaining a sum that they considered due to them.

Given the combination of these three features, I take the view that none of the cases cited to us assist the plaintiffs' case. Miss Heilbron accepted that there is no decision which is in material respects on all fours with the present case. It is therefore unnecessary to disinter all those cases and to identify the material distinctions between each of those decisions and the present case. But Miss Heilbron rightly emphasised to us that the law must have a capacity for growth in this field. I entirely agree.

I also readily accept that the fact that the defendants have used lawful means does not by itself remove the case from the scope of the doctrine of economic duress. Professor Birks, in his "Introduction to the Law of Restitution", at 177, lucidly explains:

"Can lawful pressures also count? This is a difficult question, because, if the answer is that they can, the only viable basis for discriminating between acceptable and unacceptable pressures is not positive law but social morality. In other words, the judges must say what pressures (though lawful outside the restitutionary context) are improper as contrary to prevailing standards. That makes the judges, not the law or the legislature, the arbiters of social evaluation. On the other hand, if the answer is that lawful pressures are always exempt, those who devise outrageous but technically lawful means of compulsion must always escape restitution until the legislature declares the abuse unlawful. It is tolerably clear that, at least where they can be confident of a general consensus in favour of their evaluation, the courts are willing to apply a standard of impropriety rather than technical unlawfulness."

And there are a number of cases where English courts have accepted that a threat may be illegitimate when coupled with a demand for payment even if the threat is one of lawful action. She Thorne v. Motor Trade Association [1937] A.C. 797 at 806- 807; Mutual Finance, Limited v. John Wetton & Sons, Limited [1937] 2 K.B. 389; Universe Tankships Inc. of Monrovia v. International Transport Workers Federation, "The Universe Sentinel" [1983] 1 AC 366, 384A-C and 401C. On the other hand, Goff and Jones, "The Law of Restitution", third edition, at p. 240, observed that English courts have wisely not accepted any general principle that a threat not to contract with another, except on certain terms, may amount to duress. We are being asked to extend the categories of duress of which the law will take cognizance. That is not necessarily objectionable, but it seems to me that an extension capable of covering the present case, involving "lawful-act duress" in a commercial context in pursuit of a bona fide claim, would be a radical one with far-reaching implications. It would introduce a substantial and undesirable element of uncertainty in the commercial bargaining process. Moreover, it will often enable bona fide settled accounts to be re-opened when parties to commercial dealings fall out. The aim of our commercial law ought to be to encourage fair dealing between parties. But it is a mistake for the law to set its sights too highly when the critical enquiry is not whether the conduct is lawful but whether it is morally or socially unacceptable. That is the enquiry in which we are engaged. In my view there are policy considerations which militate against ruling that the defendants obtained payment of the disputed invoice by duress.

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. In this complex and changing branch of the law I deliberately refrain from saying "never". But as the law stands, I am satisfied that the defendants' conduct in this case did not amount to duress.

It is an unattractive result, inasmuch as the defendants are allowed to retain a sum which at the trial they became aware was not in truth due to them. But in my view the law compels the result.

For these reasons, I would dismiss the appeal LORD JUSTICE FARQUHARSON: I agree.

THE VICE-CHANCELLOR: I also agree.

It is important to have in mind that the sole issue raised by this appeal and argued before us was duress. The plaintiff claims payment was made by it under duress and is recoverable accordingly. I agree, for the reasons given by my Lord Steyn L.J., that that claim must fail. When the defendant company insisted on payment, it did so in good faith. It believed the risk in the goods had passed to the plaintiff company, so it considered it was entitled to be paid for them. The defendant company took a tough line. It used its commercial muscle. But the feature underlying and dictating this attitude was a genuine belief on its part that it was owed the sum in question. It was entitled to be paid the price for the goods. So it took the line: the plaintiff company must pay in law what it owed, otherwise its credit would be suspended.

Further, there is no evidence that the defendant's belief was unreasonable. Indeed we were told by the defendant's counsel that he had advised his client that on the risk point the defendant stood a good chance of success. I do not see how a payment demanded and made in those circumstances can be said to be vitiated by duress.

So that must be an end to this appeal. I confess to being a little troubled at the overall outcome. At a late stage of the trial the defendant's counsel accepted that the risk in the goods had not in law passed to the plaintiff. Hence, and this must follow, the defendant company was not, and never had been, entitled to be paid for the goods. The risk remained throughout on the defendant. What also follows is that the basis on which the defendant had sought and insisted on payment was then shown to be false.

In those circumstances I confess to being a little surprised that a highly reputable tobacco manufacturer has, so far, not reconsidered the position. A claim for restitution based on wrongful retention of the money, once the risk point had been established, was not pursued before us, no doubt for good reasons. But on the sketchy facts before us - and I emphasise that we have heard argument only from the plaintiff - it does seem to me that prima facie it would be unconscionable for the defendant company to insist on retaining the money now. It demanded the money when under a mistaken belief as to its legal entitlement to be paid. It only made the demand because of its belief that it was entitled to be paid. The money was then paid to it by a plaintiff which in practical terms had no other option. In broad terms, in the end result the defendant may be said to have been unjustly enriched. Whether a new claim for restitution now, on the facts as they have since emerged, would succeed is not a matter I need pursue. I observe, as to that, only that the categories of unjust enrichment are not closed. I too would dismiss this appeal.

Order: Appeal dismissed with costs.