PAKISTAN INTERNATIONAL AIRLINE CORPORATION V TIMES TRAVEL (UK) LTD [2021] UKSC 40


HEADLINE SUMMARY

Ruling for the first time on the doctrine of economic duress, the Supreme Court analysed the doctrine in detail, confirmed the existence of lawful act duress and provided guidance on how it should be applied.    

COMMENTARY

This judgment is a significant development in the doctrine of economic duress.  Whilst the Court confirmed the boundaries of economic duress, and further that they are not fixed, the threshold for a successful claim for economic duress is now even higher, making it more difficult for claimants considering such a cause of action.  Economic duress should therefore be considered alongside other remedies, including undue influence and unconscionable bargains. But pressure applied by a party in commercial negotiations is unlikely to reach the standard of illegitimate pressure or unconscionable conduct.

FACTUAL BACKGROUND

Pakistan International Airlines (PIAC) was the sole operator of direct flights between the UK and Pakistan and the national flag carrier of Pakistan.  Times Travel, a small travel agent, sold tickets to fly on PIAC pursuant to an agency agreement.  A dispute between the parties arose, following which Times Travel made claims for unpaid commission on sales of tickets.  

PIAC pressured Times Travel to waive those claims for unpaid commissions under the parties' existing contract (which was due to expire) and threatened to not continue its relationship with Times Travel.  In particular, PIAC gave notice to Times Travel that the existing agency agreement would be terminated and reduced Times Travel's fortnightly ticket allocation from 300 to 60 tickets, which PIAC was entitled to do under the existing contract.

The ticket reduction would have put Times Travel out of business had it continued: its business was dependent on having PIAC tickets to sell.  Whilst PIAC had no obligation to enter into the new contract with Times Travel, its threat of not doing so meant that Times Travel had no viable alternative than to waive its pre-existing claims.  Times Travel waived its pre-existing claims when entering into the new agreement, and subsequently brought a claim against PIAC for the unpaid commission, arguing that it could rescind the new contract for lawful act economic duress and that the waiver should not bind it in light of the circumstances in which it had been obtained. 

At first instance, the court held that Times Travel was entitled to rescind the new contract for duress and allowed to claim the unpaid commission.  It also found that PIAC had genuinely believed the commission was not due.  

PIAC's appeal was upheld on the basis that a claim for unlawful act duress would not succeed in a commercial context where a party was making lawful threats in support of a demand that it genuinely and reasonably believed it was entitled to make.  Essentially, PIAC had not acted in bad faith in the required sense.  

Times Travel appealed to the Supreme Court, which dismissed its appeal.   

KEY LEGAL POINTS

Lawful act duress does exist and comprises the following elements:

  • there is a threat (or pressure exerted) by the defendant that is illegitimate 
  • the illegitimate threat (or pressure) caused the claimant to enter into the contract
  • the claimant had no reasonable alternative to giving in to the threat (or pressure)

The Court considered the circumstances in which the doctrine of lawful act duress had been applied to date, i.e.:

  • exploitation of knowledge of criminal activity by the claimant (or those associated with it)
  • using illegitimate means to manoeuvre the claimant into a position of weakness to force it to waive its claim.

Whilst the Court cautioned that these circumstances were not exhaustive, it also reiterated that the doctrine was to be applied restrictively and stressed the need to consider the law of economic duress against the backdrop of other remedies available (such as undue influence and unconscionable bargains).

The Court also noted the absence of a common law doctrine of inequality of bargaining power in contract and that English law does not recognise a duty of good faith in contracting, the absence of which therefore restricted the scope for lawful act economic duress in commercial life.  Therefore, pressure applied by a party in negotiations is unlikely to reach the standard of illegitimate pressure or unconscionable conduct. 

Key contact

Becky Green

Becky Green

Associate, Commercial Disputes
Manchester

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