Times Travel (UK) Ltd v Pakistan International Airlines Corporation (Rev 2)

Economic duress may arise from lawful pressure, but in commercial dealings it does not extend to lawful acts or threats used to pursue a result which the pressure-exerting party genuinely believes it is entitled to achieve, even if that belief lacks reasonable grounds. The court must distinguish good-faith commercial pressure from bad-faith conduct used to extract a benefit known not to be due. Economic dependence, monopoly power, inequality of bargaining power and harshness do not by themselves justify setting aside a valid contract. Control of monopoly power is principally a matter for Parliament.

Times Travel, a travel agency dependent on the appellant for the sale of direct air tickets between the United Kingdom and Pakistan, entered into a new agency agreement after the appellant terminated the existing arrangements and reduced its ticket allocation. The new agreement required Times Travel to waive claims for unpaid commission under the earlier arrangements.

Warren J held that the agreement and waiver were procured by economic duress. The appellant appealed only that conclusion. The central issue was whether lawful commercial pressure could amount to economic duress where the pressure was used to secure a demand which the appellant genuinely, but perhaps unreasonably, believed it was entitled to make.

Appeal allowed unanimously. David Richards LJ gave the leading judgment. Moylan LJ agreed, and Asplin LJ expressly endorsed the reasoning at [107]. The new agency agreement was not voidable for economic duress.

1. Economic duress requires illegitimate pressure, pressure which significantly induced the agreement, and lack of practical choice. The latter inquiry concerns practical choice rather than the higher threshold of compulsion. Only the first ingredient was disputed on the appeal.
2. The distinction between lawful and unlawful pressure is not absolute. The nature of the demand is relevant where the pressure consists of lawful acts. The principle in Universe Tankships and Dimskal Shipping supports examining both the threat and the demand. The decision in CTN Cash and Carry establishes that lawful pressure used to obtain a demand which the defendant does not bona fide believe to be due may render the agreement voidable.
3. That principle does not extend to a demand pursued in good faith, whether or not the defendant has objectively reasonable grounds for the belief. A broader test based on proportionality, moral unacceptability or objective standards of acceptable behaviour would create unacceptable uncertainty in commercial contracting. The proposed approach in Al Nehayan was therefore not accepted.
4. The common law and equity do not generally set aside commercial contracts merely because of inequality of bargaining power, economic dependence or a monopoly position. It would be unprincipled to use economic duress to control the lawful exercise of monopoly power. That is principally a matter for legislation.
5. Warren J had not found that PIAC lacked a genuine belief in its entitlement to reject the commission claims. The absence of reasonable grounds was insufficient. Times Travel’s lack of practical alternative, its protest, the harshness of the treatment and the benefits offered under the new agreement could not make the lawful pressure illegitimate. The judge was therefore wrong to permit avoidance of the agreement.

1. Court of Appeal (Civil Division) — In [2019] EWCA Civ 828, the appeal was allowed.
2. High Court of Justice, Chancery Division — Warren J held that the new agency agreement was procured by economic duress and that Times Travel could avoid it.