Pakistan International Airline Corporation v Times Travel (UK) Ltd

Lawful act economic duress exists, but its scope in commercial negotiations is extremely limited. The claimant must establish illegitimate pressure, causation and no reasonable alternative. Where the threatened act is lawful, the court focuses on the nature and justification of the demand, including the parties’ conduct and circumstances. Lawful pursuit of commercial self-interest, strong bargaining power, monopoly power or a bad-faith assertion of entitlement does not, without more, constitute duress. English law has so far intervened where threats concerning criminal activity are exploited for personal benefit, or where reprehensible means deliberately create vulnerability and force the waiver of a civil claim. Any extension must proceed cautiously and cannot rest on general doctrines of good faith or inequality of bargaining power.

Times Travel sold airline tickets under an agency agreement with Pakistan International Airline Corporation. Its business depended almost entirely on the airline, which was then the only operator of direct flights between the United Kingdom and Pakistan. During a dispute about unpaid commission, the airline lawfully gave notice terminating the existing agreement and reduced Times Travel’s ticket allocation. It offered a new agreement which required Times Travel to release its accrued commission claims.

Warren J held that the new agreement was voidable for economic duress: [2017] EWHC 1367 (Ch). The Court of Appeal reversed that decision because Times Travel had not proved that the airline lacked a genuine belief in its defence to the commission claims: [2019] EWCA Civ 828; [2020] Ch 98.

The central issue before the Supreme Court was whether lawful act economic duress exists and, if so, whether the airline’s lawful commercial pressure was illegitimate.

1. Disposition. The appeal was dismissed unanimously. Lord Hodge gave the majority reasons, with which Lord Reed, Lord Lloyd-Jones and Lord Kitchin agreed. Lord Burrows concurred in the dismissal but proposed a broader test for lawful act economic duress.

2. Elements of duress. A claimant relying on lawful act economic duress must establish an illegitimate threat or pressure, sufficient causation and the absence of a reasonable alternative. Because the threatened act is lawful, the court must concentrate on the nature and justification of the demand. Relevant matters include the threatening party’s behaviour, the form of pressure and the circumstances of the threatened party.

3. Restricted doctrine. Lawful act duress forms part of English law, but its boundaries are narrow and must be developed cautiously. The doctrine has drawn on equitable principles which prevent the enforcement of agreements procured by highly reprehensible conduct. Unconscionability is not, however, an overarching test permitting judges to invalidate contracts according to general moral standards. English law contains neither a general doctrine of inequality of bargaining power nor an overriding duty of good faith in contracting.

4. Recognised circumstances. The courts have so far granted relief in two circumstances. First, a person may improperly exploit knowledge of criminal activity by the claimant or a close family member, using an express or implied threat of reporting or prosecution to obtain a personal benefit. Secondly, a person exposed to a civil claim may use illegitimate or reprehensible means deliberately to place the claimant in a vulnerable position and force the claimant to waive the claim.

5. Commercial bargaining. The law ordinarily regards the pursuit of commercial self-interest as justified. A monopoly position, unequal bargaining power, hard-nosed negotiation or a lawful threat to terminate contractual relations is insufficient. The majority also rejected the proposition that a dishonest assertion of an existing entitlement, combined only with lawful commercial pressure, necessarily establishes duress. Something beyond the exercise of bargaining power is required, such as the reprehensible manoeuvring present in the established authorities.

6. Application. The airline was contractually entitled to terminate the agency and reduce the ticket allocation. Its take-it-or-leave-it proposal exploited its monopoly position but involved no finding of forgery, deception, breach of duty or comparable reprehensible conduct used to manufacture Times Travel’s vulnerability. The trial judge had also found no bad faith concerning the principal commission claim. The pressure was therefore legitimate commercial pressure and the waiver remained effective.

7. Lord Burrows. In separate concurring reasons, Lord Burrows considered that a demand for waiver would be illegitimate where the threatening party deliberately created or increased the claimant’s vulnerability, had no defence to the waived claim and did not genuinely believe that it had one. He would nevertheless have dismissed the appeal because Times Travel failed to prove that form of bad faith. That formulation did not command the majority.

1. United Kingdom Supreme Court: Times Travel’s appeal was dismissed unanimously. The Court of Appeal’s decision therefore stood: [2021] UKSC 40 .
2. Court of Appeal: The airline’s appeal was allowed. The court held that lawful act duress had not been established because Times Travel failed to prove a bad-faith demand: [2019] EWCA Civ 828 ; [2020] Ch 98.
3. High Court, Chancery Division: Warren J held that Times Travel could rescind the new agreement for economic duress: [2017] EWHC 1367 (Ch) .