Have you ever entered into a contract because you felt you had no choice, or were commercially pressured into doing so by the counterparty?
Where a person seeks to set aside a contract on the ground that it was entered into under duress, what needs to be shown to make good the claim? Must the conduct that is said to have put the person under duress have been, in itself, unlawful? If not, what are the criteria for discerning whether there was or was not duress?
While duress comprising unlawful acts, such as the threat of violence or the seizure of goods, has long been recognised, the proposition that a threat to carry out a lawful act can amount to duress has been far less clear.
Pakistan International Airline Corporation v Times Travel
In the case of Pakistan International Airline Corporation v Times Travel [2021] UKSC 40, the Supreme Court considered whether the actions of Pakistan International Airline Corporation (PIAC), in giving lawful notice of termination of an existing agency contract, constituted economic duress.
Times Travel was a small travel agency in Birmingham. PIAC was the only airline operating direct flights between England and Pakistan. In 2008, PIAC and Times Travel entered an agency agreement through which Times Travel would be a ticketing agent for PIAC. Times Travel’s business relied almost exclusively on the sale of these tickets.
In 2012, at a time when PIAC owed a significant amount in commission to Times Travel, it gave lawful notice of the termination of the agency agreement. PIAC subsequently offered a new agency contract which contained a term stating Times Travel would waive its claims for unpaid commission under the earlier agreement. Times Travel agreed to this contract, but subsequently brought proceedings against PIAC for the unpaid commission on the basis that the new contract was signed under duress.
The Supreme Court hearing featured three interventions from interested parties, some of whom wanted the Supreme Court to rule that the tort of economic duress no longer existed or was to be abolished.
The Decision
The Court returned a divided decision, 4-1, with Lord Burrows in the minority, However, the whole panel agreed on many aspects of the doctrine. Those included that the doctrine of lawful act duress does exist (and will continue to do so).
In paragraphs 78-80 of the majority Judgment, the Supreme Court set out the three elements that must be established for a claimant to rescind a contract on the grounds of economic duress. These are:
- That the action, threat or pressure from the defendant was illegitimate;
- That the action, threat or pressure caused the claimant to enter into the new contract; and
- The claimant must have had no reasonable alternative to giving in to the threat or pressure.
The Court (in the majority judgment) went on to hold that “the boundaries of the doctrine of lawful act duress are not fixed and the courts should approach any extension with caution” and affirmed the general principle, namely that the law will treat as “illegitimate”, for these purposes, unconscionable conduct.
However, the court made it clear that the doctrine should not be commonly applied and Judges should be cautious when doing so. The Court rejected various alternative suggestions as to how the doctrine should work, including an approach advocated by Lord Burrows (in the minority) based on bad faith, or in other words where the defendant did not genuinely believe that it had a defence to a pre-existing claim and the defendant deliberately created or increased the claimant’s vulnerability to that demand.
On the facts of this case, the court found that while PIAC had used its position of power as a monopoly supplier of tickets, using such power did not involve reprehensible pressure which would amount to legal economic duress and therefore would not satisfy the first element. The Supreme Court also found that PIAC had not acted in bad faith when making the demands it did, and believed in good faith that it was not liable for breach of contract because of its failure to pay past commission. Accordingly, the Supreme Court dismissed the appeal.
Conclusion
Overall, the judgment reflects a narrowing of the doctrine, with the result that economic duress claims will likely be harder to win than before. It is therefore more important that parties to contracts (especially commercially weaker parties where there is an imbalance in the bargaining positions) have fuller and more robust protection in the contract itself.
Authors
Simon Walton, Partner (simon.walton@rosenblatt-law.co.uk)
Ben Siskind, Solicitor (ben.siskind@rosenblatt-law.co.uk)
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