Menu
Economic duress or commercial leverage? The Court of Appeal clarifies the scope of “lawful act duress”

Insights / / Economic duress or commercial leverage? The Court of Appeal clarifies the scope of “lawful act duress”

It is a well-established principle of English law that a contract resulting from a threat of an unlawful act or omission may be avoided at the option of the aggrieved party. The Court of Appeal’s decision in Times Travel (UK) Ltd v Pakistan International Airlines Corporation (Rev 2) [2019] EWCA Civ 828 provides a long-awaited clarification on whether a contract may be avoided if it is entered into following pressure involving a threat to do something lawful i.e. “lawful act duress”.

Facts

Time Travel (“TT”) was a small family-owned travel agency based in the UK which sold Pakistan-bound flight tickets on behalf of Pakistan International Airlines Corporation (“PIAC”). The survival of TT’s business was largely dependent on its ability to sell tickets for PIAC which, at the time, was the sole operator of direct flights between Pakistan and the UK.

In September 2012, PIAC served a notice on TT lawfully terminating its agency agreement and reducing its fortnightly flight ticket allocations from 300 to 60. Simultaneously, PIAC offered to re-appoint TT as its agent on terms similar to those of the terminated agreement only if TT agreed to waive its rights to accrued commission under the previous arrangement. TT accepted the new offer, but commenced proceedings later in 2013 seeking to recover the commission due under the terminated agreement. TT’s main argument was that it entered into the new agreement due to economic duress by PIAC and such an agreement could therefore be avoided. 

As a matter of law, to rely on economic duress TT needed to establish that the pressure applied by PIAC:

  1. was illegitimate;
  2. significantly influenced TT’s decision to enter into the new agreement; and
  3. left TT with no practical alternative but to agree if it did not want to be put out of business.

The Court of first instance’s decision

At first instance, Warren J sided with TT, holding that the three elements of economic duress were satisfied. On the legitimacy aspect, which turned out to be the most problematic in the judgment, the Court concluded that the pressure applied against TT was not legitimate although PIAC’s actions were totally lawful. The Court’s reasoning was, among other things, that such a pressure was aimed at stripping TT from a ‘very strong’ claim to commission which was bound to succeed under the old agreement. Importantly, neither good nor bad faith was established on the part of PIAC, and Warren J decided that such a question was immaterial to his findings of illegitimacy. PIAC appealed.

The Court of Appeal’s decision

The Court of Appeal unanimously reversed Warren J’s judgment and ruled in PIAC’s favour. It was acknowledged that neither the termination of the contract nor the demands that TT waive its contractual rights to the unpaid commission were unlawful. There was no contractual breach, tort, or other actionable wrongdoing by PIAC.

The Court of Appeal emphasised that bad faith was required to render PIAC’s pressure illegitimate.   There was however no authority as to whether such a belief had to be objectively reasonable. The Court of Appeal held that it did not. 

For a lawful act duress claim to succeed, bad faith must be subjectively proved on the part of the party who uses lawful pressure to induce another to enter into an agreement. 

The nature of PIAC’s pressure as well as its demands were both legitimate and lacked evidence of subjective bad faith on its part. The new agreement was therefore valid.

Comment

The Court of Appeal’s ruling reaffirms the English doctrine of freedom of contract and reminds contractors that merely striking a hard bargain is, in itself, no justification to set aside a freely negotiated agreement. It also sets the burden of proving lawful act duress so high such that the aggrieved party now needs to show pressure in the sense of pursuing demands to which the other party subjectively believes itself not to be entitled. Whilst this may seem harsh, especially for small businesses, it provides much needed clarity.

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Joint Head of Energy & Infrastructure, Partner

Tarek Taha

Tarek Taha Associate

Related sectors:

Related news & insights

Insights / Climate Change Litigation Continueth – The Scottish Case: Greenpeace v. BEIS and the OGA (and BP too)

15-10-2021 / Energy & Infrastructure

The Scottish Court of Session has declared that dealing with the global environmental impact of the consumption of oil is a political matter for the UK Government, not a legal issue for the UK Courts in considering the validity of approval to drill new oil wells in a single field.

Climate Change Litigation Continueth – The Scottish Case: Greenpeace v. BEIS and the OGA (and BP too)

News / AfCFTA and Energy & Infrastructure

11-10-2021 / Energy & Infrastructure, Maritime

This article is the third in a series of articles looking at the impact of the African Continental Free Trade Area (the “AfCFTA”) on various practice areas and industry sectors that our clients operate in. This article focuses on Energy and Infrastructure and addresses some of the key questions our clients have asked us.

AfCFTA and Energy & Infrastructure

Insights / Supreme Court clarifies lawful act of duress

21-09-2021 / Energy & Infrastructure

In Times Travel (UK) Ltd v Pakistan International Airlines Corporation (Rev 2) [2019] EWCA Civ 828, the Supreme Court confirmed the existence of the doctrine of ‘lawful act duress’ under English law and its limited scope in commercial transactions.

Supreme Court clarifies lawful act of duress

News / Shell agrees pay out to Nigerian community to settle long-running oil spill dispute

17-08-2021 / Energy & Infrastructure

In 1991, the Ejama-Ebubu people began a legal campaign to hold Shell Nigeria (“Shell”) accountable for an oil spill that occurred in 1970. Shell accepted that these oil spills had occurred, but argued that these were caused by “third parties” during the Biafran war, for which Shell should not be held liable. Almost 20 years later, in 2010, a Nigerian Federal court ordered Shell to pay 17 billion naira to the Ejama-Ebubu community. Shell has unsuccessfully attempted to challenge this ruling over several years and, in November 2020, the Nigerian Supreme Court ruled that Shell could no longer appeal the decision.

Shell agrees pay out to Nigerian community to settle long-running oil spill dispute

News / The Bribery Act: ten years on

19-07-2021 / Energy & Infrastructure

The Bribery Act: ten years on

Quick links

The Legal 500 2021

“Very available and responsive to company developments in real time. Frank, clear advice – not just the ‘easy’ answer.”

The Legal 500 2022

“The solicitors who have handled our employment related issues are of the highest quality in terms of their specialist area of expertise, their professionalism and their approach to us as clients and as people. Special mention has to be made of Laura Livingstone. Laura became a key member of our team and felt more like a colleague than an external adviser – a colleague you could rely upon. Laura’s attention to detail, professionalism and responsiveness was second to none. Laura has come to know and understand us as individuals and this has enabled her to personalise her advice and even sometimes to preempt our future requirements. We have a very special and extremely valuable relationship with her and the firm.”

- The Legal 500

The Legal 500 2022

“Ince are an excellent “fit” with our specific needs. The firm has consistently provided a broad range of personnel-related advice and in our experience that advice has been consistently of the very highest professional standard: it has been timely, comprehensive, accurate and at a cost which is commensurate with the budget of an organisation of our size.”

- The Legal 500

The Legal 500 2022

“The firm has an unusually high degree of insight into the practices and policies required by the Gambling Commission as regards compliance with its own requirements and conditions – particularly Andrew Tait, derived from his previous in-house experience.”

- The Legal 500