Times Travel depended on tickets from an airline entitled to end its agency agreement. When the airline insisted on a waiver of disputed commission, the travel agent faced a severe commercial choice. The question was whether a threat to do something lawful could make the resulting waiver voidable for economic duress.
The agency and the waiver
At the time, Times Travel relied almost entirely on selling tickets for Pakistan International Airline Corporation, then the only airline providing direct flights between the UK and Pakistan. Their agreement let the airline reduce the ticket allocation or terminate the agency on notice.
Disputes arose over commission said to be due before 1 November 2012. Times Travel later advanced three claims: 9 per cent basic commission, overriding commission, and commission on a fuel element known as YQ. On 14 September 2012 PIAC gave notice ending the appointment at the end of October. On 17 September it cut Times Travel’s fortnightly allocation from 300 to 60. At a meeting on 24 September, Times Travel signed a new agreement. Clause 6(2) released PIAC from claims connected with commission or its calculation, other than under the new agreement. Times Travel later sought to rescind that agreement for economic duress so that it could pursue the earlier commission. It was not disputed that PIAC’s threat caused Times Travel to sign, or that Times Travel had no reasonable alternative. The issue was whether the pressure was illegitimate. The relevant pressure was the lawful threat not to continue the relationship, not the earlier non-payment of commission.
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The courts below
Warren J held that, if the waiver fell away, Times Travel was entitled to the 9 per cent commission and the YQ commission, but not to overriding commission. He found that PIAC genuinely believed the 9 per cent commission had ceased. Even on the YQ claim, which he regarded as strong enough for summary judgment, he did not find bad faith established. He nevertheless held that the new agreement could be rescinded for economic duress. The Court of Appeal, David Richards LJ giving the leading judgment, reversed that decision. It held that lawful pressure amounts to economic duress only where the demand is made in bad faith, meaning that the party does not genuinely believe it is entitled to what it demands. An unreasonable belief was not enough. Because bad faith had not been established, the claim failed. Other claims, including misrepresentation and a challenge under the Unfair Contract Terms Act 1977, were not pursued in the Supreme Court, and the claim was not put as an unconscionable bargain.
Lawful act duress
Lord Hodge, with whom Lord Reed, Lord Lloyd-Jones and Lord Kitchin agreed, accepted that English law recognises lawful act duress, but said that it must be kept narrow, especially between commercial parties. There is no general doctrine of inequality of bargaining power and no general principle of good faith in contracting. A demand motivated by commercial self-interest is generally justified. The cases in which lawful act duress has succeeded fell into two limited categories: use of knowledge of criminal conduct, and an express or implicit threat of prosecution, to obtain a personal benefit; and use of illegitimate means to force a person who already has a civil claim into a position where that claim is waived. The second category was illustrated by conduct involving a failure to assist liquidators, forgery and false evidence, and by misleading assurances after a repudiatory breach which left the other party with no practical alternative but to waive its claim.
Those features were absent here. PIAC’s notice and reduction of the allocation were lawful. Its take-it-or-leave-it offer exploited its position as a monopoly supplier, but there was no finding of bad faith and no finding that it had used reprehensible means to create Times Travel’s vulnerability. Lord Hodge therefore held that economic duress was not established. He also considered that a dishonest assertion of a non-existent entitlement, supported only by monopoly power, would not without more amount to lawful act duress.
Lord Burrows agreed that the appeal should be dismissed and that lawful act duress exists, but he drew the boundary differently. For a demand that an existing claim be waived, he considered the lawful threat illegitimate where the demanding party has deliberately created or increased the other’s vulnerability and does not genuinely believe that it has a defence, when in law it has none. Warren J’s findings meant that this bad-faith requirement was not met, so the claim failed. Lord Burrows thought that a finding of bad faith would have made the claim succeed, because the cut in allocations went beyond the mere use of monopoly power. Lord Hodge disagreed. Both nevertheless held that, on the facts actually found, the pressure was not illegitimate.
Verdict: The Supreme Court unanimously dismissed Times Travel’s appeal. English law recognised lawful-act economic duress, but the airline’s conduct on these facts did not justify rescission. The waiver of the commission claims stood. Lord Burrows reached the same result by a different analysis of bad faith.
Source: Pakistan International Airline Corporation v Times Travel (UK) Ltd [2021] UKSC 40
