What now for lawful act economic duress?

What now for lawful act economic duress?

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In Pakistan International Airline Corporation v Times Travel (UK) Ltd [2021] UKSC 40, [2021] All ER (D) 40 (Aug) the Supreme Court declined to expand the scope of the controversial doctrine of lawful act economic duress so as to allow the claimant to prevail.

However, in judgments written by Lords Hodge and Burrows, the court both affirmed the doctrine’s existence, and addressed the possibility of future development of this area of law.

The case

Times Travel (UK) Limited (Times Travel) is a travel agent. During the relevant period, Times Travel’s business consisted almost entirely of selling airline tickets from the UK to Pakistan. Pakistan International Airline Corporation (the Airline) was the only operator of direct flights from the UK to Pakistan at that time.

The parties entered into an agreement under which Times Travel was given a weekly ticket allocation to sell and the Airline paid Times Travel commission for tickets sold. A dispute regarding unpaid commission arose between the Airline and a number of travel agents including Times Travel. However, under pressure from the Airline, Times Travel did not issue proceedings.

The Airline then significantly reduced Times Travel’s ticket allocation and terminated the agreement. Thereafter, it offered new terms to Times Travel which included a waiver by Times Travel of its claims for unpaid commission. So reliant were they on the Airline’s business, Times Travel accepted the amended terms.

Times Travel subsequently brought proceedings against the Airline claiming that the new agreement should be rescinded for economic duress and seeking unpaid commission payments. The claim succeeded at first instance, but failed in the Court of Appeal ([2019] EWCA Civ 828, [2019] All ER (D) 98 (May)). Times Travel therefore appealed to the Supreme Court.

The appeal

The pressure exerted by the Airline was not unlawful. As a consequence, this claim was for lawful act economic duress.

As Lord Hodge explained in his leading judgment, what would now be analysed as lawful act economic duress has historically arisen in two very limited circumstances: firstly, where a party uses knowledge of criminal activity on the part of the other/the other’s close family member, to obtain a benefit by the express threat to report the crime or initiate a prosecution; and secondly, where a party, who is the target defendant in civil proceedings that could be issued by the other, deliberately places the prospective claimant in a vulnerable position by illegitimate means, thereby causing the claimant to waive its claim.

The very existence of the doctrine is contentious, given its potential for uncertainty and the possibility that it may undermine commercial negotiations, and some commentators expressed the hope that the Supreme Court in this case would ‘jettison the concept’ once and for all. The Supreme Court did not oblige, however, and instead made it clear that the concept of lawful act economic duress exists in English law.

Lord Hodge considered that the case did not fit into the limited circumstances in which lawful act economic duress has historically been established. He also noted that the absence in English Law of general principles of inequality of bargaining position and good faith in commercial relationships limits the compass for lawful act economic duress in commercial contracts. Accordingly, in commercial contexts, leverage used in negotiations will rarely constitute unconscionable behaviour. In this case, the Airline did not use illegitimate means to exert pressure on Times Travel and, given the absence of the principles referred to above, Lord Hodge found that there was no lawful act economic duress.

He did not dismiss the possibility of an extension to the doctrine of lawful act economic duress, however. Instead, he referred to the very specific example of where a party took action in the genuine belief that it had a particular right, later discovered it did not have that right, but maintained its position as if it did. This he described as ‘a mischief which the law could address’. Equally, however, he considered that there were three significant hurdles: the lack of recognised principle for doing so, the creation of uncertainty and the lack of practical utility.

Lord Burrows’s judgment was more positive about the possibility of extending the doctrine. In his view, a ‘bad faith demand’, when deployed alongside the creation or exacerbation of another’s vulnerability, could be said to constitute an illegitimate threat for the purposes of a claim for lawful act economic duress. The absence of a ‘bad faith demand’ in this claim led him to dismiss this appeal, however. Looking to the future, while he did make a number of obiter comments regarding lawful act economic duress ‘because of the possible future incremental development of the law on lawful act economic duress, building on this decision’, Lord Burrows was also clear that lawful act duress would arise only in ‘rare exceptional cases’.

The future

Although possible, litigants should not bank on any speedy developments in this area of law. Lord Hodge’s judgment referred to the possibility of expansion in one breath while casting serious doubt on the practicality of such an expansion in the next. Even Lord Burrows, who was significantly more positive about the possibility of development, took the view that ‘the law is in its infancy and the best approach is for the common law to be clarified or developed in a traditional incremental way’.

The Supreme Court’s cautious approach to developments in lawful act economic duress may not stop commercial parties attempting to convince the courts to expand the doctrine. The challenging trading conditions in light of Brexit and the COVID-19 pandemic may well prompt cases alleging lawful act economic duress coming before the courts in the coming months and years. However, unless they can squeeze through the narrow door that is currently open, such claims are unlikely to succeed. Developments may come in time, but a fully developed doctrine is, at least for now, little more than a distant speck on the horizon.

This article was first published in New Law Journal, read here

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