Lawful demand made in good faith does not amount to economic duress
In Times Travel (UK) Ltd v Pakistan International Airlines Corporation  EWCA Civ 828 the Court of Appeal found that a lawful act, done in good faith did not constitute illegitimate pressure giving rise to a right of avoidance of a contract on the basis of economic duress.
The defendant was the only airline flying directly between the UK and Pakistan. The plaintiff's business was based almost entirely on its status as a ticketing agency for the defendant.
The plaintiff, with other ticket agents, was in conflict with the defendant in 2012 over unpaid commission for past ticket sales. In the course of that dispute the defendant gave notice terminating existing agency contracts, then offering new contracts which included a term that waived claims for past commission. It also reduced the plaintiff's ticket allocation by 80%. When the plaintiff signed the new contract, waiving past commission, its allocation was restored.
The plaintiff then instituted proceedings to recover the unpaid past commission, claiming that the new contract should be avoided on the basis of economic duress.
In the High Court, Warren J found that although the defendant's actions were lawful, they constituted illegitimate pressure. The plaintiff had no alternative but to sign the new contract, because if they had not, they would have been put out of business. The plaintiff was thus permitted to avoid the contract, and succeeded in most claims for past commission.
Court of Appeal
Richards LJ found that although threatening to do something lawful, when coupled with a demand, could become unlawful (for example, threatening to report a crime unless a sum of money is paid would constitute unlawful blackmail), that had not occurred in this case.
The defendant genuinely believed that it was entitled to demand the waivers in the new contracts, and as such, the demand was made in good faith.
The court determined that economic duress had not been established, and overturned the decision of the High Court.
The court emphasised the importance of clarity and certainty in commercial contracts. It found that economic duress should not be developed as a doctrine to allow the courts to control the abuse of monopoly power, rather such control should be exercised by Parliament through statute.
For more information on this topic please contact Ciaran Joyce, Knowledge Lawyer or any member of A&L Goodbody's Litigation and Dispute Resolution team.
Date published: 7 June 2019