Can A Threat To Take A Lawful Act Give Rise To Economic Duress?

Where one party to a contract (A) exerts illegitimate pressure on another (B) such that B has no practical alternative but to accede to A's demands, B may avoid any resulting contract under the doctrine of economic duress. For more information on the doctrine in general, see our insight - The Basics: How easy is it to distinguish between rigorous commercial bargaining and economic duress?

In this insight, we focus on the question in Times Travel (UK) Limited v Pakistan International Airlines Corporation, namely whether a lawful act can ever constitute illegitimate pressure allowing a party to invoke economic duress.

Facts of the Case

Pakistan International Airline Corporation (PIAC) was an airline which was, at the relevant time, the only airline operating direct flights between the UK and Pakistan. Times Travel (UK) Limited (TT) was an appointed ticketing agent of PIAC. TT's business was almost exclusively the sale of flight tickets to members of the Pakistani community in Birmingham and so it was largely dependent on its ability to sell PIAC tickets, for which it needed a contract with PIAC.

In 2012, a number of PIAC's ticket agents were threatening or pursuing legal proceedings against PIAC to recover unpaid commission on ticket sales. PIAC gave notice to terminate the existing agency contracts. It simultaneously offered the agents new contracts, but on terms that the agents waived their claims for past commission. At the same time, PIAC reduced TT's ticket allocation from 300 tickets a fortnight to just 60.

TT accepted the new contract containing the waiver of its commission claims, and its ticket allocation was restored. It subsequently brought proceedings against PIAC to recover the unpaid commission. PIAC argued that the claims waiver in the new contract was a defence to TT's commission claim. TT asserted that the new contract, containing the waiver, had been procured by economic duress, and that the new contract should be avoided1.

High Court decision

In the High Court, Warren J found that:

PIAC offered the new contract to TT in the same letter as it gave notice to terminate the existing one - it was therefore clear that PIAC's intention was not to end the agency, but to bring TT's commission claims (which were genuine and arguable) to an end. While the commission terms in the new contract were adequate reward for future services, they did not adequately compensate TT for the "forced waiver" of its existing commission claims. TT...