The Final Word On Lawful Act Duress?

• Published date: 19 November 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Litigation, Mediation & Arbitration, Financial Services, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Gatehouse Chambers
• Author: Mr Nigel Jones QC and Tom Bell

This article, written by the counsel team who succeeded before the Supreme Court (Nigel Jones QC and Tom Bell), discusses the recent key decision of the Supreme Court in Times Travel (UK) Ltd v Pakistan International Airlines Corporation concerning the law of economic duress.

The specific issue raised was whether lawful act duress exists, and if so, in what circumstances. The Supreme Court held that the doctrine does exist, but only in very narrow circumstances.

Introduction

1. For a long time, the common law has recognised that if Party A enters into a contract as a result of a threat or pressure by Party B which the law regards as illegitimate, the contract may be rescinded on the ground of duress at the option of Party A.
2. Until the 1970s, only threats of violence were enough (duress of goods also qualified, but only as a basis for obtaining restitution of non-contractual payments). However in Occidental Worldwide Investment Corpn v Skibs A/S Avanti [1976] 1 Lloyd's Rep 293, Kerr J rejected the submission that 'English law only knows duress to the person and duress to goods'. Similarly in North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, Mocatta J said that 'compulsion may take the form of 'economic duress' if the necessary facts are proved. A threat to break a contract may amount to such 'economic duress.'' A few years later, the doctrine of economic duress was authoritatively recognised by the House of Lords in Universe Tankships Inc of Monrovia v International Transport Workers' Federation [1983] AC 366, and again a decade or so later in Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152.
3. In all those cases the illegitimate threat by the defendant was to do something unlawful - either a breach of contract or a tort. The possibility of duress arising from the threat of a lawful act was, however, recognised in obiter dicta. The most famous example is in Universe Tankships, where Lord Scarman said that lawful act duress will depend upon the nature of the demand:

'Blackmail is often a demand supported by a threat to do what is lawful, e.g. to report criminal conduct to the police. In many cases, therefore, 'What [one] has to justify is not the threat, but the demand': see per Lord Atkin in Thorne v Motor Trade Association [1937] A.C. 797, 806.'¹

4. Times Travel (UK) Limited v Pakistan International Airlines Corporation [2021] UKSC 40, heard at the end of 2020 was the first case before the Supreme Court or its predecessor the House of Lords in which a finding of lawful act duress was critical to the outcome.

The Facts

5. The claimant ('TT') is a travel agent in Birmingham focusing on the local Pakistani community. The defendant ('PIAC') is the national flag-carrying airline of Pakistan. At the material time, it operated the only direct flights to Pakistan from the United Kingdom.
6. In around 2006, PIAC appointed TT as an agent authorised to sell tickets on its flights, paying PIAC commission at 9% on ticket sales. A dispute arose about the payment of commission, which ultimately led to PIAC (lawfully) terminating TT's contract and insisting that if it wanted to continue as an agent, TT must sign a new agreement containing a waiver of TT's claims to unpaid commission. TT signed the new agreement, but subsequently issued proceedings against PIAC to rescind it on the ground that it was made under duress, and in turn to claim payment of the disputed commission.
7. TT's claim succeeded at trial before Warren J, who held that, by driving so hard a bargain, PIAC applied illegitimate pressure on TT. He reached this view even though he found that PIAC genuinely believed...