Times Travel (UK) Ltd v Pakistan International Airlines Corporation [2021] UKSC 40

Times Travel, a travel agent reliant on PIAC for airline tickets, was pressured into signing a new contract waiving claims for unpaid commission. The Supreme Court held that lawful act economic duress requires a 'bad faith demand' – the threatening party must not genuinely believe in its legal entitlement. As PIAC genuinely believed it had a defence, duress was not established.

Facts

Times Travel (UK) Ltd (TT) was a travel agent whose business almost entirely comprised selling tickets for Pakistan International Airlines Corporation (PIAC), the only airline operating direct flights between the UK and Pakistan. Disputes arose regarding unpaid commission allegedly owed to TT by PIAC. In September 2012, PIAC gave notice of termination of TT’s contract and drastically reduced TT’s ticket allocation from 300 to 60. PIAC then demanded that TT enter into a new agreement containing a clause (clause 6(2)) whereby TT would release all claims against PIAC for unpaid commission. TT reluctantly signed the new agreement under protest and subsequently sought to rescind it for economic duress.

The Commission Claims

TT claimed over £1.2 million in unpaid 9% basic commission, plus overriding commission (ORC) and YQ commission. Warren J found that PIAC was liable for the 9% basic commission but not the ORC claim. Critically, Warren J found that PIAC genuinely believed it was not liable for the 9% basic commission.

Issues

The central legal issue was whether PIAC’s lawful threat to terminate the contractual relationship, coupled with a demand for TT to waive its commission claims, constituted lawful act economic duress rendering the new agreement voidable.

Judgment

The Supreme Court unanimously dismissed the appeal. Lord Hodge (with whom Lord Reed, Lord Lloyd-Jones and Lord Kitchin agreed) delivered the main judgment, with Lord Burrows delivering a concurring judgment that differed in some aspects of analysis.

Lord Hodge’s Analysis

Lord Hodge confirmed that lawful act duress exists in English law but emphasised its extremely narrow scope in commercial contexts. He identified two established circumstances where courts have found lawful act duress: (1) exploitation of knowledge of criminal activity to obtain personal benefit, and (2) where a defendant uses illegitimate means to manoeuvre the claimant into a vulnerable position to force them to waive claims.

The pressure applied by a negotiating party will very rarely come up to the standard of illegitimate pressure or unconscionable conduct. It will therefore be a rare circumstance that a court will find lawful act duress in the context of commercial negotiation.

Lord Hodge concluded that PIAC’s conduct, while hard-nosed commercial negotiation exploiting monopoly power, did not involve the reprehensible means evident in cases like Borrelli v Ting and The Cenk K.

Lord Burrows’s Analysis

Lord Burrows agreed that lawful act duress exists and emphasised the importance of the ‘bad faith demand’ requirement derived from CTN Cash and Carry Ltd v Gallaher Ltd. He stated:

In the context we are focusing on – of a demand for what is claimed to be owing, or analogously, as on the facts of this case, a demand for the waiver of a claim – it is a necessary requirement for establishing lawful act economic duress that the demand is made in bad faith in the particular sense that the threatening party does not genuinely believe that it is owed what it is claiming to be owed or does not genuinely believe that it has a defence to the claim being waived by the threatened party.

Since Warren J found that PIAC genuinely believed it had a defence to the commission claims, the bad faith demand requirement was not satisfied.

Implications

This case provides authoritative guidance on lawful act economic duress in commercial contexts. The Supreme Court confirmed that:

• Lawful act duress exists in English law but is extremely rare in commercial dealings
• Inequality of bargaining power alone does not constitute duress
• English law does not recognise a general doctrine of good faith in contracting
• The focus should be on the nature and justification of the demand rather than the legality of the threat
• A subjective ‘bad faith demand’ requirement applies where a party seeks to claim money owed or waive claims

The case maintains English commercial law’s emphasis on certainty and predictability whilst acknowledging narrow circumstances where lawful conduct may nonetheless constitute illegitimate pressure.

Verdict: Appeal dismissed. The Court of Appeal’s decision was upheld. Times Travel’s claim for rescission of the new agreement on grounds of economic duress failed because PIAC’s demand was not made in bad faith – PIAC genuinely believed it had a defence to the commission claims being waived.

Source: Times Travel (UK) Ltd v Pakistan International Airlines Corporation [2021] UKSC 40