The scope of lawful act duress clarified by Court of Appeal

Where a party enters in to a contract because of duress, the contract is voidable by the party who suffered the duress. Economic duress is one aspect of the duress doctrine with the party seeking to prove economic duress having to show the existence of an illegitimate pressure applied by the defendant without which it would not have entered into the contract. Common examples of the illegitimate pressure involve a crime or tort or breach of contract. On occasion, however, unethical but lawful acts have also been held to constitute economic duress.

In the Court of Appeal case of Times Travel (UK) Limited v Pakistan International Airlines Corporation [2019] EWCA Civ 828 (14 May 2019)  a travel agent was not entitled to rely upon economic duress to avoid a contract with an airline. The airline was the sole operator of direct flights to and from the UK to Pakistan. The travel agent's business relied heavily on its ability to sell tickets for its flights pursuant to an agency agreement with the airline. By 2012, many of the airline's agents had instigated litigation to recover allegedly unpaid commission. In response, the airline gave notice terminating all its existing agency agreements and reduced its agents' ticket allocations. The airline then offered new agency agreements, but only on terms that the agents waived their claim for unpaid commission accrued under the previous agency agreements. The travel agent accepted the new contract but thereafter brought proceedings in which it argued that the contract containing the waiver had been induced by economic duress. The argument of economic duress succeeded at first instance and the airline appealed the decision.

The Court of Appeal held that a claim for lawful act duress would not succeed in a commercial context where a party was making lawful acts or threats in support of a demand that it genuinely and reasonably believed it was entitled to make (i.e. the airline genuinely believed the travel agents had no claim for unpaid commission and accordingly it was a legitimate request to waive the unpaid commission). The Court then considered the position where that belief, though genuine, was unreasonable and concluded that the Court should not extend lawful act duress to cover this scenario either. The judgment handed down emphasised that the common law has always rejected the use, or abuse, of a monopoly position as grounds for setting aside a contract. Accordingly, the appeal succeeded. This case brings much needed clarity on the law surrounding economic duress and in particular duress arising from lawful acts.

This article has been published as part of the latest issue of our Commercial Brief, detailed within the In Brief section. To view the other articles within our Commercial Brief click here, alternatively view the other In Brief articles below:

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