When does commercial pressure cross the line into duress? In this Court of Appeal judgment, some welcome clarity has been provided on the scope of "lawful act duress".
Times Travel was a small family business which sold tickets for Pakistan Airlines’ flights. At the time, the airline was the only operator of direct flights between the UK and Pakistan, and Times Travel's business was almost exclusively tied to that route.
Disputes arose relating to the rate and payment of commission. Ultimately, Pakistan Airlines gave notice to terminate the contract (in accordance with its terms). As a condition of entry into a new contract, Pakistan Airlines required a waiver of any prior claims by Times Travel (including those relating to a disputed entitlement to commission).
At first instance, the Court held that the new contract could be avoided on the grounds of economic duress.
The Court of Appeal, however, disagreed. It set out the following principles applicable to questions of lawful act duress:
- The doctrine of lawful act duress does not extend to the use of lawful pressure to achieve a result to which the person exercising pressure believes, in good faith, it is entitled;
- The Court will not examine whether or not there were reasonable grounds for a party's belief in its entitlement;
- For lawful act duress to succeed, bad faith must be proved; and
- It is not appropriate to develop the law of economic duress in a way which would fetter the lawful use of a monopoly position.
Stephenson Harwood comment
The Court recognised that the impact of its judgment in this particular case may have been harsh. However, it serves as a clear indication of the circumstances in which the defence of duress may be available ensuring that commercial parties can be comfortable regarding the limits of what is acceptable in commercial negotiations.
Where only lawful acts have been committed, economic duress will not be available as a defence unless bad faith can be proved.