Lawful pressure in contractual negotiation: Duress-t in peace
21 May 2019
In Times Travel v Pakistan International Airlines, the Court of Appeal held there was no duress where an airline used lawful pressure to achieve a result to which it genuinely believed itself to be entitled, even when it lacked objectively reasonable grounds for that belief.
Times Travel sold tickets to flights operated by the airline. The airline gave notice of termination of the parties’ agency agreement, and offered a new contract including terms reducing ticket allocation and waiving Time Travel’s existing claims against the airline. Time Travel’s dependence on the airline was such that it had no practical alternative but to accept. It did so, and subsequently applied to avoid the contract on grounds of economic duress. The airline's termination, ticket reduction, and waiver were all, in themselves, perfectly lawful. So had the airline applied “illegitimate pressure”?
As part of an extensive review of the case law, the court noted that assessing “illegitimate pressure” required an evaluation of the nature of the threat and of the demand. Where threats were lawful, as here, the finding turned on the nature of the demand. CTN v Gallagher had established that lawful pressure could be illegitimate where the person applying it did not believe, in good faith, that it was entitled to do so. However, the court refused to broaden the scope any further. Where a party believed itself genuinely entitled to make a demand – even where that belief lacked objectively reasonable grounds – lawful pressure did not amount to economic duress.
The decision is rooted in the public policy objective: expanding the scope of economic duress would make it difficult for commercial negotiators to know the limits of what is acceptable; leave the door ajar for uncertainty; and fetter the lawful use of monopoly power.
Economic duress remains curbed for now – though the line in the sand between bad faith and unreasonably held good faith may prove a tricky one to draw.
Update: this has been overturned by the UK Supreme Court