The persistent difficulty bedevilling the doctrine of economic duress is how to draw the line between legitimate and illegitimate economic pressure. Pakistan International Airline Corporation v Times Travel (UK Ltd) is concerned with the doctrine of lawful act economic duress and seeks to provide an insight into how this line might be drawn. This article notes that Pakistan International provides us with some clarity as to the existence and scope of lawful act duress in English law. However, beyond these clarifications, this article argues that Pakistan International creates even more unresolved questions about how to establish illegitimate economic pressure in the commercial context.
Introduction
In some respects, the law of duress is fairly clear. It is well-known that the two elements required to establish a claim in duress are that (1) the defendant exerted an illegitimate threat or pressure on the claimant and (2) the illegitimate threat or pressure caused the claimant to enter into the contract.1 Furthermore, while there had been some doubts as to whether economic threats or pressure could amount to duress, it has been firmly established in The Sibeon and The Sibotre that economic threats or pressure are indeed sufficient to constitute duress.2 However, the persistent ambiguity, in the context of economic duress, is how to delimit the boundary between legitimate and illegitimate economic pressure. How do we draw the line between acceptable and unacceptable conduct in the commercial sphere? In other words, how do we strike a balance between allowing commercial parties to pursue their self-interest by exerting economic pressure in contractual negotiations and protecting weaker parties from unacceptable economic threats?
The doctrine of lawful act duress best encapsulates this difficulty of defining the boundary between legitimate and illegitimate economic pressure. While there is much to be said in favour of an unlawful threat being treated as an illegitimate exertion of pressure,3 it is less clear whether a lawful threat should, if ever, be treated as illegitimate. The recent case of Pakistan International Airline Corporation v Times Travel (UK) Ltd (‘Pakistan International’)4 is concerned with the doctrine of lawful act economic duress and provides us with some insights as to how to draw the line between legitimate and illegitimate economic pressure.
In this article, I first discuss the facts and reasoning of the Supreme Court in Pakistan International. I will then argue that Pakistan International crucially clarifies a few important principles on the existence and scope of the doctrine of lawful act duress in English law. However, beyond these clarifications, Pakistan International leaves us with more unresolved questions about how to establish illegitimate economic pressure in the commercial context. By drawing on previous case law, I will seek to explicate and bring out the factors which seem to be guiding the Court’s jurisprudence on the boundary between legitimate and illegitimate pressure for lawful act duress. Ultimately, I will question whether the doctrine of lawful act duress is suitable for the commercial context and suggest that there is a strong case for confining illegitimate economic pressure to unlawful threats.
Background of the case
The claimant, Times Travel (‘TT’), is a travel agent in Birmingham. The defendant, Pakistan International Airlines Corporation (‘PIAC’), is the national flag carrier airline of Pakistan and was the only airline operating direct flights between Pakistan and the UK at the relevant time. TT’s business relied almost entirely on selling tickets for flights to Pakistan on planes operated by PIAC.
TT and PIAC entered into contractual relations in 2006. In February 2011, several travel agents commenced actions against PIAC for PIAC’s failure to pay them commissions owed for selling PIAC flight tickets. Under pressure from PIAC, TT did not join in those actions. In September 2012, PIAC gave notice that its contract with TT would be terminated at the end of October 2012 and suddenly cut TT’s normal ticket allocation from 300 to 60, both of which PIAC was entitled to do under the terms of the contract. Facing the threat of termination and the sudden cutting of its ticket allocation, TT accepted an onerous waiver term in a new agreement which released PIAC from any claims in respect of TT’s unpaid commission. Subsequently, TT brought a claim against PIAC for non-payment of TT’s commission and sought to rescind the waiver agreement on the basis that it was procured by economic duress.
The Court of Appeal held that economic duress had not been established on the given facts. This was because the relevant test for determining whether there was illegitimate pressure is whether the defendant believed in good faith that it was entitled to make the demand.5 Since PIAC genuinely believed that it was entitled to withhold payment of the commission, its demand was not made in bad faith and TT’s claim of economic duress was thus unsuccessful.6 TT then brought an appeal to the Supreme Court.
Reasoning of the Supreme Court
Dismissing the appeal, the Supreme Court held that economic duress had indeed not been made out. However, the majority and concurring judgments differed on the correct test to be applied under the doctrine of lawful act duress.
Majority judgment
Giving the lead judgment, Lord Hodge affirmed that the doctrine of lawful act duress does indeed exist in English law.7 In particular, the courts have hitherto recognised lawful act duress in two situations: (1) the defendant exploits his knowledge of criminal activity by the claimant with a threat to report the crime or commence legal proceedings;8 or (2) the claimant has a civil claim against the defendant, and the defendant uses illegitimate means to force the claimant into a position of vulnerability such that the claimant is forced to waive its claim against the defendant.9
Lord Hodge went on to emphasise that English contract law does not recognise a general doctrine of inequality of bargaining power or good faith.10 A commercial party is entitled to leverage its superior bargaining power so as to ‘obtain by negotiation contractual rights which it does not have until the contract is agreed’.11 The implication of this is clear: the scope of lawful act duress is extremely narrow, especially in the commercial context, and any extension of the doctrine must be approached with caution.12 In other words, it will be extremely rare for a court to find that lawful act duress has been established in the context of commercial negotiations.13
What, then, is required for a claim of lawful act economic duress to be established in the commercial context? It is clear that an exertion of superior bargaining power is itself insufficient.14 Instead, the defendant must have used some sort of ‘reprehensible means of applying pressure’15 which would bring the transaction ‘within the ambit of the equitable doctrine of unconscionable transactions’.16
Having clarified these principles, Lord Hodge held that lawful act duress had not been made out on the facts of this case. While PIAC’s conduct ‘entailed hard-nosed commercial negotiation that exploited PIAC’s position as a monopoly supplier’,17 PIAC had not ‘[gone] beyond the use of its position as a monopoly supplier’.18 Furthermore, the fact that PIAC genuinely believed that it was not liable for breach of contract due to its failure to pay past commissions reinforced the finding that PIAC had not used illegitimate pressure.19
Concurring judgment
Giving the concurring judgment, Lord Burrows was willing to extend the lawful act duress doctrine beyond what the majority was willing to endorse. Lord Burrows held that, in the context of a demand made by the defendant for a waiver of a claim against the defendant, lawful act economic duress is illegitimate where: (1) ‘the threatening party has deliberately created, or increased, the threatened party’s vulnerability to the demand’ and (2) the demand is made in bad faith.20 Naturally, the meaning of bad faith is hotly contested in private law;. Here, Lord Hodge provides a narrow and specific definition of bad faith: bad faith is established where the defendant ‘does not genuinely believe that it has a defence, and there is no defence, to the claim being waived’.21 Applying these principles, Lord Burrows held that duress could not be made out on the facts because PIAC was not acting in bad faith when making the demand for a waiver.22
It is useful here to explicate the role of bad faith in the doctrine of lawful act duress in the majority and concurring judgments. Bad faith is relevant for both the majority and concurring judgments. However, for the majority, the crucial question is whether the defendant had used ‘reprehensible means of applying pressure’ such that the contract was rendered ‘unconscionable’. Bad faith is merely one factor in this enquiry, and the presence of bad faith is neither necessary nor sufficient for a finding of lawful act duress. On the other hand, for Lord Burrows, a finding of bad faith is determinative for the doctrine of lawful act duress to be made out (subject to the second requirement that the defendant has also increased the claimant’s vulnerability to the demand).
Analysis
Pakistan International is a significant case because it clarifies both the existence and scope of the doctrine of lawful act duress in English law. Regarding the former, it is now settled that English law does indeed recognise the doctrine of lawful act duress, thus clearing up persistent uncertainty about the existence of the doctrine in English law.23 As to the scope of lawful act duress, Pakistan International confirms that lawful act duress must be construed narrowly, so as to preserve certainty in the commercial context. Furthermore, Pakistan International tells us that a high threshold is imposed on claimants seeking to make a claim of lawful act duress: the threat must have been highly ‘reprehensible’.
While Pakistan International clarifies some key principles governing the doctrine of lawful act duress, it nonetheless raises more questions about how the standard of ‘reprehensibility’ should be defined in the commercial context. One could argue that Pakistan International’s conduct was not merely a use of its monopoly power, but was in fact an abuse of its monopoly power.24 Yet, the majority judgment was keen to emphasise that ‘a hard-nosed exercise of monopoly power, which, in the absence of a doctrine of unequal bargaining power, could not by itself amount to illegitimate pressure’.25 While this provides us with some indication of the high bar, which must be met for lawful act duress to be, established in the commercial context, the question what more is required to cross the threshold of ‘reprehensibility’ and ‘unconscionability’ remains. Put in another way, if the use (or potential misuse) of superior bargaining power is in itself insufficient, what more is necessary to establish an illegitimate use of economic pressure? Moreover, what role should bad faith play in determining whether illegitimate economic pressure was applied? Pakistan International therefore still leaves us without a clear answer as to where the boundary between acceptable and unacceptable economic pressure in the commercial sphere lies.
Perhaps the case law discussed in the majority judgment of Pakistan International might assist us with determining what more is necessary to constitute ‘reprehensible means’ in the commercial context. Lord Hodge stated that Borrelli v Ting (‘Borrelli’)26 was an example in which ‘reprehensible means’ of applying pressure had been used by the defendant.27 The facts and background of Borelli are as follows: Akai, a company of which Mr Ting was a former chairman and held a minority shareholding, collapsed into an insolvent winding up. The liquidators of Akai sought to enter into a scheme of arrangement to fund the liquidation, but Mr Ting failed to provide any assistance to the liquidators and even intentionally blocked the scheme of arrangement. Subsequently, the liquidators of Akai entered into a settlement agreement with Mr Ting, in which the liquidators promised not to pursue any claims against Mr Ting in relation to his conduct of Akai’s affairs. When Mr Ting sought a declaration that the settlement agreement was valid, the Privy Council held that the settlement agreement had been procured by economic duress, drawing attention to Mr Ting’s ‘failure to provide any assistance to the liquidators; his opposition to the scheme; and his resort to forgery and false evidence to further that opposition’.28
What exactly distinguishes Pakistan International and Borrelli, such that lawful act duress had been made out in the latter but not the former? Lord Hodge stated that PIAC had not ‘used any reprehensible means such as were evident Borrelli…to manoeuvre Times Travel into a position of increased vulnerability in order to exploit that vulnerability’.29 Although not explicitly brought out in Lord Hodge’s judgment, there are thus two ways in which we could conceptualise the concept of reprehensibility. The first way to understand ‘reprehensibility’ is more claimant-focused. On this view, the central question is whether the defendant manoeuvred the claimant into a position in which the claimant was completely vulnerable to the defendant’s threats and had no practical choice but to accede to the defendant’s demands. The second way of understanding ‘reprehensibility’ places more emphasis on the defendant’s conduct; in other words, the focus is not so much on the claimant’s increased vulnerability to the defendant’s threat, but instead on the nature of the defendant’s conduct itself.
If we understand reprehensibility in the first way, there seems to be no convincing distinction between Pakistan International and Borrelli. In Borrelli, Akai’s liquidators were forced to enter into a settlement agreement with Mr Ting because Mr Ting’s opposition to the scheme of arrangement effectively deprived the liquidators of the necessary funds to carry out the liquidation. As the Privy Council rightly noted in Borrelli, Mr Ting ‘had the liquidators over a barrel’,30 with the liquidators having no practicable choice but to give in to Mr Ting’s demands. Similarly, in Pakistan International, PIAC threatened to terminate its contract with TT and suddenly decreased its ticket allocation to TT. Due to TT’s nearly complete economic reliance on PIAC as the monopoly supplier, the realisation of PIAC’s threat of termination would in effect have amounted to bankruptcy for TT. In other words, PIAC had effectively placed TT in a position in which it would have no other reasonable alternative choice but to comply with PIAC’s demands. In this sense, the first understanding of ‘reprehensibility’ does not assist us with drawing the line between legitimate and illegitimate economic pressure. The manoeuvring of the claimant into a position of vulnerability, in which the claimant had no realistic choice but to comply with the defendant’s threat, is insufficient to constitute illegitimate pressure under the doctrine of lawful act duress.
Perhaps, then, the true distinguishing factor between Pakistan International and Borrelli lies in the nature of the defendant’s conduct. In Borrelli, the defendant had not only failed to fulfil his responsibility as a former officer of Akai, but also relied on a combination of lawful acts (such as voting against the scheme of arrangement) and unlawful acts (such as forgery and false evidence) to deliberately deprive the liquidators of funds such that they were forced to accede to the defendant’s demand.31 On the other hand, in Pakistan International, both the majority and concurring judgments emphasised that PIAC had genuinely believed that it was entitled to withhold payment for commission and thus that it was entitled to make the demand for a waiver.32 While not explicitly stated, it seems that the key differentiating factor was that there was some sort of dishonest, misleading or unreasonable behaviour on the defendant’s part in Borrelli, which was absent in Pakistan International, and that it was this sort of behaviour which was necessary to constitute ‘reprehensible’ or ‘unconscionable’ means in the commercial context.33
If this is indeed the true distinguishing factor between Pakistan International and Borrelli, we are left with more unresolved questions than before. As Day rightly observes, the test of reprehensibility ‘appears to require some additional value judgment about the conduct of the defendant in addition to assessing the defendant’s belief when making the demand’.34 Put in another way, the question of ‘reprehensibility’ essentially seems to amount to some sort of impressionistic inquiry on the courts’ part as to the morality or reasonableness of the defendant’s conduct. The notion of ‘reprehensibility’ thus collapses into judicial intuitions of good faith and reasonableness – all of which are vague, uncertain and fail to provide any more clarity than the notion of ‘reprehensibility’ itself. One might argue that the difficulty of framing a clear definition of ‘reprehensibility’ or ‘unconscionability’ is inevitable, given that the doctrine of lawful act duress essentially deals with drawing a line between acceptable and unacceptable commercial behaviour and will invariably involve value judgments in each specific case. The problem, however, is that this vague standard of ‘reprehensibility’ fails to provide certainty in the commercial context, the importance of which Lord Hodge was at pains to emphasise throughout the majority judgment. Lord Burrows’ criticism in his concurring judgment that the majority approach would ‘create considerable uncertainty in the realm of commercial contracts’ is thus convincing.35
Does Lord Burrows’ two-fold test provide us with better guidance for when a claim of lawful act duress will be made out? Lord Burrows’ test certainly has the merit of certainty and transparency; at the very least, Lord Burrows’ specific definition of bad faith – which involves determining whether the defendant had a genuine belief in its entitlement to the claim – is much more clear-cut than a vague standard of ‘reprehensibility’. But inasmuch as Lord Burrows’ formulation of the test might provide us with greater certainty, his emphasis on the defendant’s bad faith might be misplaced for two reasons. Firstly, as Lord Hodge rightly observes in the majority judgment, ‘discreditable behaviour can be a feature of commercial activity’,36 so it is unclear whether Lord Burrows’ focus on bad faith as the central feature of the inquiry is suitable for the commercial context. In other words, bad faith might not be appropriate as a sole factor for delimiting the boundary between legitimate and illegitimate economic pressure. Instead, in line with the majority approach, bad faith is better viewed as one factor to be considered in all the circumstances of the case. Secondly, Lord Burrows’ definition of bad faith is too narrow because it only looks at the subjective beliefs of the defendant. Instead, a wider definition of bad faith might also consider the motivations of the defendant in making the demand and the objective reasonableness of the defendant’s belief, or take into account the wider commercial context in which the demand was made.
The difficulties with framing an appropriate test for the doctrine of lawful act duress perhaps point towards a more fundamental problem – the doctrine might simply be inappropriate in the commercial context. Commenting on the Court of Appeal’s reasoning, Gardner suggests that ‘the role of economic duress is to prevent the misuse of power’.37 If this is indeed the purpose of the doctrine of economic duress, there is much to be said in favour of confining illegitimate economic pressure to unlawful threats and jettisoning the doctrine of lawful act duress altogether. The idea is that since commercial parties are deemed to be capable of protecting their self-interest, they should consequently be entitled to make any lawful threats in pursuit of their self-interest during commercial negotiations, irrespective of any inequality of bargaining power between the parties. On this view, there would only be a misuse of power if commercial parties applied economic pressure outside the boundaries of legality, with any lawful threats being deemed to be part of ‘the rough and tumble of the pressures of normal commercial bargaining’.38
It is beyond the scope of this article to fully explore whether illegitimate economic pressure should indeed be confined to unlawful threats. Instead, this article merely notes that abolishing the doctrine of lawful act duress would have the significant benefit of enhancing commercial certainty. As Davies and Day note, abandoning the doctrine of lawful act duress would ‘place the law of contract on a more certain and stable footing, avoiding protracted and expensive litigation about the existence and scope of lawful act duress’.39 Indeed, considering how narrowly the Supreme Court interpreted the doctrine of lawful act duress in Pakistan International, there is a strong case that the doctrine should simply be abandoned in the interests of commercial certainty.
Conclusion
This article has discussed the Supreme Court’s reasoning in Pakistan International. In particular, the majority judgment held that ‘reprehensible means’ must be present for lawful act duress to be established in the commercial context. I have noted that the notions of ‘reprehensible means’ and unconscionability do not give us much guidance as to what is required for a finding of lawful act duress. Following Pakistan International, we know that the use (and even misuse) of superior bargaining power is in sufficient to constitute illegitimate economic pressure, even if the defendant effectively left the claimant with no choice but to accept the defendant’s demand. I have argued that, while not explicitly stated by the court, it seems that some sort of dishonest or unlawful behaviour on the defendant’s part (even if not directly related to the demand made by the defendant itself) is necessary to constitute the ‘reprehensible means’ necessary for a finding of lawful act duress. Finally, I have suggested that the difficulties with finding a clear test for lawful act duress evince a more fundamental problem with the existence of this doctrine in the commercial context. As such, there is a strong argument in favour of abandoning the doctrine of lawful act duress in the commercial context and confining illegitimate economic pressure to unlawful threats.
I would like to thank Professor Hugh Collins and the editors for their comments on earlier drafts. Any errors remain my own.
[1] Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 400; R v Attorney-General for England and Wales [2003] UKPC 22 [15]-[16].
[2] Occidental Worldwide Investment Corp v Skibs A/S Avanti, Skibs A/S Glarona, Skibs A/S Navalis (The Siboen’ and the ‘Sibotre’) [1976] 1 Lloyd’s Rep 293.
[3] However, note that, as the case law currently stands, it is unclear whether all unlawful threats are treated as illegitimate threats. Threatened breaches of contracts, for instance, might not be illegitimate exertions of pressure in some circumstances: see Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm).
[4] Pakistan International Airline Corp v Times Travel (UK) Ltd [2021] UKSC 40.
[5] Times Travel (UK) Ltd v Pakistan International Airlines Corp [2019] EWCA Civ 828 [105].
[6] ibid [109].
[7] Pakistan International (n 4) [1].
[8] ibid [5]-[9].
[9] ibid [10]-[16].
[10] ibid [26]-[27].
[11] ibid [44]
[12] ibid [3], [28] and [57].
[13] ibid [30].
[14] ibid [58].
[15] ibid.
[16] ibid [59].
[17] ibid [58].
[18] ibid [59].
[19] ibid [60].
[20] ibid [112].
[21] ibid.
[22] ibid [115].
[23] See Jodi Gardner, ‘Does Lawful Act Duress Still Exist?’ (2019) 78(3) The Cambridge Law Journal 496.
[24] ibid 498.
[25] Pakistan International (n 4) [57].
[26] Borelli v Ting [2010] UKPC 21.
[27] Pakistan International (n 4) [58].
[28] Borrelli (n 26) [32], affirmed in Pakistan International (n 4) [12].
[29] Pakistan International (n 4) [58].
[30] Borrelli (n 26) [31].
[31] ibid [32]-[35].
[32] Pakistan International (n 4) [58], [115].
[33] This interpretation of ‘reprehensibility’ also seems to find some support in the majority judgment at [18] in Pakistan International, in which Lord Hodge drew attention to the defendant’s ‘dishonest behaviour’ in Borrelli.
[34] William Day, ‘Duress and Uncertainty’ (2022) 138 Law Quarterly Review 194, 198.
[35] Pakistan International (n 4) [133].
[36] ibid [44].
[37] Gardner (n 23) 498.
[38] DSND Subsea Ltd (formerly DSND Oceantech Ltd) v Petroleum Geo Services ASA [2000] BLR 530 [131].
[39] Paul Davies and William Day, ‘“Lawful act” duress (again)’ (2020) 136 Law Quarterly Review 7, 12.
Allison Wu
LLB (LSE) ’22, Public Law Notes Editor of the LSE Law Review 2020-21 and Private Law Notes Editor of the LSE Law Review 2021-22