Philip Shepherd QC and Heather Murphy in leading Court of Appeal case on economic duress
On 14 May 2019, the Court of Appeal (David Richards L.J., Moylan L.J. and Asplin L.J.) handed down judgment in Pakistan International Airlines Corporation v Times Travel (UK) Limited  EWCA Civ 828 [judgment here – https://www.bailii.org/ew/cases/EWCA/Civ/2019/828.html], ruling on the scope of lawful act duress.
The Court of Appeal hearing is the latest hearing in a long running dispute between Pakistan International Airlines Corporation (PIAC) and two of its agents, Times Travel and Nottingham Travel.
In in Times Travel v Pakistan International Airlines Corporation  EWHC 1367 [judgment here – https://www.bailii.org/ew/cases/EWHC/Ch/2017/1367.html], one of the issues in dispute was the introduction by PIAC of the New Agreement in October 2012.
As set out by Warren J;
- By 2009, both Times Travel and Nottingham Travel were IATA agents of PIAC [44 and 45] and entitled to commission from PIAC [para 46];
- PIAC was the only carrier that flies directly to Pakistan. The majority of both agents’ clients were and are of Pakistani origin and wanted to fly to Pakistan. Both agents needed to sell PIAC tickets for direct flights in order to attract clients.
- Both agents alleged they were forced to sign the New Agreement in October 2012, by
- PIAC terminating their appointment as agents ; and
- Reducing their ticket stock allocation [55-57].
- Both agents were told that if they signed the New Agreement, their ticket stock allocation would be reinstated:  and .
- The effect of signing the New Agreement was each of them gave up all accrued claims for commission prior to 2012.
- PIAC wanted to achieve an end to any claims by the agents for their commission prior to 2012 [para 260] and the whole basis on which the termination notice was served and the terms of the New agreement was to ensure that the agents would lose their claims to their accrued rights [para 262].
In light of the above, Warren J held
- Neither good or bad faith was established in relation to PIAC’s actions ; but
- Times Travel had no practical alternative but to submit to the pressure  and sign the new agreement.
- Times Travel was entitled to
- Either avoid the New Agreement, and claim commission prior to 31 October 2012 and quantum meruit thereafter (the meaning of which was determined in  EWHC 1820, judgment here https://www.bailii.org/ew/cases/EWHC/Ch/2018/1820.html); or
- Was entitled to commission since 31 October 2012 under the New Agreement. [279 and 280]
- Nottingham Travel had not been subject to duress as they had negotiated a collateral contract with PIAC and accordingly, was entitled to commission since 31 October 2012 under the New Agreement.
Times Travel avoided the New Agreement and an order for the taking of an account in respect of commission owing to both agents was ordered. The account is on-going.
Court of Appeal
The appeal concerned the meaning of illegitimate pressure when the act threated by the demander is a lawful act. The Court accepted that illegitimate pressure had two elements to consider:
- The nature of the threat; and
- The nature of the demand.
In this case, the nature of the threat was lawful, although harsh [para 69]. The focus therefore fell on the nature of the demand.
David Richards L.J., giving the judgment of the Court of Appeal, held that pressure is not illegitimate when the threatened act is lawful and is used to achieve a result to which the demander believes in good faith it is entitled, whether or not, objectively, it has reasonable grounds for that belief [para 105].
In light of that determination, , as Warren J had made no finding of bad faith on the part of PIAC, Times Travel was unable to establish that it had been subject to economic duress.
Impact upon the law of economic duress
The Court of Appeal’s decision is the first decision to specifically consider what will amount to illegitimate pressure when the threatened act is a lawful one. When considering the nature of the demand, the Court held that what mattered was whether the demand was made in good or bad faith, and not the reasonableness or otherwise of the demand.
It therefore appears that the second element of the test for illegitimate pressure, when the threat is lawful, is not the nature of the demand, but the belief with which the demander made it.
Further, the Court of Appeal appears to suggest that bad faith excludes any element of objective evaluation as to acceptable standards of behaviour [para 102 and 111]. Such an exclusion will allow the availability of relief to depend on the demander’s own perception of whether his conduct was justified.