Where consent to a contract is induced by duress, the contract is voidable by the aggrieved party. One form of duress is “economic” duress. A party seeking to prove economic duress must show the existence of illegitimate pressure applied by the defendant without which it would not have entered the contract. The illegitimate pressure will typically take the form of a crime or tort or breach of contract but there have also been cases where unethical but lawful acts have been held to constitute economic duress.
The Court of Appeal (David Richards LJ giving the lead judgment, Moylan and Asplin LJJ concurring) has ruled that a travel agent was not entitled to avoid a contract with an airline for economic duress.
The airline was the sole operator of direct flights between the UK and Pakistan, and the travel agent’s business largely depended on its ability to sell tickets for its flights pursuant to an agency agreement. By 2012, many of the airline’s agents had begun litigation against it to recover allegedly unpaid commission. The airline gave notice terminating all its existing agency agreements and reduced its agents’ ticket allocations. It offered them new contracts, but only on terms that they waive any claim for commission accrued under their 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 resulted from economic duress. It succeeded at first instance. The airline appealed.
Following an extensive review of the authorities, David Richards LJ 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. He 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. He 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.
Appellate courts rarely have the opportunity to consider the law on economic duress. This judgment helps clarify a grey area of contract law.
Case: Times Travel (UK) Limited v Pakistan International Airlines Corporation [2019] EWCA Civ 828 (14 May 2019) (David Richards, Moylan and Asplin LJJ).
credit to Practical Law
