Dear all,

The UKSC today handed down its long awaited judgment in Times Travel v Pakistan International Airlines Corporation [2020] UKSC 40 on the existence of so called “lawful act duress”. Contrary to my expectations, they did not at the same time hand down Ukraine v Law Debenture Trust, which was heard much early and the parties in which were permitted to intervene in the Times Travel hearing last year. Pleasant to see the court bucking the recent trend of handing down judgments which have to be read together…

Times Travel concerned a small family travel agents which did the overwhelming majority of its trade selling tickets as agent for Pakistan International Airways (PIAC). If it could not sell these tickets it would be forced out of business. The agency agreement with PIAC was terminable by both parties on one months’ notice. In 2008 a number of disputes arose between various PIAC agents and PIAC about the commissions payable to the agents, which PIAC later purported to change to a less favourable “net sales” model. This dispute (of which Times Travel was aware but not part of) resulted in litigation in 2011. In response, in early September 2012 PIAC terminated the agency agreements with all its agents (including Times Travel) and offered a new terms of engagement from November 2012. It also reduced the tickets allocated to Times Travel by 80%, which had an immediate and severe effect on its business. Both acts were lawful and permitted by the old agreement. Upon being told by PIAC that a failure to sign the new agreement would result in them not being able to sell PIAC tickets, Times Travel signed a new agreement with PIAC in late September. This had the effect of moving them to a new remuneration model and critically releasing all prior claims against PIAC for commissions payable under the old contract.

Unfortunately for Times Travel, the litigation proved fruitful for the other agents, and many ultimately received better terms in their new agreements. When Times Travel requested similar terms from PIAC, the were refused. Times Travel then commenced litigation claiming commission allegedly not paid under the old contract. Before Warren J [2017] EWHC 1367 (Ch), they succeeded in part in their claim that commissions had been payable. The only question was therefore whether those claims had been compromised by entering into the new contract.

At first instance, Warren J found the contract was avoidable for lawful act duress, as PIAC’s threats were illegitimate. This was reversed in the Court of Appeal [2020] Ch 98; [2019] EWCA Civ 828. David Richards LJ, giving the leading judgment, held that while lawful act duress did exist, it required a lack of genuine belief in an entitlement to what was demanded (at [62]). Provided the defendant has a genuine, even if unreasonable, belief in his entitlement then there can be no lawful act duress. As Professor Davies and William Day have pointed out however ((2020) 126 LQR 7, 9) this analysis is fatally flawed, because ‘[u]nless issues of public policy are engaged, a party is always legally entitled to receive a contractual promise, even if that is a waiver of a prior claim’. In any event, PIAC had such a belief and so the CA reversed Warren J’s finding.

The Supreme Court rejected Times Travel’s appeal. Lord Burrows gives the longest judgment but is in dissent, holding that “illegitimate pressure” (which is different to “unlawful pressure” (at [87])) may be shown by a “bad faith demand” (at [112]) which is a demand without a bona fide belief of entitlement. He nevertheless holds that the CA applied this test correctly (at [119]) before offering some obiter comments. He comments on Davies and Day’s argument (above) at [125], but suggests that the bad faith demand must be rooted in “dishonesty” about an “existing right and duty” (at [125]). This is explained at [102] to mean:

In the context we are focusing on - of a demand for what is claimed to be owing, or analogously, as on the facts of this case, a demand for the waiver of a claim - it is a necessary requirement for establishing lawful act economic duress that the demand is made in bad faith in the particular sense that the threatening party does not genuinely believe that it is owed what it is claiming to be owed or does not genuinely believe that it has a defence to the claim being waived by the threatened party. This is on the assumption that, as a matter of law, what the threatening party claims to be owing is not legally owing or there is no defence to the claim being waived by the threatened party.

To Lord Burrows, this shows that the claim in CTN would have succeeded if a lack of belief could be shown (contrary to many interpretations of Steyn LJ’s judgment). Lord Burrows then attempts to explain (at [121]-[125]) why this does not mean that money is always recoverable if it is demanded by means of commercial pressure without any prior entitlement or belief in entitlement. There is no pre-existing right in this context, and so no amount of bad faith in making a demand can render the money recoverable. With respect, this reasoning is unconvincing, as Lord Hodge points out at [54]. Why does everything depend on an “existing right and duty” between the parties? At [135] we seem to get an answer – it is “providing a clear and certain means of controlling the scope of lawful act economic duress” (i.e. arbitrary policy limitation).

The majority (Lords Reed, Lloyd Jones and Kitchin, led by Lord Hodge) agree that there was a doctrine of lawful act (at [1]) but that “illegitimate pressure” is found only in circumstances where it is “unconscionable” for defendant to use lawful pressure to enforce their demand (at [2]). We are told that the courts, in considering when this is so, must bear in mind that there are analogous doctrines in equity and that there is no general doctrine of good faith (at [3]). Only two examples are given (at [4]): (a) threats to prosecute the claimant or the claimant’s family (e.g. Williams v Bayley) and (b) where a defendant is already liable to the claimant, “manoeuvring” him into a position of vulnerability to force the claimant to waive his claim (e.g. Borrelli v Ting). In the latter case we are given the question begging formula that these means must be regarded as “illegitimate, although Lord Hodge’s subsequently suggests those “manoeuvrings” were dishonest, unlawful acts in both Borelli and The Cenk K (at [18]).

Lord Hodge goes on to note that common law jurisdictions with a doctrine of good faith (US, Canada) are “more open” to Lord Burrow’s approach of a “bad faith demand” but Aus, NZ and Singapore all appear to have rejected this approach. After analysing CTN Cash and Carry v Gallagher, Lord Hodge firmly rejected a test of ‘bad faith demand’ proposed by Lord Borrows (at [52]). It would “extend the doctrine of lawful act duress well beyond the position reached in the five cases which I have discussed” (at [46]).

Although it is a shame that the majority did not go the whole distance and disclaim any doctrine of lawful act duress, it certainly does not extend it any further than its present, limited position. However, one might question that, if what is needed is some “reprehensible” conduct (which seems invariably to be blackmail or deceit or deception on the claimant or a third party) then one might query whether this is truly “lawful” act duress. The same is true of Lord Burrows’ view that a bad faith demand requires some form of dishonesty about an existing right. The scope of what counts as “unlawful” in this context is clearly in flux (see Lord Sales’ comment Laboratories Servier v Health Sec [2021] UKSC 24 at [102]) and it is possible that duress, intimidation, conspiracy and causing loss by unlawful means may all have to be reconsidered in the near future in any event.

Best,

Matthew