Economic duress and exercising contractual rights
Times Travel v Pakistan International Airlines (Court of Appeal) [2019]
This case provides an interesting contrast to the Bates case we featured in June albeit that no cross reference is made to the Bates judgment and none of the arguments raised in Bates were used here. Instead, on facts which have a significant overlap on a number of key points, the arguments centred upon whether the excise of a contractual right of termination could amount to economic duress
Facts:
Times Travel was a ticketing agency whose business was almost entirely based on sales of tickets for PIA. PIA got into a dispute with Times Travel (and other ticketing agencies) over unpaid commission and as a result terminated its contract with Times Travel (and a substantial number of other agents) in accordance with its terms, offering a new contract in its place on less favourable terms. Crucially the new contract contained a waiver of any claim for historic unpaid commission.
Times Travel, after signing the new contract, argued that it was still entitled to the unpaid commission because the new contract had been entered into by it under duress.
Decision:
The High Court held that although PIA’s actions were lawful (in that they had simply exercised a right of termination on notice without cause as per the terms of the contract), they had exercised “illegitimate pressure” – if Times Travel didn’t take the new contract it would have gone out of business.
The Court of Appeal disagreed, holding that the new contract was binding including the waiver of the unpaid commission. The important point which the Court of Appeal stressed was that PIA had acted perfectly lawfully.
The judge in the Court of Appeal said “My conclusion on the central legal issue is that the doctrine of lawful act duress does not extend to the use of lawful pressure to achieve a result to which the person exercising pressure believes in good faith it is entitled, and that is so whether or not, objectively speaking, it has reasonable grounds for that belief”. He went on to say “the common law has always rejected the use, or abuse, of a monopoly position as a ground for setting aside a contract”. In this sense the Court of Appeal was echoing the Bates’ judgment when it held that “an imbalance of bargaining power is not relevant” as to whether a contract is a relational one [or not].
Points to Note:
In many ways the decision is entirely unsurprising, at least under more traditional common law doctrines. The courts have previously made it clear that exercising a pure contractual right such as a right to terminate simply on notice is not something which is subject to any kind of requirement to balance the interests of the parties or subject to any good faith type obligation. However, PIA were, in terms of the background to their relationship with Times Travel, in a position which had many echoes of the relationship between the Post Office and their sub-postmasters which was the subject of the Bates’ case.
- The airline was, at the relevant time; in a form of monopoly position given that it was the sole operator of direct flights between the UK and Pakistan;
- Times Travel was a small family owned business (much like many of the sub-postmasters in Bates). The travel agent’s business was very heavily dependent upon the sale of PIA tickets and without that income stream would have little or no business;
- PIA unilaterally reduced the ticket allocation of each agent by 80% as it seemingly had the right to do (akin to a unilateral variation of the contract terms?) in a move which, by itself, would have been disastrous for any agent;
- PIA effectively conducted business by appointing agents on its own standard terms of business. Times Travel were not permitted to take a copy of the ‘draft’ Agreement so that they could seek legal advice. The Agreement was seemingly proffered on a ‘take it or leave it’ basis;
- The notice period that PIA had to give was only one month (plus the unexpired portion of the current month so potentially a maximum of two months). PIA actually gave 6 weeks’ notice;
- As per Bates, this was a contract which may have been regarded as being at the sophisticated end of the ‘interpretative spectrum’ but the fact that Times Travel had had no opportunity to negotiate and no help from professional advisors, it might have been open to the court to take more account of the contractual context;
- It is certainly true that the relationship between PIA and Times Travel lacked many of the attributes identified in Bates as being necessary for a relational contract but, given the circumstances, it would perhaps have been relatively easy to imply an obligation of "fair dealing" which would encompass an obligation to "refrain from conduct which in the relevant context, would be regarded as commercially unacceptable by reasonable and honest people". It would also have been relatively easy to imply an obligation that any contractual, or other power, should be exercised for the purpose for which it was conferred (in this case because the party wanted to terminate the relationship, not because they artificially wanted to terminate it and replace it with substantially the same terms plus the waiver).
- Arguments based on the application of UCTA were dismissed by the High Court and were not appealed. In this case Times Travel had seemingly sought to rely upon section 3 of UCTA but in doing so the discussion centred on section 3a which is the section dealing with a party seeking to limit liability for his own breach of contract. That was not really the case here (unless one views the waiver in the replacement contract as a limit on liability) so it is perhaps unsurprising that the argument did not succeed. The suggestion seemed to be that UCTA only deals with clauses seeking to regulate prospective liability and does not apply to retrospective compromises of existing claims.
- It remains to be seen how the courts develop the notion of the relational contract.