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ECONOMIC DURESS IN ENGLISH CONTRACT LAW: TIMES TRAVEL V PAKISTAN INTERNATIONAL AIRLINES

In order to form a legally binding, valid contract under English law, four elements are required: offer, acceptance, consideration, and an intention to create legal relations. However, English law recognises several ‘vitiating factors’. In this context, ‘to vitiate’ is a verb meaning ‘to make ineffective or invalid'. In other words, if there is a vitiating factor, the contract may not be legally enforceable.


In relation to English contracts, one such vitiating factor is ‘duress’. Put simply, duress is pressure which one person applies to another in order to make them do (or not do) something. An obvious example would be where Party A produces a gun, points it at Party B, and tells Party B to sign the contract or Party A will pull the trigger. Of course, this kind of coercion is an extreme example of duress.


It is not unusual for one party to use commercial pressure over another party in order to persuade them to enter into a contract. For example, one party is often in a stronger bargaining position than the other and may use that to persuade the other party to enter into a contract. However, there can be times when one party may, for example, threaten to breach or terminate a contract unless the other party agrees to do something, such as amend contract terms.


In order to succeed in a claim for ‘economic duress’, several elements must be present:


· ‘illegitimate’ pressure (this is pressure for which there is no commercial justification, and usually includes a threat of some kind);

· the pressure must cause (or ‘induce’) the other party to enter into the contract (proving causation is vital here);

· the real effect of the pressure is that the ‘innocent party’ (the party placed under the pressure) must have no real or practical option but to agree.


One interesting area of this topic is whether or not the threat to do a lawful act can ever be economic duress. For example, imagine that Party A and Party B are in a valid contract. Party A owes Party B money under this contract. Party A then, lawfully, terminates the contract, but says it will enter into a new contract with Party B if Party B agrees not to bring legal proceedings for the money that is owed under the old contract? Could this amount to economic duress?


Interestingly, the Supreme Court of the United Kingdom is due to hand down a judgment on this very issue in the coming weeks. In early November 2020, the Supreme Court heard submissions in a case called Times Travel (UK) Limited v Pakistan International Airlines Corporation. The basic questions which the Supreme Court must address are whether ‘lawful act duress’ exists at all and, if so, in what circumstances it may be invoked (relied on).


The facts of the case are very similar to the example in the last paragraph. The English Court of Appeal (the appeal court below the Supreme Court) held that where a party uses lawful acts to apply economic pressure to a counterparty, the court will not set aside the contract on grounds of economic duress unless bad faith is established. We will have to wait and see what the Supreme Court decides, but either way it will be a groundbreaking decision in the English law of contract in this area.



Exercise

Find a word or phrase in the text which means:

1. The act of persuading someone to do something by using force or threats.

2. The strength of the ability to get what you want in a negotiation situation

3. To bring a contract to an end

4. To change or modify a legal document (such as a contract)

5. Significant because it is new



Answer Key

1. coercion

2. bargaining position

3. terminate

4. amend

5. groundbreaking


© Cambridge Legal English Academy 2020

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