Travel companies have been taking a battering in recent months with major weather events, economic woes and now the coronavirus which is on the verge of being declared a global pandemic. A separate blow came in the form of an important court ruling1 in which it was decided a major airline did not exert ‘lawful act economic duress’ to avoid its obligations to a small travel company.
The specialist commercial lawyers at award-winning Bahamas law firm ParrisWhittaker are highly experienced in advising commercial clients on their contractual clauses and disputes.
Economic duress is essentially where one contractual party threatens to
cancel the contract unless the other party agrees to certain demands. But can a
lawful act – or even a lawful threat – satisfy the requirement for economic
duress and thus amount to the demanding party being in breach? It all comes
down to ‘good faith’, the UK’s Court of Appeal decided.
This ruling has important persuasive authority on the courts in The Bahamas and should, therefore, be noted.
What’s the background?
Times Travel is a small UK travel company whose business mainly depended on selling tickets as an agent for the major Pakistani airline (PIAC). It sold an allocation of tickets for a particular route on a commission basis, as did a large number of other travel agents.
When PIAC failed to pay the commission due, some of the agents threatened to take action through the courts so PAIC then terminated all its contracts with sales agents. It then offered new contracts requiring the agents to waive their existing claims.
Times Travel accepted those terms because its only alternative was to close down. However, it made a formal claim to recover the commission under the original agreement. It argued that PIAC had exerted economic duress to force the company to sign the new contract terms and was therefore entitled to ‘avoid’ the agreement.
The appeal judges rejected the claim. On the evidence, it found that PIAC
believed in good faith that it was entitled to apply commercial pressure in the
way that it did. Furthermore, the court concluded that the pressure it exerted
was neither illegitimate, breach of contract nor a tort.
It stated that “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”.
In the absence of good faith, the claim may well have succeeded. Businesses
should note that the appeal court made clear that in such a claim, it is the
claimant’s responsibility to establish bad faith – not for the defendant to
prove good faith.
What are the implications?
The ruling is welcome news for big businesses who have effectively been
granted the green light to exert economic pressure on those with whom they have
a business relationship. However, if there is evidence of bad faith, the other
party can rely on this in an attempt to bring a successful claim.
The ruling effectively strengthens the hands of big companies who are in
a stronger bargaining position – with the financial resources to exert pressure
on small organisations who have little choice but to give way. The bar has been
set high for those seeking to prove lawful acts as the basis for a successful
economic duress claim.
How can we help?
We advise and represent commercial organisations
of all sizes across all sectors on their contractual relationships and disputes.
Contact the expert commercial lawyers at ParrisWhittaker for strategic advice
and representation.
1Times Travel (UK) Limited v
Pakistan International Airlines Corpn [2019] EWCA Civ 828
