Lawful Act Duress in Contract Law
The law on duress in contracts features a novel doctrine: lawful act duress. The courts have recently clarified their stance on it. However, the substantive of their reasoning threatens to undermine the reliability of their ratio, harming companies of all sizes.
Duress in contract law is usually quite simple: if Tom points a gun at Jerry and demands his signature to be added to a contract Tom wrote moments ago, that will not be a valid contract. That much seems obvious. However, in cases where Tom and Jerry are not individuals but are Tom Inc. and Jerry Ltd., and there is no gun but a system of lawful economic leverages, the picture becomes less clear. Such was the Supreme Court case Pakistan International Airline Corporation v Times Travel (UK) Ltd 2021] UKSC 40. The big question here was whether a company’s act of economic pressure using levers, which is their lawful right, nevertheless could be held illegitimate and amount to economic duress, rendering the ensuing contract unenforceable. An unrequited question to what an emerging legal doctrine is, it was hoped that the Supreme Court would bestow its wisdom upon us just one more time. However, such hopes were in vain.
It would prove useful to canvas the topic before discussing the case further. First, what is economic duress in contract law? Warren J., the trial judge in Times Travel, gave such an outline: economic duress is where illegitimate economic pressure is placed on claimant and such pressure was a significant cause of the contract by removing reasonable alternatives for the other party [2017] EWHC 1367 [at 248].
What counts as illegitimate is a further question. It should seem obvious that unlawful acts are to count as illegitimate. That much is found in Al Nehayan v Kent: ‘unlawful action or a threat of unlawful action is one form of illegitimate pressure’ [2018] EWHC 333 (Comm) [at 179]. A clear example is Barton v Armstrong [1976] AC 104, which involved threats of violence over a contract. However, to be illegitimate is not synonymous with being unlawful, which has led to the courts over the years speculating as to whether there can be such thing as a ‘lawful act duress’: that is, actions which someone has a right to do, but are, nevertheless, illegitimate in the current circumstances. This notion can be found as early as 1937 in Thorne v Motor Trade Association [1937] AC 797, but the example given was that of blackmail. It took another forty-six years for the notion to be brought into a commercial, contractual context, with Lord Scarman in The Universal Sentinel [1983] 1 AC 366, 401, reasoning upon Lord Atkins in Thorne that an act that is perfectly lawful may still amount to illegitimate pressure. Thus, we have the mustard seed for the doctrine of lawful act duress in contracts.
Fast forward again another thirty-eight years to Times Travel. Here is a ticket selling company, Times Travel (TT), whose income essentially relied upon Pakistan International Airlines’s (PIAC) ticket supply. In 2012, TT asserted to PIAC that PIAC had unpaid commission to pay. To prevent TT from launching a case, PIAC cut TT’s ticket allocation to 20% and threatened to maintain this allocation percentage unless TT signed an onerous waiver term which TT did, albeit reluctantly. Note that PIAC were within their contractual rights to do so. Soon after signing the contract, TT took PIAC to court, claiming that the contract was signed under lawful act duress.
So what was the ruling of Times Travel? The majority found against TT: there was no lawful act duress. In doing so, the Supreme Court appeared to clarify the doctrine by setting down a threshold test. They set the threshold of what would count as duress from a lawful act very high: namely, if the character of such pressure is ‘morally reprehensible’. Evidently, this was not the case in Times Travel. This puts the scope of the doctrine very narrowly, applicable in only the most exceptional of cases.
Given how lawful act duress often (naturally) exists in commercial relationships featuring inequalities in size and influence, it was hoped that the Supreme Court would strike a sensible balance between the interests of the small and large companies whilst appreciating the ‘rough and tumble of the pressures of normal commercial bargaining’. Ostensibly, the ruling seems to do so: the threshold is high enough that it affords companies with a sizeable influence sufficient ambit to use it and protects small companies from being abused through morally reprehensible means.
However, like a house built on sand, the reasoning upon which the court came to its conclusion is upon shaky foundations. The court cited two cases that they deemed a demonstration of moral unconscionability and hence lawful act duress. Note that given how novel a concept lawful act duress it, it is absolutely crucial for the examples of it to be clear and intelligible. The first was Borelli v Ting [2010] UKPC 21. Ting was the chairman and CEO of a company that had gone into liquidation, who tried to obstruct the liquidator’s arrangement through forgery and false evidence, both of which were unlawful. The liquidator’s scheme deadline was fast approaching with no progress having been made, given Ting’s antics and so, to cover his tracks, Ting then blocked the scheme by using his swing vote in the boardroom – something he was entitled to do – so that the liquidators would agree to not investigate his previous actions, which they did due to time pressure. However, his deal with the liquidators was held unenforceable as so reprehensible was his past conduct as to render the final contract the product of ‘lawful act duress’, so the Supreme Court in Times Travel interpreted.
The second case was Progress Bulk Carriers Ltd v Tube City IMS “The Cenk K” [2012] EWHC 273 (Comm). A ship-owner withdrew their ship from a charterparty – breaching their contract with the charterparty – and offered a substitute only if the charterparty agreed to waive any claim for breach of the original contract. Given that the charterparty was haemorrhaging money every minute it did not have a ship on the water, they acquiesced in order to cut their losses. The court again found there to be duress in the contract despite the final demands being lawful. Again, this was interpreted by the court in Times Travel as another demonstration of lawful act duress.
The fault in the Supreme Court citing these two cases as examples of lawful act duress was that these cases’ contracts were each held to be void because the pressure in each contract primarily rested not on the current ‘reprehensible’, lawful act, but on past unlawful acts. Ting’s contract was illegitimate because his earlier unlawful actions, and not the boardroom voting bloc, were the main cause of the time pressure which forced the liquidator’s hand. Likewise, the shipowner’s contract was illegitimate because, even more clearly than in Borelli v Ting, the past unlawful act was the cause for the conditions of pressure upon the charterparty when they agreed to the voidable contract.
So, the final act was ultimately an exercise of a lawful act, but so operative were the parties’ past unlawful acts as being the pressure on the contract that these cannot be thought of as examples of lawful acts of duress as distinct from an unlawful act. In both cases, therefore, what was morally reprehensible – the test for lawful act duress – was what was actually simply unlawful. Given that the threshold for lawful act duress has only been confirmed to have been crossed in instances of unlawfulness, the Supreme Court has thus failed in Times Travel to develop the test of lawful act duress and thus the doctrine more generally as distinct from unlawful act duress.
So where does this leave the state of contract law for companies, small and big? Neither are satisfied. For the small companies, since there has been no true example of reprehensible conduct that is distinct from unlawfulness, they cannot rely on this doctrine to protect them in cases of (albeit lawful) moral reprehensibility. We might think that large companies would celebrate such a decision, but they too are disappointed: they do not think that the courts went far enough. Instead, they believe that the courts ought to have jettisoned the reprehensibility test for how subjective it is. Rather, ‘[j]udges should focus squarely upon whether the defendant’s threats were unlawful or not; they are not well equipped to ‘be the arbiters of what is socially unacceptable and attach legal consequences to such conduct’’ (Davies and Day). Companies who typically use such pressure are thus uncomfortable with the subjectivity of the threshold for how uncertain it is. After all, reasonable people may disagree on what is or is not morally reprehensible and this rings even more true in the commercial world, which is so far detached from the environments that conventional morality operates in.
To conclude, the Supreme Court’s inability to nail lawful duress act duress down means that the current law on lawful act duress is as liquid as Mr. Ting’s company was, despite his best efforts.
Bibliography
Frisby, Michael and McDowell, Alasdair. “What now for lawful act economic duress?” New Law Journal (2021)
Gardner, Jodi. "Does Lawful Act Duress Still Exist?" Cambridge Law Journal (2019)
Jackson, Oliver. "Unconscionability, Uncertainty and Lawful Act Duress." Journal of Business Law 8 (2021)
Jones, Nigel. “The final word on lawful act duress? Times Travel v Pakistan International Airlines and its impact on the banking sector” Journal of International Banking and Financial Law (2021)
Paul S Davies, and William Day. ""Lawful Act" Duress (again)." Law Quarterly Review (2020)