Contract Law 2040 First-Class Coursework Final and Final Exam 2020 (Awarded an 80)

Updated: Nov 3, 2020

By: Tony Conn


"This exercise is designed to test how well you can read, understand, summarise, and analyse a court decision. Keep in mind that you should summarise the facts of the case as briefly as possible and only for the purpose of highlighting key issues and the approach of the court. As this is a decision of the Court of Appeal, you should also provide a brief overview of the procedural history of the case. The principal objective of this exercise is to test how you can identify and highlight the key issues in the case and how they were resolved. You should thus indicate how the court framed the issues and how it came to its conclusion on them. The higher marks will go to those who offer critical analysis and evaluation of the decision and draw out the theoretical and practical implications. One of the key aspects which distinguishes between a good, very good and excellent case note is the ability not only to summarise and restate the court’s holdings and resolution of a particular legal dispute, but to engage in critical analysis of the decision’s possible impact on the relevant area of law or society in general."



You should prepare a case note on the following decision of the Court of Appeal:

Times Travel (UK) Ltd v Pakistan International Airlines Corporation (Rev 2) [2019]

In the present case the Court of Appeal had to decide whether the threat of committing an entirely lawful act could sufficiently amount to illegitimate pressure so as to engage the doctrine of economic duress. There were a number of issues to be considered. Firstly, was the demand made by the defendant in bad faith? And if not could the contract still be voided if the demand is unreasonable? Thirdly, should the common law doctrine of duress include an assessment of unconscionability? Or should this be left to the equitable doctrine of unconscionable transactions. Finally, the court clarified that contracts cannot be set aside on the basis of an abuse of monopoly position.

The claimant company, Times Travel (UK) Ltd, whose business was almost exclusively the sale of flight tickets for travel to and from Pakistan, was very largely dependent on its ability to sell tickets with the defendant airline, Pakistan International Airlines Corporation (PIAC). This was the only airline operating direct flights between the UK and Pakistan. Claims were brought against PIAC for commission that was due but had not been paid. In response PIAC terminated existing agency contracts, offering each a new contract on terms that it included a waiver of the agent’s claim for unpaid compensation. The claimant was one of the agents which accepted those terms. The claimant brought proceedings to recover the commission and other payments which it said were due under its previous contract.[1] At the court of first instance Warren J found in favour of Times Travel and that the new contract could be set aside. However, PIAC sought to appeal this judgement on the basis that the pressure applied was not illegitimate.

Good/ bad faith

In deciding whether the pressure was illegitimate it involves analysing both the nature of the threat and the nature of the demand. Where the act or threatened act is lawful only the nature of the demand will be considered. In analysing the nature of the demand the court focused on the case of CTN Cash and Carry LTD v Gallagher[2] which had considered the possibilities of lawful act duress. As noted by Richards LJ, Gallagher could be used to make an agreement voidable for economic duress where A applies lawful pressure to induce B to concede a demand to which A does not believe in good faith it is entitled[3]. Therefore, the key question the court had to answer was whether PIAC was acting in good faith and considered it was entitled to demand Times Travel to sign a new contract containing a waiver of claims. In answering this the court observed that since the court of first instance had accepted that Times Travel had not established bad faith on the part of the defendant, and PIAC genuinely believed it was entitled to demand the waivers as a condition of the new contracts, then PIAC’s lawful actions did not amount to economic duress and the appeal was allowed. Richards LJ could see no basis on which a plea of economic duress would succeed if a belief was reasonably, as well as genuinely, held and that such a decision would run contrary to Gallagher[4]. Importantly, he also concluded that the same applied even where the belief was unreasonably held. This was contrary to the obiter remarks of Leggatt LJ in Al Nehayan v Kent[5] where the argument was made to extend lawful act duress to situations where even though the demand was made in good faith it was unreasonable. The court was clearly concerned to limit the undesirable uncertainty which would have followed from the introduction of a requirement of reasonableness. This is not surprising, the law should be so far as possible intelligible, clear and predictable[6] especially within the realm of commercial contracts where parties should have a clear understanding of their rights. As such, by clarifying that lawful acts cannot cause duress unless they are used in pursuit of a demand that the demanding party is making in bad faith, the court of appeal has kept the test for economic duress subjective, and refrained from importing an objective element. In my opinion, although the agency is likely to feel aggrieved at having been backed into a corner by the airline, the judgement is entirely consistent with English law’s desire to ensure that contracts bind.[7] It reinforces the fundamental importance of ensuring contractual clarity and certainty as a matter of English Law in that if parties make an agreement, the courts will seldom intervene to undo that agreement. What is clear from the judgement is that by opting for the bad faith test and rejecting the reasonable person one, it appears to follow in line with what Lord Wright said in Crofter[8], that England being a competitive or acquisitive society, the law has adopted for better or worse, the test of self interest or selfishness as justifying lawful acts which inflict harm. From my point of view, the judgement clearly gives legal certainty the highest priority in relation to commercial contracts, thus having the implication of allowing morally and ethically questionable conduct to pass.

Unconscionability

The second issue surrounded the recognition of a principle of unconscionability under the common law. Mr Shepard QC in his case for Times Travel relied on the comments made by Leggatt LJ in Al Neheyan v Kent[9], where he explained that in a situation where the defendant can retain money or other benefits demanded from a claimant in a situation of extreme vulnerability it is appropriate to take into account the propriety of the defendant’s conduct, by reference not simply to what is lawful but to basic minimum standards of acceptable behaviour, thus introducing an element of unconscionability when examining economic duress. Richards LJ disagreed with the arguments made by Legatt LJ in Kent finding his reference to a “situation of extreme vulnerability” suggested engaging the equitable doctrine of unconscionable transactions rather than common law controls. Richards LJ clearly wanted to make a distinction between duress and the two equitable doctrines of unconscionability and undue influence and decided that the agreement between the parties in the present case was not one which could be set aside by either of these doctrines.[10] A clear trend is being set by English law that adding an examination of unconscionability when assessing an economic duress claim under the common law is undesirable, Richards LJ notes this is down to the difficulty and uncertainty it would create in applying them to different cases. Richards LJ’s remarks are entirely consistent with the current body of English case law in relation to unconscionability, where the likes of Lord Denning’s remarks in Lloyds Bank Ltd v Bundy[11], suggesting a principle of unconscionability, have not been followed. It demonstrates that the English law in relation to duress and unconscionability is still primarily concerned with procedural rather than substantive fairness. This echoes a common theme across contract law that introducing an element of unconscionability would require the courts to look more directly at the nature of the contract itself rather than the events leading to it being formed. A possible implication for the future stems from Richard LJ’s comments on how when the means used by the defendant, are “completely indefensible” and where intervention is needed to enforce “basic norms of commerce and fair and honest dealing” then he finds it hard to disagree that an element of unconscionability would be engaged. To me this leaves scope for potential development for unconscionability in England under the common law, possibly following in line with Australia where after the case of Commercial Bank of Australia Ltd v Amadio[12] a principle of unconscionability was formulated. However as it currently stands there is no protection under the common law for unconscionable transactions, due to the difficulty in ascertaining a uniform application of what constitutes ‘fair’ across English judges. Evidently, in deciding on this issue the court chose not to develop the law further in this area.

Monopoly position

The court additionally noted that the economic pressure PIAC was able to apply in this case resulted from its position as a monopoly supplier. Despite this, the court was not keen to develop economic duress as a means of controlling the lawful use of monopoly power. In finding this the court noted the comments made by Steyn LJ in CTN Cash and Carry that the control of monopolies is a matter for parliament and that defendants simply being in a monopoly cannot by itself convert what is not otherwise duress into duress.[13] Moreover, the court additionally displayed how the common law and equity have not countenanced as grounds for setting aside contract factors such as inequality of bargaining power and, even though PIAC was in a better bargaining position than Times Travel, it does not give them a grant of redress. Again, the court noted that an introduction of a principle of inequality of bargaining power under the common law was for Parliament to address. The judgement regarding this issue is not radical in any sense and follows in line with the case law surrounding control of monopolies and inequality of bargaining power. For example, Lord Denning’s attempt to introduce a general principle of inequality of bargaining power into the common law in Lloyd’s Bank Ltd[14] was firmly rejected by the House of Lords and in National Westminster Bank Plc v Morgan[15] Lord Scarman said that any mischief arising from inequality of bargaining power was for Parliament to redress, not the common law. Clearly in the present case the court has not diverted from this traditional viewpoint. It is clear a level of judicial restraint was shown by judges in the present case but I believe the implications of their restraint is vital to consider, in particular how it protects the doctrine of freedom to contract. Within that doctrine is the idea that individuals should be left free to make contracts and the courts role in the market is merely to enforce them with minimum intervention. Should a doctrine of inequality of bargaining power be introduced it poses a direct challenge to the notion of freedom of contract. It suggests that contract law is a set of principles which limit the ability to enter into certain types of contract and that the role of the courts is not merely to enforce contracts but also to ensure that a minimum degree of fairness is observed[16]. The justification I have for not allowing the courts to assess the fairness of the bargaining power of parties is that it would mark a move away from a market economy to one which is judicially supervised, a point emphasised by Thal[17]. Additionally, the difficulty of introducing such a principle would be formulating a coherent definition of what constitutes exploitation of the other’s lesser bargaining position, creating an undesirable element of uncertainty. Ultimately, I believe the court’s decision on this issue is correct in maintaining legal certainty.


In conclusion, in terms of the implications for society, the judgement sets a high bar, perhaps prohibitively high, for parties seeking to establish lawful act economic duress. Potential claimants will bear the burden of proof and must overcome a high evidential hurdle. Ultimately, this judgement narrows the scope for a potential claim of lawful act duress to be raised.

Bibliography:


Primary sources:

· Times Travel (UK) Ltd v Pakistan International Airlines Corporation (Rev 2) [2019] EWCA Civ 828

· CTN Cash and Carry LTD v Gallagher [1994] 4 All ER 714

· Al Nehayan v Kent [2018] EWHC 333

· Crofter Hand Woven Harris Tweed Co. Ltd. v Veitch [1942] AC 435 (HL)

· Lloyds Bank Ltd v Bundy [1975] QB 326

· Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

· National Westminster Bank Plc v Morgan [1985] AC 686

Secondary sources:

· Tom Bingham, The Rule of Law (CUP 2007)

· Susan Rosser, ‘Economic Duress – How Far Is Too Far?’ (2019)

· Spencer Nathan Thal, ‘The Inequality of Bargaining Power Doctrine: The Problem of Defining Contractual Unfairness’ (1988) 8 Oxford J Legal Stud 17

[1] Times Travel (UK) Ltd v Pakistan International Airlines Corporation (Rev 2) [2019] EWCA Civ 828 [2] [1994] 4 All ER 714 [3] Times Travel (UK) Ltd (n 1) [4] CTN Cash and Carry Ltd (n 2) [5] [2018] EWHC 333 [6] Tom Bingham, The Rule of Law (CUP 2007) [7] Susan Rosser, ‘Economic Duress – How Far Is Too Far?’ (2019) [8] Crofter Hand Woven Harris Tweed Co. Ltd. v Veitch [1942] AC 435 (HL) [10] Times Travel Ltd (n 1) [11] [1975] QB 326 [12] (1983) 151 CLR 447 [13] CTN Cash and Carry Ltd (n 2) [14] Lloyd’s Bank Ltd (n 12) [15] [1985] AC 686 [16] Spencer Nathan Thal, ‘The Inequality of Bargaining Power Doctrine: The Problem of Defining Contractual Unfairness’ (1988) 8 Oxford J Legal Stud 17 [17] Ibid