Pakistan International Airline Corporation v Times Travel (UK) Ltd (Rev1) [2021] UKSC 40 (18 August 2021)
Citation:Pakistan International Airline Corporation v Times Travel (UK) Ltd (Rev1) [2021] UKSC 40 (18 August 2021).
Subjects invoked: 15. 'Contract'.
Rule of thumb:In legal negotiations are you allowed to make legal threats to the other party that you will do things to them which they will not like but technically do not breach the law? Yes, you are allowed to make legal threats to the other party in legal negotiations – this is called exerting leverage in legal negotiations and is a perfectly valid strategy. One party is allowed to threaten another party with doing anything that is not a breach of the law – making threats which do not breach any laws as such is quite simply not duress/coercion, and falls instead into the category of a person just being a wily & tough negotiator who can get deals done. It is a perfectly valid business strategy to threaten someone that you will not enter a contract with them unless they do not discharge all previous debts, and that threat does not break the law! It may be deemed ruthless or immoral by some but it is not a breach of the law.
Background facts:
This case invoked the subject of contract law.
The facts of this case were that Pakistan International Airline were a plane airline company who arranged in and out of Pakistan to the rest of the world. They owned planes and flew them from airports in the UK to airports in Pakistan, and by and large had a dominance/monopoly position over this market in Pakistan. Times Travel were a travel agent who had a branch of their business in Birmingham specialising in trips to Pakistan. Times Travel arranged holidays for people in the Birmingham area looking to have a holiday in Pakistan - they booked hotels/accommodation for people in Pakistan, got them flights to Pakistan and back with Pakistan Airlines, and arranged them transports to and from the airports. Pakistan International Airline Corporation had an agreement with Times Travel to use their planes when organising holidays for their clients. Pakistan Airlines also stated in this contract that they would pay Times Travel a commission on the price of each flight arranged with them. As this contract played out however, Pakistan Airlines never paid Times Travel for all of the commission they owed them for flights. Times Travel were seeking this commission from Pakistan Airlines, informed Pakistan Airlines of this, and Pakistan Airlines had not got back to them for some time. Pakistan Airlines did get back to Times Travel and they informed Times Travel that they were providing formal notice of contract termination. Pakistan Airlines informed Times Travel that they would continue to use them for the stipulated notice period of several months in their contract before it ended. Times Travel were surprised and disappointed to hear this news from Pakistan Airlines as they had enjoyed a very successful commercial relationship together. Times Travel’s Birmingham branch were largely dependent on Pakistan Airlines to keep this Pakistan holidays branch of their business open, mainly because Pakistan Airline had a monopoly/dominance position on flights in and out of Pakistan, and Times Travel would not have been able to adjust their business model for this branch if they lost this contract. It was a major problem for Times Travel’s business when they received notice that their contract with Pakistan Airlines was ending after the notice period. Pakistan Airlines then contacted Times Travel again some time after this. They informed Times Travel that once their current agreement ended, they were offering Times Travel another similar agreement for using their airline exclusively when booking flights for their clients to Pakistan, which would be a long-term agreement. However, one of the key terms of this contract was that all previous money owed by Pakistan Airlines to Times Travel in the way of commission were all discharged – there was ‘a past debts discharge clause’ in there. Times Travel were relieved to get this long term offer in from Pakistan Airlines and accepted this.
However, once the new long-term deal had been going for a period of time, Times Travel still felt disgruntled about the unpaid commission on previous flights they had booked, and they informed Pakistan Airlines that they were still looking for the commission they owed them from the previous contract. Times Travel informed Pakistan Airlines they were seeking to make legal arguments to avoid the past debts discharge clause in their contract. Pakistan Airlines refused to pay this and referred Times Travel to the term in the new contract, and the matter ended up going to Court.
This dispute invoked the contract law principle of duress/coercion. This means that a person cannot threaten to do something illegal to another person if they do not enter a contract with them. The question was, had Pakistan Airlines actually threatened to do anything illegal to Times Travel? Or had Pakistan just used business leverage? (Some people call using business leverage on someone weaker financially than them as ‘immoral’, and other people call it ‘clever’). Times Travel argued that the principle of duress applied. They argued that Pakistan Airline had threatened not to pay them the money they owed them, and breach a contract law term, unless they entered the new contract. They argued that they were effectively threatened, ‘discharge all the debts we owe you, or we’re putting your branch out of business’. Times Travel argued that this was an illegal threat constituting duress and meant that they were still entitled to the commission. Pakistan Airlines argued that duress did not apply. Pakistan Airlines stated that at no time did they threaten not to pay the commission that they owed Times Travel, and at no time did they threaten to break any laws or do anything illegal to Times Travel, which was the crux of the duress principle. They argued that Times Travel agreed this because their branch was in financial difficulty, not because of any illegal threats. They argued that this was a valid discharge which Times Travel agreed. Pakistan Airlines maintained that they had done nothing illegal or in breach of any laws, had merely just used business leverage in contract negotiations, and that duress therefore did not apply.
Judgment:
The Court upheld the arguments of Pakistan Airlines. The Court affirmed that Pakistan Airlines had never threatened not to respect their obligations under contract, which was the crux of the duress principle. The Court affirmed that this was merely using leverage in contract negotiations, which people were perfectly entitled to do. The Court broadly affirmed that it is entirely possible for people to agree new contracts with people, and have a separate discharge clause in it where all previous monies owed are cancelled. In short, the Court affirmed that saying to someone else, ‘if you discharge all my debts, I will offer/enter this contract’, is a perfectly legitimate business strategy.
Ratio-decidendi:
‘58. … it would be rare that in a commercial context the use by A of lawful pressure to induce B to concede to a demand would amount to economic duress… At the meeting … PIAC gave Times Travel a “take it or leave it” option: to sign the new agreement with the waiver and thus regain its prior allocation of tickets, or its agency would come to an end on the expiry of the existing contract. While this entailed hard-nosed commercial negotiation that exploited PIAC’s position as a monopoly supplier, it did not involve the reprehensible means of applying pressure … 59. … But, for the reasons set out above, I do not think that the court would have been correct to reach that conclusion, absent circumstances which involved the manoeuvring by Gallaher of CTN into a position of vulnerability by means which involved bad faith or were similarly reprehensible and went beyond the use of its position as a monopoly supplier, or which brought the transaction within the ambit of the equitable doctrine of unconscionable transactions. 60. In this case, on the facts found by Warren J, PIAC believed in good faith that it was not liable for breach of contract as a result of its failure to pay past commission and, in any event, the pressure which it applied to obtain the waiver was the assertion of its power as a monopoly supplier’, Lord Hodge ratio decidendi at 58-60.‘
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.