Schrödinger’s Lawful Act Duress: Dead or Alive?

Can you set aside a contract if you were induced to enter it by my application of lawful pressure that may threaten your economic interests, reputation, or your concern to protect a loved one? This raises difficult policies since the only viable basis for discriminating between acceptable and unacceptable pressures is not positive law but social morality. On the other hand, if lawful pressures are always exempt, those who devise outrageous but technically lawful means of compulsion must always escape. The courts have accepted that the categories of duress are not closed and that an illegitimate threat can include one which is lawful, although it must ‘at least be immoral or unconscionable’. What then falls within this category of lawful act duress?

In 2021, the UK Supreme Court in Times Travel v Pakistan International Airline Corporation unanimously upheld the existence of lawful act duress but left the content inside that box rather opaque; like Schrödinger’s cat, it may be dead or alive. On closer inspection, it appears that the categories of lawful act duress identified by the court are already covered by existing grounds of vitiation, leaving no independent content for lawful act duress. The majority recognized two grounds:

• exploitation of knowledge of the criminal activity of a loved one of the other party, which already triggers the grounds of undue influence, duress to the person, or illegality; and
• the use of ‘illegitimate means to pressure the complainant into waiving a claim against the threatening party’, interpreted by the majority as requiring the use of reprehensible or unconscionable means, instancing two cases involving prior unlawful acts; as such, this category of lawful act duress replicates economic duress.

Lord Burrows in the minority adds a third ground:

• bad faith in making a claim or demanding a waiver, but this was interpreted as effectively requiring fraud.

In Times Travel, TT, a small family-owned travel agency which obtained 90% of its tickets for resale from PIAC (Pakistan International Airline Corporation) complained of PIAC’s failure to pay it the commission due; whereupon PIAC refused to sell further tickets to TT unless TT waived its claims to unpaid commission. The Supreme Court denied TT’s claim to set aside the new contract for lawful act duress. With the greatest respect, the Achilles heel of the Supreme Court reasoning is to equate (i) PIAC’s demand that TT waives its existing rights with (ii) a demand that TT pays money to enter a new contract, concluding that since (ii) is perfectly legitimate, so is (i), even if PIAC knows that TT has a valid claim against it. In truth, PIAC has acted in bad faith in seeking to breach the existing contract and can only be described as acting in good faith in so far as it believes that the law will allow it to get away with its bad faith demand. Far from utilizing lawful act duress to deter such demands, the law permits and even encourages a party to breach an existing contract and avoid validly accrued debts whenever the counterparty needs to recontract with them. It rewards the party who behaves not only badly, but also unlawfully. This result is inconsistent with key cases relied upon by all their Lordships in recognizing lawful act duress, namely Borrelli v Ting and Progress Bulk Carriers Ltd v Tube City IMS LLC, where the nub of the defendants’ lawful act duress is the defendants’ demands that their victims waive their previous claims accrued from the defendants’ prior breaches of duty. The Supreme Court’s approach is also inconsistent with the law on compromise where the party demanding the compromise must believe in good faith that it had a fair chance of success before there will be consideration for the compromise.

If the law is serious about providing some content to the category of lawful act duress, it would be profitable to draw from the rich literature on good faith in contract law (as the mirror image of bad faith). This highlights the importance of contracting parties displaying an attitude of respect for the legitimate interests of their contractual partners, and for the contract itself in the forms of: (a) honesty, (b) fair dealing, and (c) fidelity to the contractual purpose.

On (a), the focus should be on whether the threatening party can show that they acted with substantive honesty. There was ample basis for finding that PIAC’s demand for a waiver from TT was made in bad faith. Warren J in the High Court found that TT would have been successful in a summary judgment against PIAC for the unpaid commission, and that PIAC acted to prevent TT from commencing legal proceedings.

On (b), the focus should be on lawful acts that are nevertheless illegitimate or reprehensible. Warren J found that PIAC dealt unfairly with TT by reducing its allocation of tickets, decreasing its commission, and threatening to terminate the existing contract against TT.

On (c), PIAC’s infidelity to the original contractual purpose was clear and was the basis of the finding of duress in Progress Bulk Carriers.

On this bad faith approach, TT’s waiver should have been set aside for PIAC’s lawful act duress. This is one, though doubtless not the only, way to resurrect lawful act duress from the lifeless doctrine left by the Supreme Court. The result would be a more robust category of lawful act duress and the potential for a more just and coherent outcome, free of moral hazards. With the greatest of respect, this case was a missed opportunity.

The author’s post is based on their chapter found here.

A version of this article was previously published on the NUS Law Research Blog.

Mindy Chen-Wishart is a Provost’s Professor at the National University of Singapore.