LONDON: The United Kingdom Supreme Court on Wednesday ruled in favour of Pakistan International Airlines Corporation (PIAC) in an appeal filed by a travel agency over a contract for tickets and commissions.

The issue put before the court was what constitutes as economic duress, and whether such duress can arise where lawful acts or threats are made by one party in support of a demand which that party genuinely believes it is entitled to make.

PIAC’s legal counsel, solicitors at Farani Taylor, said the ruling was a “huge victory” for PIA that averted the loss of considerable amounts of money.

“If PIA had lost, the floodgates would open and all travel agents would withdraw contracts saying they were under duress. This has averted a huge financial loss for PIA,” a solicitor said.

The case was heard by Lord Reed, president of the Supreme Court, Lord Hodge, deputy president of the apex court, as well as Lord Lloyd-Jones, Lord Kitchin and Lord Burrows. The hearings took place on Nov 2 and 3 last year, with a judgement delivered on Wednesday, Aug 18.

Solicitor for PIA hails decision as ‘major victory’

The issue being considered by the court was whether, and in what circumstances, a party can set aside a contract on the grounds that it was entered into as a result of the other party threatening to do a lawful act.

The court outlined that Times Travel (TT) was a family-run travel agency whose business consisted almost exclusively of selling plane tickets to and from Pakistan.

PIAC was the sole operator of those flights. It allocated tickets to the travel agency and paid commission to TT for the tickets it sold. This contractual arrangement could be terminated by PIAC at one month’s notice.

A dispute arose in 2011 and 2012 when certain travel agents, including TT, alleged that PIAC had not been paying them certain commission payments.

Claims were brought to recover the unpaid commission.

Under pressure from PIAC, TT did not join those claims.

However, in September 2012 PIAC cut TT’s normal fortnightly ticket allocation from 300 to 60 tickets, as it was entitled to do, and gave notice that it would terminate their existing arrangement at the end of October 2012.

This would have put TT out of business and so on Sept 24, 2012, TT agreed to accept new terms by which it waived any claims it might have for the previously unpaid commission. One of the directors of TT had been shown a draft of the new agreement a few days beforehand but PIAC had refused his request to take a copy with him in order to discuss it and obtain legal advice.

TT subsequently brought a claim against PIAC for the unpaid commission. It argued that it could rescind the new agreement for lawful act economic duress.

The trial judge agreed but also found that PIAC had genuinely believed that the disputed commission was not due. The Court of Appeal allowed PIAC’s appeal as the airline had not acted in bad faith in that sense. TT appealed to the Supreme Court, which dismissed the appeal saying that TT cannot rescind the new agreement for lawful act claiming economic duress.

A summary of the judgement read, “When it is alleged that a defendant has induced a claimant to enter into a contract by duress, Lord Hodge and Lord Burrows agree that there are two essential elements that the claimant needs to establish to rescind the contract: (i) the threat or pressure by the defendant must have been illegitimate and (ii) the threat or pressure must have caused the claimant to enter the contract. Economic duress also has a third element: (iii) the claimant must have had no reasonable alternative to giving in to the threat or pressure. It is not in dispute that TT entered into the New Agreement as a result of PIAC’s threats, and that it had no reasonable alternative. This appeal solely concerns the first element: was PIAC’s threat illegitimate.”

Farani Taylor said PIAC had contracts with travel agencies, all of whom demanded that they should get a commission on the fuel surcharge though it was not part of the existing agreement.

“PIA said on these terms we will not renew your contract and serve a new contract with new terms,” Farhan Farani said at a press conference.

Farani said that a new agreement was signed in 2012. However, he added that in the meanwhile a court of appeal in Australia decided that commission can be sought on fuel surcharge. “After that, the agents said they made the new contract under duress and that it should be rescinded so they can get all the commissions.”

Speaking to Dawn, Farani said, “This has set out the boundaries for economic duress for the future. It has wide ranging ramifications in English law. After this, in commercial negotiations one can use whatever leverage they want to as long as it was done in good faith.”

PIA spokesperson told Dawn: “It’s a major legal victory for PIA and a big decision in UK history clearly defining agents rights and claims. PIA has been hearing good news in international courts recently as cases are now being pursued with full vigour and transparency.”

Published in Dawn, August 19th, 2021