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Supreme Court rules in favour of Pakistan International Airlines Corporation in landmark economic duress case

James Sherratt, Director and Solicitor, represented Pakistan International Airlines Corporation (PIAC) in this recent historic case. It revolves around a claim that a travel firm, Times Travel, was under economic duress and forced to sign a new contract regarding the sale of airline tickets. Therefore, they argued that there was no other practical option than to sign and therefore sought to set it aside.

In 2012 PIAC offered new terms and conditions to travel agencies that wished to continue to selling flights to Pakistan. They gave notice on the previous terms and a condition of the new terms was to waive the rights to previous commission. Times Travel signed these new terms and conditions.

However, Times Travel later launched proceedings to claim unpaid commissions and payments. Originally the High Court found in favour of Times Travel, on the grounds that PIAC used duress to force Times Travel to sign the new terms. However, this later overturned on appeal. We successfully argued that PIAC had not acted in bad faith.

The latest appeal in the Supreme Court reiterated that PIAC was justified in applying economic pressure because of its standing as a monopoly supplier of airline tickets to Pakistan. The five justices residing unanimously dismissed the appeal which meant that PIAC would not need to retrospectively pay any commissions.

Why did PIAC win?

The original argument centred around the ‘bad faith’ principle. Although commercial negotiations can be unfair, with one side having more bargaining strength than the other, unlawful acts of duress render contracts voidable. If PIAC had entered the contract in ‘bad faith’, then the result could have been very different.

The ruling established that the original nature of the commercial negotiation was appropriate. Outlining that the demand was not made in ‘bad faith’ by PIAC. Therefore the new terms were not voidable.

The justices agreed that the law should continue to recognise duress, however that judges cannot be arbiters of social morality.

Further, the justices agreed that ruling any other way would cause a potential lack of clarity in future commercial litigation cases.

What are the ramifications of the PIAC ruling?

The decision changes the landscape of commercial negotiations. It establishes the boundaries of acceptability.

Where it is claimed that the one party was put under economic duress, they need to prove that the negotiations were done in bad faith.

Testimonial from PIA

The case featured in various trade press including the Law Society Law Gazette. Further in an article by the Chambers instructed, Gatehouse Law.

If you want more information, then get in touch.

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