Supreme Court clarifies requirements for tort of lawful act economic duress

The Supreme Court has dismissed an appeal against a Court of Appeal decision which found that a contract should not be rescinded on the basis of lawful act economic duress, in circumstances where the defendant had threatened to end any contractual relationship with the claimant (as it was entitled to do) unless the claimant waived all claims it might have against the defendant for commission due under a previous contract: Pakistan International Airline Corporation v Times Travel (UK) Ltd [2021] UKSC 40.

The Supreme Court was unanimous in its decision and as to the basic elements for establishing liability for the tort of lawful act economic duress, namely that: (i) the defendant’s threat or pressure must have been illegitimate; (ii) it must have caused the claimant to enter the contract; and (iii) the claimant must have had no reasonable alternative to giving in to the threat or pressure.

The decision will be of interest to financial institutions as it highlights that the court will not lightly conclude that a commercial party has made an illegitimate threat in the context of negotiating a commercial contract, particularly in light of the absence in English law of any doctrine of inequality of bargaining power or any general principle of good faith in contracting. A finding that a commercial contract should be rescinded for lawful act economic duress is therefore likely to be rare.

For a more detailed discussion of the decision, see our litigation blog post.