Supreme Court narrows the doctrine of economic duress

Today the Supreme Court handed down its judgment in Pakistan International Airline Corp v Times Travel (UK) Ltd [2021] UKSC 40, establishing the existence of and test for economic duress for the first time.

The Court’s admirably clear judgment rejected the respondent’s argument that the doctrine should be abolished and defined its essential elements. However, the Court identified just two circumstances where economic duress has applied to date, being exploitation of knowledge of criminal activity by the claimant and using illegitimate means to manoeuvre the claimant into a position of weakness to force it to waive its claim.

The Court also declined to endorse any principled basis for its extension, even where the threat is used to enforce a demand made in bad faith. It was therefore made clear that the doctrine should be applied restrictively and rarely.

The hearing featured three interventions, one of which was the All Party Parliamentary Group on Fair Business Banking (APPG), represented by Hausfeld, which intervened to explain its experience of bank customers being placed under lawful but illegitimate pressure. It advocated a restatement of the doctrine based on the principle of good faith.

This conservative Times Travel judgment will offer little assurance to bank customers, whose relationships with their lenders is already characterised by a stark inequality of bargaining power.

Partner Ned Beale, who acted for the APPG as intervener, concludes:

“The judgment undoubtedly narrows the doctrine. Realistically speaking, for bank customers it will only be the second circumstance which the Supreme Court identified, i.e. use of illegitimate means to manoeuvre the claimant into a position of weakness to force it to waive its claim, that could be relevant. The upshot for bank customers is that economic duress claims will be harder to win than ever before. This reinforces the need for greater regulatory protection for bank customers, especially small and medium sized businesses.”

Ned Beale, Thomas Roe QC and Richard Samuel offer a full account of the background, decision, the rejection by the Court of various alternative iterations and its wider implications – including on consumer banking - in a dedicated article, first published by the Practical Law Dispute Resolution Blog.

They will offer analysis on the decision during a webinar at 1pm on Wednesday 15 September 2021, co-hosted by Hausfeld, 3 Hare Court and the Chambers of Philip Shepherd QC. Click here to register.