But life isn’t fair….
Anyone who negotiates contracts for a living has their own personal war stories of dealing with other parties whose significant negotiating leverage meant they ended up accepting terms which in an ideal world they wouldn’t. But could having the upper hand and using that to extract the best possible deal come back to haunt you? A recent Court of Appeal decision suggests not.
The basic facts of Times Travel (UK) Ltd v Pakistan International Airlines Corporation  EWVA Civ 828 are straightforward: Times Travel was a ticketing agency whose business was almost entirely based on sales of tickets for Pakistan International Airlines (PIA); PIA got into a dispute with Times Travel (and other ticketing agencies) over unpaid commission and during that dispute terminated its contact with Times Travel in accordance with its terms, offering a new contract in its place on less favourable terms and in particular, a requirement that Times Travel waive its claim for unpaid historic commission.
Times Travel took the new contract but subsequently sought to argue that it was still entitled to the unpaid commission because the new contract had been entered into by it under duress.
In a surprising initial decision the High Court accepted that argument, stating that although PIA’s actions were lawful they constituted “illegitimate pressure” – if Times Travel didn’t take the new contract it would have gone out of business and so Times Travel felt it had no choice but to do so.
However, the Court of Appeal disagreed and overturned that initial decision, holding that the new contract was binding and accordingly Times Travel could not claim for the unpaid commission which it had waived.
The important point which the Court of Appeal stressed in its rationale was that the position which PIA had adopted in negotiations was lawful – had PIA sought to exert pressure over Times Travel which was unlawful then the Court of Appeal would have considered allowing the claim and might have reached a different decision.
The example of unlawful pressure which the Court of Appeal gave was criminal blackmail (for example, threatening to report a crime unless a sum of money is paid) however, another example which springs to mind is where under competition law rules a party holds a dominant or monopoly position in its market (rather than just in its relationship with the other party) and seeks to abuse that position in negotiations.
This decision will not come as a surprise to most contract lawyers. In the context of business to business dealings the English courts have always favoured certainty, resisting attempts to get dragged into ruling after the event what would have been “fair” in the circumstances or allowing one party to depart from the agreed terms because they have decided those are unfair, not what they really wanted to accept or in many cases, simply because they hadn’t bothered to actually read or make sure they understood them.
The view the courts usually take is that ultimately each party has to weigh up whether the consequences of entering into a contract are outweighed by the consequences of not entering into that contract and decide accordingly.
Or, to paraphrase an expression I heard often growing up, “but Paul [commercial] life isn’t fair….”