The Supreme Court has granted permission to the APPG on Fair Business Banking to intervene in Pakistan International Airline Corporation (Respondent) v Times Travel (UK) Ltd (Appellant) UKSC 2019/0142, a landmark appeal on the doctrine of duress. The APPG has permission to make written submissions and oral submission at the hearing on 2 – 3 November 2020.
The intervention will enable the Supreme Court to take account of the APPG’s experience of how the doctrine of lawful act duress operates in the banking context, particularly where it restricts bank customers from challenging settlements with lenders entered under duress.
Kevin Hollinrake MP, Co-Chair of the APPG, states: “We are delighted the Supreme Court has allowed our intervention. The APPG has received many complaints of duress from constituents and small businesses. The Times Travel appeal presents a unique opportunity to shape the law to protect them”.
Heather Buchanan, Executive Director of the APPG, states: “Our application follows the APPG’s successful intervention in Sevilleja v Marex Financial Ltd  UKSC 31, where the rule against reflective loss was substantially modified as advocated by the APPG so that it does not affect claims by creditors and guarantors of insolvent companies. We see the scope of the duress doctrine, particularly the need to prove subjective bad faith by the defendant, as unduly restrictive. That is especially the case where, as our stakeholders have regularly experienced, borrowers are placed under systematic pressure to settle complaints”.
Ned Beale, a partner at Trowers & Hamlins leading the intervention for the APPG, states: “Times Travel will be a landmark judgment, both because it is the first time lawful act duress has come before the Supreme Court, and also because the court will hear from the parties in Law Debenture Trust v Ukraine UKSC 2018/0192, which considers unlawful act duress in the context of the state of Ukraine being compelled to enter banking contracts by allegedly unlawful threats made by the Russian Federation. This means the Times Travel judgment will address all aspects of the duress doctrine”.
The APPG is represented by Ned Beale and Sam Robinson of Trowers & Hamlins LLP’s commercial disputes team, instructing Thomas Roe QC, Richard Samuel, Hannah Fry and Daniel Black of 3 Hare Court and Simon Reevell of Thomas More Chambers.
Lawful act duress
The Supreme Court will consider the following questions: What are the ingredients of economic duress? Can economic duress 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?
The APPG’s application to intervene referred to:
- Reported judgments where customers sought to challenge settlements with banks on the basis of duress.
- The report under section 166 of the Financial Services and Markets Act 2000 into the Global Restructuring Group of Royal Bank of Scotland. This report found that “widespread inappropriate treatment of SME customers” had occurred. It described how systematic practices of “leveraging” and “ratcheting” had put pressure on customers to enter settlements and renew facilities on more onerous terms.
- The HBoS Reading fraud, in the course of which customers were placed under duress both to settle claims directly with the bank in the course of their trading relationship, and again in the course of redress schemes subsequently put forward by Lloyds.
- Duress case studies provided to the APPG by affected bank customers.
The APPG’s legal submissions will set out the APPG’s case on how the doctrine should operate to provide a level playing-field as between lenders and borrowers, taking into account:
- The inequality of resource between SMEs and their lenders.
- The prevalence of long term banking facilities under which customers face break costs for exiting early, and higher transaction costs for moving to a new lender.
- That SMEs face particular problems obtaining legal recourse as against banks – a problem also being addressed via the APPG’s financial services tribunal project and its involvement with the Business Banking Resolution Service.
- The practical difficulties evidencing subjective bad faith when customers are subject to systematic pressure exerted by a large organisation.
- Culture and conduct issues in the banking sector, both in mainstream banking, and when commercial loans have been sold on to so called “vulture funds”.