Voidable contract – Commercial pressure – Legitimacy – Claimants giving notice of termination of agreement – Defendant threatening to stop supplies unless compensation and price increase paid – Whether claimants making payments under duress – Claim allowed – Counter-claim dismissed
The first claimant was a wholly-owned subsidiary company within the General Motors group (GM). In the 1990s, GM and the second claimant entered into a joint venture to produce a van. The defendant company, which manufactured and supplied components to the automotive industry, was the sole supplier of the moulded plastic unit upon which the front bumper was mounted.
In 2005, the claimants decide to refresh the look of the van and gave the defendant notice that they would terminate their agreement at the end of six months. On being informed of the termination, the defendant made certain financial demands and stated that it would suspend supplies unless it received compensation and an increase in price for the remaining units. It argued that its development costs in respect of the unit had been based upon supplies over a 12-year period and that it had initially reduced the price to reflect the longevity of the project and the volume of units to be supplied.
Following unsuccessful negotiations, the claimants paid the compensation demanded and agreed to the price increase for future supplies. However, they subsequently brought proceedings for the recovery of those sums, contending that the agreement to pay the increase was unenforceable because it had been made under duress. They argued that they had been forced to agree to the defendant’s terms because the failure of supply would have been catastrophic in that the their production of vans would have ceased within 24 hours, thereby giving rise to losses of more than £500,000 per day. The defendant counter-claimed for compensation, which it argued had not been received.
Held: The claim was allowed and the counter-claim was dismissed.
The claimants were both entitled to a declaration that the agreement was voidable and had been voided and to the recovery of the moneys paid under that agreement.
Before actionable economic duress could arise, it was necessary to show that the victim had been subject to pressure that compelled it to enter into a contract or deprived it of any. In determining whether the claimants had faced illegitimate pressure, the court would take into account a range of factors, including whether: (i) an actual or threatened breach of contract had taken place; (ii) the party that allegedly exerted the pressure had acted in good or bad faith; (iii) the victim had any realistic alternative but to submit to the pressure; (iv) the victim had protested in time; and (v) he had confirmed and sought to rely upon the contract. However, illegitimate pressure had to be distinguished from the rough and tumble of the pressures of normal commercial bargaining: DSND Subsea Ltd (formerly DSND Oceantech Ltd) v Petroleum Geo Services ASA [2000] BLR 530 and Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1 applied.
The list of matters to be considered in assessing legitimacy was not exhaustive and the weight to be attached to each issue would depend upon the facts of the case. The decision on the fundamental question of whether the pressure had gone beyond what was acceptable in normal, robust commercial bargaining involved some value judgment.
The pressure in a case of economic duress normally consisted of a threat to breach a contract and, on the evidence in the instant case, the court’s consideration and evaluation of the evidence and all the circumstances led to the conclusion that the pressure had been illegitimate.
Eileen O’Grady, barrister
