Economic duress: Adam Opel and Renault -v- Mitras Automotive

Summing up

• The case: Adam Opel GmbH and Renault S.A. v Mitras Automotive (UK) Limited QBD 18 December 2007
• The issue: The setting aside of agreements on the basis of economic duress.
• The implication: An agreement may be set aside by the court if it can be shown that it was obtained by illegitimate pressure and where the victim had no realistic practical alternative but to submit to the pressure.

The general principles of the law relating to economic duress have been elaborated over the past 40 years in a number of cases. To succeed in a claim based on economic duress, a claimant has to show that there was illegitimate pressure or threat, the practical effect of which was that it had no choice but to enter into the agreement that it seeks to avoid. This illegitimate pressure must be distinguished from the rough and tumble of normal commercial bargaining.

These issues were examined in the case of Adam Opel and Renault -v- Mitras Automotive (UK). Opel and Renault were in joint venture to produce a van that was badged and sold as an Opel Vivaro and a Renault Traffic. The vans were produced in Barcelona and Luton. This case concerns the UK production of the van.

Mitras manufactured and supplied components to the automotive industry from a factory in Cheshire. In 2001 it became the sole supplier to the Luton plant of a moulded plastic unit on which the front bumper of the van was mounted. Mitras understood that the supply would be for a production of approximately 860,000 units over 12 years, although this was not guaranteed. The supply was based on an agreed price of £12.10 per unit subject to a cumulative reduction for orders in years two to four. The breakdown of the unit price included £0.40 per unit for the amortisation of development costs to be born by Mitras.

Opel gave a rolling schedule of the precise quantities of units that were to be delivered. There was a daily collection from Mitras in an articulated lorry that was divided at the haulier's depot into three loads that were then delivered to Luton at eight-hour intervals. This just- in-time system required everybody to manage the process meticulously.

Matters ran smoothly until early 2006. Opel was planning to update the look of the van and this required a change to the bumper mount. Although it asked Mitras to quote for the change, in the event Opel decided that the mount should be produced by an alternative manufacturer. In accordance with the terms of the contract, Opel gave Mitras six months' notice that it would cease to be the supplier of the unit.

Mitras directors then saw red. In a fax to Opel they said the amortisation of Mitras's development costs had been based on the estimated supply of 860,000 units over 12 years and that Mitras had reduced its price to reflect their longevity of the project. A claim was made for £560,000 based on calculated outstanding amortisation and reclaimed discount. Mitras also demanded a new selling price for the remaining units. The fax said Mitras reserved the right to suspend supplies if Opel rejected these claims.

Recovered costs

In response, Opel drew attention to the fact that through the payment of £0.40 per unit, Mitras had recovered all but £19,000 of its development costs. It rejected that there should be any basis for the removal of the discount or increase in unit price. Opel indicated that it was not willing to negotiate on the price and that Mitras's position could "only be interpreted as a threat by Mitras to cease supply without warning if we do not agree to this extortionate and unjustified price increase". Mitras replied that Opel had the choice of accepting the price or procuring the goods elsewhere.

The difficulty for Opel was that in view of its just-in-time system of procurement, van production would have to be halted in about 24 hours, which would result in losses of more than £500,000 a day and have knock-on effects for other component suppliers operating on a similar basis. The choice lay between capitulation and attempting to obtain an injunction to compel Mitras to continue to supply the units.

An injunction was applied for without notice but refused. The judge was not willing to deal with the matter in the absence of Mitras. The pressure mounted the following morning when Opel's haulier was refused collection of the units for that day. Opel decided to capitulate and agreed to pay approximately £450,000 conditional on Mitras's continued supply.

Deliveries continued until October 2006 by which time Opel's alternative supplier was in place. Opel's solicitor sent Mitras a letter requiring repayment of the £450,000, with interest, contending that its agreement was unenforceable because it was made under duress.

The judge concluded that Mitras had threatened to stop supplies unless its demands for payment of compensation and increase in price were met. He was satisfied that any compensation to which Mitras might be entitled would not be due until after the agreement had been brought to an end according to its terms. There was no right to require payment earlier than that and no justification for withholding contractual performance. Accordingly, that pressure was illegitimate and in these circumstances Opel was entitled to a declaration that the agreement to pay monies to Mitras was voidable. In consequence Opel was entitled to recover the monies paid out under that agreement.