Adam Opel GmbH & Anor v Mitras Automotive (UK) Ltd [2007] EWHC 3205 (QB)

IN THE HIGH COURT OF JUSTICE QUEEN’S BENCH DIVISIONCase No HQ06X03911

Defendant

[2]Before: David Donaldson Q.C. sitting as a Deputy High Court Judge Judgment Introduction[1]The First Claimant (“Opel”) is a wholly owned subsidiary company within the General Motors group (“GM”) based at Russelsheim in Germany. In the late 1990s GM and the Second Claimant (“Renault”) entered into a joint venture to produce a van, badged and sold variously as an Opel/Vauxhall “Vivaro”, a Renault “Trafic” and a Nissan “Primastar”, which went into production in 2001. The van, code-named W83 or X83, was manufactured as the Vivaro and Trafic in Luton by IBC Vehicles Limited (“IBC”). The Trafic was also manufactured along with the Primastar in Barcelona by NMISA, a Spanish company owned jointly by Renault and Nissan. This case concerns the UK production of the van.[2]The Defendant (“Mitras”), originally a subsidiary of a German company, manufactured and supplied components to the automotive industry from a factory in Winsford, Cheshire. It was from the inception of the X83 project the sole supplier to the Luton plant of the technical front end, in layman’s language the moulded plastic unit upon which the front bumper was mounted, under a highly developed system known as single source supply, used widely throughout the motor industry for many years. The Barcelona plant was by served by a different sole supplier, Peguform, based in Catalonia. In 2006, when the Claimants sought to refresh the look of the van by a “face-lift” which included a change to the front bumper, Mitras lost its role as supplier of the bumper mount. It is the circumstances surrounding that event which have led to the claim in the present case.

The contractual background

[3]In 1997/8 the Claimants (“GM/Renault” or “GMR”) issued a Request forQuotation (“RFQ”) which together with Mitras’ response in May 1998revised in June 2001 formed the basis of the arrangements between theparties. Attached to the RFQ were technical drawings and specificationsfor the bumper mount together with a timetable moving up to thecommencement of production in February 2001.The runningproduction, totalling 863,257 units, was projected for each of the followingtwelve years, headed by the caveat “The following projections cannot be considered as an undertaking on the part of the car makers”.[7]The general conditions of the RFQ provided under the heading “Orders”:
“Opel and Renault reserve the right to nominate third-party vehicle manufacturers to place orders with the supplier for purchasing prototypes, piece parts, specific tooling, and special containers. Where the third-party vehicle manufacturer is so nominated and places an order with the supplier, it shall be wholly responsible to the supplier in connection with that order.

Note: it is intended that IBC Vehicles Limited will order all series piece parts.”

Note: it is intended that IBC Vehicles Limited will order all series piece parts.”[4]A further attachment to the RFQ contained the Terms and Conditionswhich were to be applicable to Purchase Orders. The preamble specifiedthat (subject to exceptions not relevant in the case of piece parts) the Buyermeant IBC. Clause 1 of these Terms and Conditions provided that:
“The Purchase Order issued by the Buyer shall be deemed to incorporate the Request for Quotation (RFQ) issued by Adam Opel AG and/or Renault in respect of or relating to the goods, all documents referred to therein and all subsequent correspondence between the Supplier, the Buyer and/or Adam Opel AG and/or Renault and together with these terms and conditions shall constitute the complete agreement between Supplier and Buyer.”
Clause 20 provided that:
“The Buyer may at any time give written notice to the Supplier to terminate the Purchase Order forthwith and in such event the Buyer shall unless otherwise agreed, pay, and the Supplier shall accept, in settlement of all claims under the Purchase Order such sum as shall compensate the Supplier for all work reasonably done and obligations reasonably assumed by it in performance of the Purchase Order prior to its termination and for all work reasonably done by it in giving effect to such termination ...”
[5]The RFQ contemplated that specific tooling would be paid for by GMRand ownership transferred to them. This covered “tooling speciallyproduced for obtaining different bare parts specific to the W83 program” and“specific tooling works in direct contact with the part during the manufacturingprocess” but excluded “assembly equipment and machines” which were to beregarded as the supplier’s own investments. Special conditions applicableto the tooling stipulated that “1.1 The Equipment is the exclusive property of Renault and Opel and it is lent, without charge, to the User to enable the User to manufacture/deliver parts for incorporation into vehicles which are to be produced for sale by Renault, Opel or their respective affiliates. Unless Renault and Opel agree in writing to something else, the User shall not use the Equipment except to fulfill orders placed on the User by any of[10]Renault, Opel and their jointly nominated vehicle manufacturers. ... 1.2. By virtue of these terms, ownership of the Equipment does not pass to the User and nor shall the User have any rights to or interest in the Equipment. The User undertakes to return the equipment to Renault and Opel upon their request or demand and acknowledges that Renault and Opel have the right to take possession of all or part of the Equipment for any reason whatsoever at any time ... ... 2.2. Upon the request of Renault and/or Opel the User shall immediately cease to use the relevant item of Equipment and make arrangements for its safe storage and subsequent delivery to such place and at such time as Renault and/or Opel shall reasonably direct ...”[6]In response to the RFQ Mitras quoted a piece price of £12.10, subject to a cumulative reduction of 3% per annum in years 2 to 4. The breakdown required by the RFQ showed that this figure included £0.40 as amortization over 12 years of development costs of £188,175 borne by Mitras. The specific tooling costs, to be paid by GMR, were shown as £743,925.[7]Eventually, a letter was sent to Mitras by GMR confirming that Mitras had been “selected as a supplier for the development and production of components for the W83 Program.”[8]The parties had thus at this stage agreed the price and other terms governing Purchase Orders which would be placed with Mitras by IBC. Somewhat surprisingly in the light of the RFQ provisions, no Purchase Orders were ever produced. Instead, Mitras received each week a rolling schedule of requirements for the following 40 weeks, generated by GM’s computer in Germany. Of these the last 37 weeks might be changed in subsequent weekly schedules, but the first 3 weeks remained unaltered. The precise quantities required each day were determined and notified by IBC to Mitras according to variations in production. There was a daily collection by GMR’s haulier in a large articulated lorry. This was divided at the haulier’s regional distribution centre into 3 separate loads, which were then delivered to Luton at eight hour intervals. The system was designed to minimise the amount of stock held by IBC. At any time there would be a maximum of 432 units in store with a further 48 lineside, to meet a production rate of 18 to 19 vans per hour. The functioning of this “lean material” or “just-in-time” system, if not the precise figures, was explained to all suppliers, including Mitras, at formal training sessions in 2000 and 2002 and in a handbook, provided in hardback and updated on line at a GM website.[9]The absence of Purchase Orders would seem to render problematical the[17]precise analysis of the contractual structure as between the three actors. Two important agreements by the parties before me made it however unnecessary to explore this matter. (a). It was or became common ground that Mitras was under a contractual obligation to GMR to deliver units in response to the weekly schedules and daily call-offs (exactly which does not matter to the resolution of the issues in this case). (b). Though Clause 20 in terms refers to a Purchase Order placed by IBC, the parties agreed that it should be treated as applicable mutatis mutandis to a termination by GMR of the sole supply arrangements with Mitras.

Events leading up to the end of the sole supply arrangements in 2006

[10]In 2004 GMR began to plan a refreshment to the look of the van, known as Phase 2. For this purpose they envisaged a change to the bumper mount to support an altered front bumper. On 14 June 2004 Mitras was asked to quote for the change, and did so by letter dated 29 September 2004, proposing a unit price increase of £0.90 and tooling modification costs of £195,640, with a lead time of 12 weeks. The letter added that Mitras would need to receive the order by 16 May 2005, but no order was received by that date or at all.[11]By the end of 2005 GMR had apparently decided that the bumper mount for the Phase 2 van should be produced by LFT technology, in essence injection moulding, rather than the GMT compression moulding used by Mitras. In response to an enquiry by Mitras asking for confirmation of a rumour, GMR informed Mitras orally on 24 January 2006 that it was not intending to use Mitras on Phase 2, and GMR confirmed in a letter sent on 24 February 2006 that “ due to an engineering change, which we are obliged to carry out, MITRAS capabilities of compression molding would no longer apply for our facelift in phase II starting this year after the summer shut down.” That gave Mitras notice that it would cease to be the supplier of the unit after the first week of August 2006, and the weekly schedules would already have reflected this. The new nominated suppliers were at first intended to be Collins & Aikman, but they went into administration at an early stage before tooling and development had been greatly progressed, and their role was transferred to Plastic Omnium, based in Telford.[12]On being informed of GMR’s intention to terminate its role as supplier insix months’ time, Mitras advanced certain financial demands. In a faxdated 25 January 2007 Mr Keith Worrall, the Managing Director of Mitras,[23]pointed out that the amortization of Mitras’ development costs had been based on the estimated supply of 863,257 units over 12 years; said that Mitras had reduced the price during the initial negotiations to reflect the longevity of the project/volume of the vehicles to be built; and referred to the fact that Mitras had given a 3% reduction of price in years 2, 3 and 4. He then asked for the following “in recompense”: “1. Outstanding amortisation to be paid 195,146.40 GBP (487,866 units @ 0.4 GBP/unit).[2]The 3% year-on-year cost reduction will be re-credited giving a total outstanding of 177,410.41 GBP.[3]The 0.5 GBP given as a reduction at the commencement of the project total of 187,695.50 GBP to be recredited.[4]A new selling price of 14.15 GBP with effect from 1st February, 2006 until the run-out of production in July, 2006.”[24]Mr Worrall was thus seeking payment of some £560,000 together with a price increase of over £2.00 back-dated to 1st February 2006, potentially more than £100,000. He concluded the letter by saying:
“In closing, we seek your urgent agreement to the above or we reserve the right to suspend supplies until an acceptable resolution is put in place. I am happy to meet with you ... but stress that an urgent resolution is required – this should take a maximum of two to three weeks to achieve.”
[13]In a further fax dated 7 February 2006 Mitras clarified some of the thinking behind its demands. In particular, it said that it wanted the price-increase to cover increases in the cost of raw materials, energy, and labour.[14]In GMR’s letter of 24 February 2006 signed jointly by Mr Alexander Becker, the GM Purchasing Manager for the X83 and Mr Pascal Vincent, his opposite number at Renault, they stated their desire to find an “amicable resolution on a run-out procedure”. They then proceeded to indicate their points of difference on the heads of claim advanced by Mitras. As regards amortization, they drew attention to the fact that, through payment of the £0.40 included for this purpose in the piece price, Mitras had already recovered all but £19,118 of its development costs. As regards the demand that GMR should re-credit the triple 3% price reduction, GMR said that this was part of Mitras’ offer on price, and without it GMR might have selected another supplier. The same comment was made with regard to the demand to recredit the reduction of £0.50p offered and accepted in the initial negotiations. They also pointed out that they had granted a price increase in 2005 because of a rise in raw material costs. In summary, GMR indicated a willingness to make up the shortfall in amortization of £19,900 but did not accept the need or justification to cover any other item.[15]On 2 March 2006, Mr Becker, Mr Vincent, and Mr Lamar (of Renault) had a two-hour teleconference with Mr Worrall and other representatives of Mitras. Mr Worrall stood firm on his figure of £195,146 for amortization and on the price increase, but indicated willingness to consider a counter-proposal from GMR on the other two items. In a email sent by Mr Becker that afternoon to his superior, Ms Katrin Teichert and Mr Vincent’s superior at Renault, he recorded that “in principle, the supplier is ready to stop deliveries to us if we don’t compensate for them”, adding “We need to get ready for the worst case”. In a fax the same day Mr Worral confirmed his position, and required payment of the lump sums to be made by 7 April 2006. A fax the following day insisted that “the new price is the only price at which Mitras is willing to supply the component and that “the new price is effective from 1st February, 2006".[16]On 9 March 2006, having taken legal advice, GMR wrote at length to Mitras repeating its position, which was to offer £19,118 in respect of amortization and reject the other demands in their entirety. Referring to Mitras’ statement in the fax under reply that it “was not willing to negotiate on this price”, Mr Becker and Mr Vincent wrote that “This can only be interpreted as a threat by Mitras to GM, Renault and IBC to cease supply, without warning, if we do not agree to this extortionate and wholly unjustified price increase.” This provoked the response in Mr Worrall’s reply:
“You are free to make whatever interpretation you wish however, the reality is that we are not compelled – nor are we willing – to supply at less than the quoted price. You have a choice of either accepting the price or procuring the goods

elsewhere.”

You have a choice of either accepting the price or procuring the goods elsewhere.”[17]A telephone conference the same day produced some movement onfigures by Mitras, confirmed in a fax of the same date. The amortizationfigure was recalculated at £191,316; the second and third items were putat a total of £182,553; and the required price increase was reduced to £1.70- in total a reduction from £670,692 to £437,353. A further telephoneconference the next morning did not resolve matters. It was followed bya fax from Mitras stating that its offer as stated in its fax of 9 March 2006was its “final offer”. It went on:
“Therefore, in the proposed conference call at 2 p.m. GMT on Monday 13 March, 2006, GM/Renault must advise whether they wish to accept or decline the offer. In the event that GM/Renault decline the offer, they must make arrangements to collect the tooling and equipment and organise an alternative supply for this product. The tooling/equipment will only be released when all outstanding amounts

owed to meet first by GM Renault are cleared in full.”

March, 2006, GM/Renault must advise whether they wish to accept or In the event that GM/Renault decline the offer, they must make arrangements to collect the tooling and equipment and organise an The tooling/equipment will only be released when all outstanding amounts owed to meet first by GM Renault are cleared in full.”[18]That evening Mr Becker left on a week’s holiday and his role was taken over by Ms Teichert, who discussed the matter by phone with Renault on Monday 13 March 2006. So far as GMR was concerned failure of supply would have catastrophic consequences. On the stocks as they believed them to be, including the units in the transport pipeline, production of the vans would have to be halted in about 24 hours - that would give rise to losses of over £500,000 per day and also have knock-on effects for other component suppliers operating on a similar basis to Mitras. Cessation of supply had, therefore, to be avoided at almost any cost. As it appeared to the GMR representatives, the choice lay between capitulation and attempting to obtain an injunction to compel supply by Mitras.[19]On the afternoon of 13 March 2006 GMR decided to apply without notice for an injunction. The matter came before Tugendhat J at 3.40 p.m. that afternoon. He was not willing to deal with the matter in the absence of the defendant and suggested that short notice could be given.[20]The following morning GMR was due to discuss with its lawyers what should now be done, given Mitras’ deadline of 2 p.m. Before this could happen, Ms Teichert received a telephone call from Luton reporting that IBC’s haulier had been refused collection at 8 a.m. that morning. GMR decided to capitulate. That morning it faxed a letter to Mitras in the following terms:
“We refer to previous correspondence and discussions between us, culminating in your requirement for a yes or no answer in writing by noon today. As you know we continue strongly to refute your analysis of the contractual position. We also feel very strongly that we do not have any liability to pay Mitras the capital sums and enhanced piece prices. On the other hand, as you probably know, our stock of these parts is down to one days supply. As we mentioned in our fax yesterday, you have placed us in an impossible position. We have therefore decided to deal favourably with your demands. We therefore confirm that we will make the payment sought in your second fax of 9th March, on the dates you specify on account of such liability as we have. This is strictly conditional upon continued supply.”
[21]That afternoon the haulier was permitted to load the day’s consignment.,and subsequent collections proceeded as normal. Since Mitras wasconcerned that GMR’s letter did not explicitly match up with Mitras’“final offer” letter of 9 March 2006, a further letter dated 15 March 2006was prepared amalgamating the two, which, with some handwrittenamendments was signed and countersigned by GM, Renault and Mitras.[22]The two lump sums of £191,316 and £182,553 were paid towards the end of March 2006. The price increases were also put into effect and paid for the remainder of the supplies and backdated to 1st February 2006: in the event these amounted to £77,152.80.[23]On 19 October 2006 GMR’s solicitors sent a letter before action requiring repayment of these sums, totalling £451,021.80, with interest. They contended that the agreement of 15 March 2006 was unenforceable because (in essence) it was made under duress and there was no consideration for the agreement.[24]The arguments of duress and absence of consideration were repeated and elaborated before me and disputed by Mitras. In the alternative, Mitras counterclaims compensation under Clause 20 totalling - as finally advanced - £763,842 and conceded by GMR as to £19,118.

Duress

[25]The general principles of the law relating to economic duress have beenelaborated over the last forty years in a number of decided cases, and werenot in issue before me. It was common ground that they are accuratelysummarised by Dyson J in DSND Subsea Ltd v Petroleum Geo ServicesASA, [2000] BLR 530 at para. 131 and repeated in his later decision inCarillion Construction Ltd v Felix (UK) Ltd, [2001] BLR 1 as follows:
“The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into the contract: see Universal Tanking of Monrovia v. ITWF [1983] AC 336, 400 B–E, and The Evia Luck [1992] 2AC 152, 165 G. In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he confirmed and sought to rely on the contract. These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.”
[26]I do not understand that summary to have been presented as a preciseanalytic tool, nor would it be possible to use it as such. There is plainlyscope for overlap between the three ingredients of pressure, illegitimacy,and causative effect. The list of matters to be considered in assessing[39]legitimacy is not exhaustive, and the weight to be attached to each of them will depend on the facts of the individual case. And the decision on the fundamental question whether the pressure has crossed the line from that which must be accepted in normal robust commercial bargaining involves at least some element of value judgment.

Relevant facts and evaluation

[27]The pressure may - and in the case of economic duress normally does -consist of a threat to breach a contract. That is exemplified by the decision in the Carillion case, where a sub-contractor supplying cladding for the construction of an office building refused to continue supplies necessary for the completion of the works, exposing the main contractor to liability to the employer for substantial damages. In the present case, the pressure alleged by GMR was a threat by Mitras to breach the obligation owed by Mitras to GMR to supply units to IBC.[28]I am satisfied that Mitras did indeed threaten to stop supplies unless its demands for payment of compensation and increase in price were accepted and met. Despite the ingenious interpretative attempts of Mr Cawson Q.C., Counsel for Mitras, that is to my mind the clear message conveyed by the faxes from Mitras on 2, 9 and 10 March 2006 from which I quoted above. In his evidence to the court Mr Worrall suggested that in his fax of 10 March 2006 he had not intended “to indicate that the Defendant would immediately cease to supply the bumper units, but rather that a timetable would be agreed with GM/Renault for the tooling to be collected [and that] in the period before the tooling was collected the Defendant would have continued to produce and supply the bumper units to GM/Renault”. This is not in my view how one would have expected the recipient of the fax to have understood it. Nor do I accept (even if it were relevant) that it was how Mr Worrall intended GMR to understand it, since so understood it would have given GMR no incentive to concede Mitras’ demands. Only the threat of action which would interfere with production of the vans had any point. Mr Worrall also told me that he felt from experience that it was necessary to be “strong” with GMR, referring in particular to a documented incident in 2003 when payment had only been obtained from GMR after Mitras had threatened to stop supplies. And the message conveyed by the faxes from Mitras was compounded by the actual refusal of the collection on the morning of 14 March 2006, which would have resolved or dissipated any doubts or ambiguities which might otherwise have existed as to what Mitras was threatening to do. Having heard evidence from Mr Becker and Ms Teichert, I am clear that GMR so understood the threat.[29]The fundamental concern of GMR was to avoid any halt in the production line at Luton, which, quite apart from creating a logistical nightmare,[43]would have had severe financial consequences for both GMR and its suppliers. Some days earlier GMR had investigated whether the bumper units could be obtained elsewhere. The Spanish supplier, Peguform, did not have adequate surplus capacity, and there was a difficulty about the precise compatibility of the Spanish mounting unit with the UK bumper. Had the English phase 2 supplier been more advanced in its preparations, it might well have been possible to use the new mounting unit with the existing bumper. But the originally nominated supplier had gone into administration, and its replacement, Plastic Omnium, was not far advanced in tooling and development - in the event it only just succeeded in being ready for production after the summer break.[30]Mr Becker had also warned IBC that there might be a threat to supplies.Around the beginning of March 2006 IBC took two steps to improve itssituation.(1) The window for Salvesen, IBC’s haulier, to make the daily collectionfrom Mitras was 8.00 a.m. to 4 p.m. but in practice had been made at about2 p.m. This was advanced to 8.00 a.m., giving extra time for reaction ifsomething went wrong and advancing deliveries by half a day, andcollections had been made on this basis for about 2 weeks before therefusal on the morning of 14 March 2006.(2) Mr Thrussell, a Senior Expeditor or “Followman” at IBC charged withday-to-day liaison with Mitras, arranged for one load to be transporteddirectly from Mitras to Luton and stored in the car park. This heregarded, in the spirit of a quartermaster sergeant, as his secret cache foruse in emergency, and its existence was not leaked beyond his colleaguesin the logistics department. In the event that supplies were halted, theunits in the car park would have doubled the survival time from about 24to 48 hours. But since, as I was satisfied, Mr Thrussell’s manoeuvre wasnot reported to GMR, they were working on the basis of a 24 hour reserve.[31]The reason for making the application on 13 March 2006 without notice, as was explained to the judge, was the fear that notice might provoke Mitras into immediate discontinuance of supply. When the judge refused to entertain the application without notice, GMR was left in a quandary, compounded by a concern that failure by GMR in inter partes proceedings might lead Mitras to increase its final demands (though of course this would also have been also been a risk if an injunction had been obtained ex parte but subsequently discharged). In the event, the resolution of this delicate problem was pre-empted by the news early the next morning that supply had been stopped. GMR now saw capitulation as the only certain way to ensure resumption of supplies.[32]Mitras argued that application for an injunction inter partes was a practical alternative to capitulation. Mr Cawson Q.C. submitted that a court would[47]have beyond all doubt have granted an injunction compelling supply. He stressed that there was a clear threatened (and indeed actual) breach of contract devoid of any possible justification, and suggested that the balance of convenience was overwhelmingly in favour of granting the relief. Indeed, he submits that the case against his clients was so strong that their legal advisers would have compelled them to give a undertaking. This line of argument might be thought worthy of admission to Alice’s wonderland: the more blatantly unjustified and illegal the action threatened, the more readily the defendant would escape liability in duress. However that may be, the situation cannot in my view be as simply resumed as Mr Cawson’s submissions suggested. GMR had to take a rapid decision in circumstances where the threat had already become reality. Capitulation would ensure with certainty the restoration of supplies and at a price which, though seen by GMR as extortionate, would be a fraction of the loss which would otherwise be suffered. By contrast, there were serious imponderables about the injunction route, and despite what is now said Mitras could not necessarily have been expected to offer an undertaking. It was uncertain when a hearing inter partes might have been secured, and GMR were in my view entitled to consider that the outcome would not inevitably be in their favour. Apart from the uncertainties of any litigation, the contractual documentation was far from transparent, particularly as regards the central question of what, if any, obligation Mitras was under to supply the units, and the court’s attitude to the grant of a mandatory interim injunction to supply an indeterminate number of units on an indeterminate timetable could not in my view have been assumed.[33]Given GMR’s legitimate concern to ensure security of supply, I do not in these circumstances consider that the injunction route was an alternative adequate to nullify the pressure created by Mitras’ threat. I would come to the same conclusion even if I were to proceed - in my view inappropriately - on the basis of the actual 48 hours of reserve stocks known only to Mr Thrussell and his immediate superiors (but not to GMR). That would of course have increased the chance of obtaining a hearing and an order in time to avoid exhaustion of stocks. But the same possibilities of failure, actual and perceived, would have remained, and with them the consequence of being exposed to an increase by Mitras of its demands (or a withdrawal of the concessions which Mitras had made in the course of the negotiations over the last few weeks).[34]Mr Cawson submitted that Mitras’ claim to compensation was made in good faith with a genuine belief on Mr Worrall’s part as to Mitras’ entitlement to compensation. That submission focusses on the wrong question. Both parties appear indeed to have assumed at the time that, as agreed before me by the lawyers, Clause 20 applied mutatis mutandis so as to give GMR the right to terminate the sole supply arrangement and Mitras a right to compensation in that event. But the compensation[50]would not be due until the arrangement terminated at the end of July. There was no right to require payment earlier than that, let alone of an amount dictated by Mitras. Nor could there be justification for withholding contractual performance if that payment was not made or agreed, and in my judgment Mr Worrall, an intelligent business-man in charge of a substantial company, did not believe that Mitras was legally entitled to do so. Even if he had genuinely so believed, that belief would have been unreasonable to such a degree that I would have counted it for little weight in the assessing the legitimacy or otherwise of the pressure created by the threat to stop supplies.[35]Moreover, the reasoning advanced by Mitras for the second lump sum (originally divided in two) - to reverse price concessions made during initial negotiations - had nothing to do with compensation for termination. Nor did the required, and backdated, increase in the piece price. There was no plausible legal basis for these demands, nor was any advanced by Mr Worrall, let alone one which could justify stopping supplies in breach of contract.[36]Mitras suggested that GMR affirmed the agreement by continuing to take supplies from Mitras when they could have been obtained elsewhere. I am however satisfied that this was not an option available to GMR. The Spanish supplier, Peguform, did not have sufficient spare capacity, even if compatibility could be established; and the new UK supplier for phase 2 was not ready to begin production before the end of July 2006. There was some discussion - unfortunately initiated by me - as to whether affirmation could have been found after that date in the payment in arrears for pre-termination collections at the increased piece price specified in the agreement of 15 March 2006. Since, however, as I have subsequently ascertained, this point was not pleaded, and would have required GMR to be given an opportunity to serve evidence as to why it did not instruct its accounts department to reduce the amount of the payment, it is not an argument which is open to Mitras. Moreover, the likely explanation - that the matter did not occur to the management of GMR - would in my view negative a successful plea of affirmation.[37]Pulling the threads together, I am satisfied that Mitras threatened to stop supplies, and that the pressure created by this threat caused GMR to conclude the agreement of 15 March 2006 and make the payments thereunder which they now seek to recover. My consideration and evaluation of the matters analysed above has also led me to conclude that the pressure was illegitimate. In these circumstances, GMR are entitled to a declaration that the agreement was voidable and has been avoided and to the recovery of the monies paid out by reason of that agreement.[38]GMR’s case is that under the agreement of 15 March 2006 Mitras did no more than promise continued supply, which it was already contractually obliged to effect. GMR submits that such a promise is void for lack of consideration under a long-established rule going back at least to Stilk v Myrik, (1809) 2 Camp. 317; 6 Esp 129, where the master of a vessel promised to divide the wages of two deserters among the remaining members of the crew and Lord Ellenborough CJ rejected a claim by one of promisees on the return of the vessel for his share of the extra wages.[39]The first line of defence offered by Mitras is that the agreement also compromised Mitras’ claim for compensation under Clause 20. Though not developed in submissions, I assume that the argument seeks to found on a sentence in the letter stating:
“This concession is also given on the understanding that Mitras will not seek any further price increases or capital sums.”
I do not read this as focussing on the question of compensation under Clause 20 but rather as a requirement that no further similar “blackmail” demands were to be made by Mitras.[40]A more fundamental submission by Mitras is that a promise to perform an existing contractual obligation can be legal consideration. Its argument relies heavily on Williams v. Roffey Bros. & Nicholls (Contractors) Ltd., [1991] 1 QB 1 (C.A.). The plaintiff in that case had been employed by the defendant as a carpenter sub-contractor on a project for the refurbishment of a block of flats. The agreed price was £20,000. After 6 months the plaintiff was well behind schedule and in financial difficulty, placing the completion of the works at risk and exposing the defendants to a penalty clause in the main contract. It was recognized by the defendants at the time that the agreed price had been too low to enable the plaintiff to operate satisfactorily. They agreed to pay the plaintiff an additional £575 for each flat as and when the carpentry work was completed there, a potential total of £10,300. The defendants contended that their undertaking to pay the additional sums was void for absence of consideration, an argument rejected by the judge and on appeal.[41]Glidewell LJ said (at 15G - 16 C) that - absent economic duress or fraud -where(1) there was doubt whether the promisor would complete his side of the bargain and promised in return for the further payment that he would complete on time, and(2) the promisee thereby obtained a benefit, that would constitute good consideration, and counsel for the defendant had accepted that his clients derived a practical benefit from the new[58]promise. Russell LJ (at 19D - E) spoke of the defendant having gained an advantage out of the continuing relationship with the plaintiff. And Purchas LJ referred (at 22H) to a commercial advantage. Though all three judges claimed to accept the rule in Stilk v Myrik, it is wholly unclear how the decision in Williams v Roffey can be reconciled with it. On analysis, the benefit or advantage lay in an act or promise wholly coincident with the plaintiff’s existing contractual obligation.[42]In terms of its result and the reasons advanced by the judges, however, Williams v Roffey would seem to permit any variation of a contract, even if the benefits and burdens of the variation move solely in one direction, and I am bound to apply the decision accordingly, whatever view I might take of its logical coherence. The law of consideration is no longer to be used to protect a participant in such a variation. That role has passed to the law of economic duress, which provides a more refined control mechanism, and renders the contract voidable rather than void.[43]Accordingly, GMR cannot rely on absence of consideration, whether as a supplement or an alternative to economic duress.

Counterclaim

[44]As I recorded in Paragraph 9 above, I was asked to proceed on the basisthat Clause 20 of the Purchase Order Conditions should be applied mutatismutandis to termination of the sole supply arrangement. Mitras thereforebecame entitled to such sum as should compensate it “for all work reasonably done and obligations reasonably assumed by it in performance of the [sole supply arrangement] prior to its termination and for all work reasonably done by it in giving effect to such termination”. On the basis that it is held liable to repay the monies obtained pursuant to the agreement of 15 March 2006, Mitras counterclaims in respect of three items said to be recoverable as compensation under Clause 20.

(a) Amortization of specific development costs

[45]This head concerns costs relating to tooling specifically related to the production of the unit. It is accepted in principle by GMR but disputed as to quantum.[46]The RFQ required the breakdown of the unit piece price to show the element reflecting amortization of Mitras’ development costs. Originally these costs were put at £159,800, to be amortized by a £0.50 loading per unit over the first six years. When extra development costs raised the[65]figure to £188,175, GMR proposed recovery over twelve years at a rate of £0.40, and this became the basis of Mitras’ tender in response to the RFQ.[47]The rival submissions unfortunately proceed on the basis of different figures for the number of units delivered up to termination at the end of July 2006: 384,967 in the case of Mitras, and 422,643 in the case of GMR. Both of these figures are taken from competing projections made in February 2006, though the actual figure must now be available.[48]Relying on the total production of 863,257 over 12 years projected in the RFQ, Mitras advances its claim for the balance of amortization as £0.40 x 478,290 (being 863,257 - 384,967) = £191,316 subject to adjustment for accelerated payment.[49]GMR’s approach is quite different. It contends that Mitras has received 422,643 x £0.40 = £169,057 on account of amortization, leaving a balance of £19,118, a figure which it has always expressed willingness to pay to Mitras.[50]The starting-point must be the wording of Clause 20 itself, as applied to the supply arrangement. Plainly, as GMR rightly concede, the cost of development work to enable the units to be produced can properly be regarded as “work reasonably done and obligations reasonably assumed by it in performance of the [sole supply arrangement]” for which compensation is required. This could extend to any cost of financing the development work, though - consonant with the way it presented its claim - Mitras did not adduce any evidence of this.[51]It is true that the application of the £0.40 to the production projected over 12 years produces a figure of £354,302, well in excess of the capital cost of £188,175 (and a similar exercise based on £0.50 and 6 years production also produces a sizeable, though not proportionate, excess). The parties therefore recognized, it is submitted, that Mitras should recover through the pricing mechanism the cost of financing the development work. This assumes that the projected production figures were used to calculate the amortization contribution from each unit. This is not obvious. The risk of premature or partial failure of the X83 van was shared by the supplier under an arrangement of this type and would prudently be reflected in the potential sales figures used in calculating contribution to amortization.[52]Even if an excess were established and could be quantified, and if an interest rate could sensibly be derived from it, that would not assist in establishing what Mitras’ financing costs had in fact been and how much of them remained unrecovered. Yet more fundamentally, given the only way that Mitras presented its claim under this head, there is no reason why Mitras’s actual unrecovered costs including any finance costs should equate to £0.40 on the projected production figures for twelve years less[72]actual deliveries, even with a deduction for accelerated payment as at date of judgment.[53]I therefore disallow this element of the claim, save to the extent of £19,118conceded by GMR.

(b) Amortization of capacity investment

[54]This head of claim is put at £698,303.40 (subject to some adjustment for accelerated payment). This is based on an amortization element of £1.46 per unit in Mitras’ internal calculations used to arrive at a tender price at the outset. It concerns investments which were not specific to the particular product, such as robots, presses, and an oven. There are at least two fatal difficulties about the claim.[55]Firstly, there is no detail and no documentation of the items in question, not all of which were even purchased for the X83 unit, or of their cost or value.[56]Secondly, in so far as they have not been written off by contributions from piece sales in the first six years, they should have had a corresponding residual value to Mitras. I was told that not all items have yet been reused, but I was given no detail of this.[57]In short, Mitras has failed to make out this head of the claim.

(c) Removal costs

[58]Mitras claims £6,056 in respect of the costs it incurred in removing GMR’stooling and equipment at the conclusion of the contract. GMR accepts thatsuch costs would fall within Clause 20 as “work reasonably done ... in givingeffect to such termination”. However, they rightly object that Mitras hasfailed to provide the necessary evidence to substantiate these costs, andthis element of the claim must also be disallowed.

Relief

[59]I therefore propose to order judgment for the Claimants for £451,021.80,and dismiss the Counterclaim save as the £19,118 conceded by theClaimants.