It is often thought that anything goes when negotiating contracts or varying them, but the court will not enforce a contract that has been entered into under economic duress. Economic duress occurs when there is illegitimate compulsion, the practical effect of which is to deny one party to the contract any practical choice and where it is a significant cause of their entering into the contract.
Recently, a case was heard in which the argument of economic duress was made to the court by motor manufacturers, which used a firm to make plastic units for a van. When they wished to restyle the van, the manufacturer of the units was unable to make them to the new design, so was given six months’ notice of termination of its contract.
The supplier of the units then demanded compensation for termination and a price increase for the units supplied in the final period of the contract, threatening to cease supply if these demands were not met. The effect of a cessation of supply would have been to stop the van manufacturers’ production lines, which would have had severe economic effects. They therefore accepted the demands, but went to court to seek repayment of the excess sums demanded plus interest.
The court accepted the argument that economic duress was applied, rendering the contracts void. It awarded compensation to the motor manufacturers.
Says <<CONTACT DETAILS>>, “The courts are inclined to come down hard on those who use economic blackmail. If you are faced with unreasonable demands by someone who thinks they have you ‘over a barrel’, contact us for advice.”
Partner Note
Adam Opel GmbH and Renault SA v Mitras Automotive (UK) Ltd. CILL [2008].
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