A fierce legal dispute between Land Rover and receivers acting on behalf of an insolvent supplier could deter multinational companies from investing in the UK in the future, industry experts have warned.
KPMG, acting for chassis supplier UPF-Thompson which went into receivership last month, is seeking to exploit Land Rover’s dependence on the firm by demanding payments of up to £45m to secure its future.
Land Rover has warned it will be forced to stop production of the Discovery if the situation is not resolved.
Professor Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff Business School said the economic implications of the dispute for UK industry are profound.
Not only would it be a ‘considerable blow’ to the West Midlands supply chain if Land Rover were to stop building the Discovery, but it could deter multinational firms from investing in the UK, he said. ‘If major customers are seen as an asset that can be exploited, it will make companies think twice about coming to the UK in the first place.’
A spokeswoman for Land Rover said the firm has been negotiating with KPMG, and has offered to make a goodwill payment of £4m. The company also said it would increase the amount it pays for each chassis by as much as 20 per cent. ‘But the receivers have responded in terms that we consider unreasonable, and have made extraordinary demands. They are asking us to act as guarantors for the company, but we are not a bank,’ she said.
Land Rover has taken out a court injunction to protect its chassis supplies until January 25, and hopes that by then it can reach a settlement with KPMG, or a buyer for UPF can be found. ‘If not, we will have to close the Discovery line, as we only have a two-day supply of chassis,’ said the spokeswoman.
Once the line is closed, it will take between six and nine months to retool and allow production to restart, by which time many suppliers reliant on the Discovery line may have been forced out of business, she added.
The company is now seeking to extend its interim ruling to a full injunction at a hearing on 24-25 January, to protect its chassis supplies until the matter gets to court.
Last week Mr Justice Norris said the Competition Act prohibited companies from unfairly exploiting their dominance over customers. But a legal precedent for KPMG’s actions was set two years ago, when receivers acting for Transtec got Ford to agree to a five-year contract and a 60 per cent price increase.
Paul Davies, professor of commercial law at London School of Economics, said the matter was far from settled, and Land Rover may yet be able to get the law clarified in its favour. ‘It is open for the courts to use the competition laws to overrule what seems to be allowed under insolvency law,’ he said.
A spokesman for KPMG said its primary obligation was to UPF, its employees and creditors. ‘We are trying to protect the future of the business and the people who work there, and have to do our utmost to exploit the customer’s vulnerability. They are reliant on the chassis, so we have to make the most of that.’