The law must protect the rights of customers

Today, unless a negotiated agreement has been reached, Land Rover and KPMG meet in court for the second time in two weeks. At issue is whether the receiver of a failed supplier can exploit a customer’s dependence on that supplier for the benefit of its creditors.

KPMG, as receiver to UPF-Thompson, will defend its claim for £45m – three times the annual value of the contract – for continuing to supply chassis for Land Rover’s Discovery. The issues would seem to be clear cut.

No-one disputes a receiver’s duty to realise as much money as possible, on behalf of creditors, for the assets of a failed company. Most receivers would agree that it is usually in everyone’s interests to keep the firm trading. If the insolvent company’s contracts do not bring enough money in to cover overheads, though, the receiver cannot let that company continue to pile up losses. In these circumstances a reasonable customer should be prepared to consider a price increase.

But that is not the argument here. The sum KPMG is demanding is not based on the profitability of the contract, but on a valuation of Land Rover’s dependence on UPF as sole chassis supplier. If supplies were cut off, Discovery production would halt within two days.

You’d think such a claim would be unlikely to succeed. Yet a legal precedent from two years ago backed up a similar claim against Ford.

That surely turns natural justice on its head. Two weeks ago Mr Justice Norris agreed and granted a temporary injunction ordering UPF to continue supplying on the agreed terms.

Today, KPMG has an opportunity to elaborate on the justification for its claim, and will be seeking to get the injunction overturned. But we hope common sense will prevail. There must be a sensible solution to securing the future of UPF. Leaning on a dependent customer to bail the company out isn’t it.

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