In an affidavit sworn by Whelan Frozen Foods' chief executive Paddy Whelan, it is alleged that Dunnes Stores managing director Frank Dunne threatened to "halve" the supermarket chain's business with Whelan Frozen Foods unless the distributor slashed operating costs.

Last November, Dunnes Stores cut the margins it was paying Whelan's on food by an average of 7% and those for textiles by 9%. Whelan Frozen Foods applied successfully for an interlocutory injunction to block the margin reduction.

A High Court judge directed Dunnes Stores to repay over 650,000 that it withheld when it imposed the new distribution rates, pending a full hearing of the case brought by Whelan.

Whelan Frozen Foods, which posted turnover of almost 190m and operating profits of 1.47m in the 12 months to January 2005, is claiming that Dunnes Stores was using "economic duress" as a negotiating tool to obtain information about the company's accounts in order to direct the company on how to manage its business.

The company further claims that it has lost 1m since 2000 as a result of: Dunnes Stores inducing it to enter into what it alleges was a "commercially illegal" sub-lease;

Dunnes Stores instructing it to provide extra warehousing for volumes that didn't materialise; and an "enforced arrangement" where Whelan Frozen Foods was allegedly directed by Dunnes Stores to pay a third-party warehouse provider a 35% rate increase.

Paddy Whelan has claimed in an affidavit that the cut in margins placed the company in a position where it was close to insolvency and almost "trading recklessly".

Whelan added that the reductions would lead to an annual loss of 1.25m.

The distribution company claimed that at one stage the amount of money withheld by Dunnes Stores had reached over 14m, money later repaid.

Last Friday, the High Court heard that Dunnes now wants to sever its ties with Whelan's completely.

A Dunnes spokeswoman declined to comment.