Globe Motors, Inc & Ors v TRW Lucas Varity Electric Steering Ltd & Anor, Court of Appeal - Civil Division, April 20, 2016, [2016] EWCA Civ 396

Issuing Organization:Civil Division
Actores:Globe Motors, Inc & Ors v TRW Lucas Varity Electric Steering Ltd & Anor
Resolution Date:April 20, 2016

Case No: A3/2015/0017

Neutral Citation Number: [2016] EWCA Civ 396




HHJ Mackie QC

[2014] EWHC 3718 (Comm)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 20/04/2016

Before :





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Between :

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Paul Downes QC and Emily Saunderson (instructed by Wragge Lawrence Graham & Co LLP) for the First Defendant/Appellant

Paul Lowenstein QC and Rajesh Pillai (instructed by Baker & McKenzie LLP) for the Claimants/Respondents

Hearing dates: 9 and 10 February 2016

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JudgmentLord Justice Beatson :

  1. Overview

    1. This is an appeal against the order of HHJ Mackie QC dated 11 November 2014 following a 32 day trial between March and June 2014 in the London Mercantile Court. The appellant, TRW LucasVarity Electric Steering Ltd (``TRW Lucas'') produces electric power-assisted steering (``EPAS'') systems which sense drivers' input to the steering wheel and provide the necessary steering assistance by delivering power to the steering column through a gearbox. The first respondent, Globe Motors Inc. (``Globe''), designs and manufactures electric motors and leadframe assemblies which are a component part of a vehicle's EPAS system.

    2. The dispute concerns an exclusive supply agreement dated 1 June 2001 (``the Agreement''). Under the Agreement TRW Lucas agreed to purchase from Globe all its requirements of certain electric motors and leadframe assemblies identified or covered by it (``the Products''). Globe agreed to sell TRW Lucas all such quantities of the Products as TRW Lucas ordered from time to time and not to sell specified part numbers to a third party. The quantities sold and purchased under the Agreement were to depend upon the requirements of TRW Lucas's customers. The Agreement was of a long term nature, and it was common ground that in the car components industry there were regularly improvements to and development of products.

    3. In a full and carefully considered judgment ([2014] EWHC 3718 (Comm)), HHJ Mackie QC found that TRW Lucas was in breach of the Agreement from about 2005 by purchasing motors (known as ``Gen 2'' motors) from DEAS Emerson (``Emerson''), a firm which TRW Lucas bought in 2006. The judge gave TRW Lucas permission to appeal against his order on six grounds which are summarised at [53] below. The judge subsequently assessed Globe's damages in the sum of €10,095,095 ([2015] EWHC 553 (Comm)) but refused an application by TRW Lucas for permission to appeal against the damages order. This appeal is solely concerned with liability. At the end of the hearing we adjourned TRW Lucas's renewal of its application for permission to appeal against quantum pending our decision on liability.

    4. The factual background is more fully summarised in section III of this judgment. For present purposes it suffices to state that for a number of years, Globe supplied products (known as ``Gen 1'' motors) to TRW Lucas. The Agreement concerned three ``platforms'' for respectively, Nissan B/Renault P1, Fiat C192, and Renault P2. These proceedings only concern the Renault P1 platform, for which platform it appears that TRW Lucas did not get an order from Renault for a Gen 1 motor. Although it got orders for the platform from Nissan, the number of motors supplied was below the number estimated in the Agreement (see [16] below) so that a provision for TRW Lucas to pay Globe's amortised capital costs (see [18] below) was triggered. The breach found by the judge concerned the purchase by TRW Lucas from about 2005 of motors known as Gen 2 motors from Emerson. By 2014 TRW Lucas had purchased over 3 million Gen 2 motors from Emerson.

    5. The principal issue in the appeal is whether the judge erred in deciding that the Agreement covered not only the Products identified in it and the detailed specifications agreed, but also the motors bought from Emerson to the extent that they ``could and would have been produced by Globe making `Engineering Changes' to products within the exclusive purchase agreement''. The determination of this overarching question is the subject of ground 1. It involved the judge deciding a number of other questions as to which TRW Lucas also submits that he erred. Those questions are the subject of grounds 2 to 5.

    6. There are two other respondents. The second respondent is Globe Motors Portugal-Material Electrico Para A Industria Automovel LDA (``Porto''), a subsidiary of Globe incorporated for the supply of electric motors to TRW Lucas under the Agreement. The judge found that Porto became a party to the Agreement. This finding is the subject of ground 6, which I summarise at [53] below. The third respondent is Safran USA Inc. (``Safran''), the assignee of the respective rights of Globe and Porto in the litigation.

    7. The judge dismissed a claim by Globe in negligent misstatement. He also dismissed a claim by Globe against TRW Limited, TRW Lucas's parent company. There is no appeal against either decision.

    8. In sections II - V of this judgment I set out and summarise the Agreement, the facts, the judgment below, and the grounds of appeal. Section VI contains my discussion of the questions before the court. For the reasons given in section VI(b), at [75] - [85] below, I have concluded that the judge erred in finding that the term ``Products'' in the Agreement included not only the Products identified in it and the detailed specifications agreed, but also Gen 2 motors bought from Emerson to the extent that those motors ``could and would have been produced by Globe making `Engineering Changes''' to Products that were within the Agreement. Accordingly, I would allow the appeal on ground 1. It is therefore not necessary to decide the remainder of the grounds. I deal briefly with grounds 2 - 5 at [89] - [94]. Because ground 6 involves a question of principle on which there are substantially inconsistent decisions of this court and there was full argument before us, I address it at [97] - [113].

  2. The Agreement

    1. The Agreement consists of two ``Premises'', six Articles headed ``Purchase and Sale'', ``Price'', ``Warranty and Quality'', ``Engineering Changes'', ``Term'', and ``Miscellaneous'', and four Appendices. The provisions that are material to this appeal are set out below and others are summarised. The judge set out the entire Agreement at [29] of his judgment.

    2. The parties agreed that the two premises of the Agreement are to be construed and considered as terms. They are:

      ``A. Buyer [TRW Lucas] wants to purchase from Supplier [Globe] Brushless electric motor and leadframe assembly produced in accordance with the specifications attached as Appendix A (``Products'') to be used in conjunction with EPS systems.

      1. Supplier wants to sell Products to Buyer.''

    3. Exclusivity: It is convenient to start with the provisions in which the parties set out the exclusivity. That is primarily in Article 1.2 which provides that:

      ``Buyer will purchase from Supplier all of Buyer's requirements of the Products and Supplier will sell to Buyer all such quantities of Products as Buyer [may] order from time to time pursuant to this Agreement.''

      Exclusivity is also addressed in the last sentence of Article 1.1 which states:

      ``Supplier shall not sell the part numbers referenced in this agreement to a third party''.

    4. The Products: What is encompassed within the term ``the Products'' is to be seen from Article 1.1 which is headed ``Products'', Premise A and Article 4. Emphasising the words which formed the subject of submissions in these proceedings, the first two sentences of Article 1.1 state:

      ``The Products include, but are not limited to, (i) motors and leadframe assembly for 38Nm Nissan B/Renault P1. (ii) motors and leadframe assembly for 58Nm Fiat C192, and (iii) motors and leadframe assembly for 58Nm Renault P2. The parties may add additional products by mutual agreement.''

    5. Although Premise A (set out at [10] above) stated that the Products were to be motors produced in accordance with the specifications attached as Appendix A, there were in fact no specifications attached. The parties, however, agreed the detailed specifications that are in a series of documents dated between 11 September and 27 November 2000.

    6. Engineering Changes: The crucial provision in this appeal is Article 4, which provides:

      ``4.1 General: Buyer reserves the right to propose, at any time, changes in the Specifications or other requirements relating to the Products (''Engineering Changes"). Supplier has to mutually agree. Buyer will advise Supplier of all Engineering Changes by giving Supplier prior written notice. If Supplier proposes to make an Engineering Change, Supplier will advise Buyer of such proposal. Before making such proposed Engineering Change, Supplier must obtain prior written approval from Buyer.

      4.2 Effects of Change: Following notice of an Engineering Change by Buyer or of a proposed Engineering Change by Supplier, Supplier will use all reasonable efforts in cooperation with Buyer to minimize the effects of such Change and will submit to Buyer as soon as reasonably practicable a written statement of the anticipated effects of such Change on production costs, delivery schedules, and matters related thereto.

      4.3 Cost: Buyer will reimburse Supplier for all reasonable costs associated with each Engineering Change made by Buyer within ninety (90) days following its receipt of Supplier's invoice for such costs, which such invoice will not be issued prior to the implementation of such Change. Such costs will include reasonable costs related to surplus inventory and obsolete Products, tooling, and equipment. Buyer and Supplier will negotiate, in good faith, the allocation of costs associated with each Engineering Change proposed by Supplier.''

    7. It is common...

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