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||Neutral Citation Number:  EWHC 3134 (QB)
||Case No: 2011-645
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LONDON MERCANTILE COURT
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
HIS HONOUR JUDGE MACKIE QC
Mr Paul Lowenstein QC and Mr Richard Hanke (instructed by Baker & Mckenzie LLP) for the Claimants
Mr Paul Downes QC and Mr Stewart Chirnside (instructed by Wragge & Co LLP) for the Defendant
Hearing dates: 3rd October 2012
HTML VERSION OF JUDGMENT
Crown Copyright ©
JUDGE MACKIE QC :
- This is an application by the Defendant to strike out, under CPR 3.4, many of the paragraphs in the Claimants' Particulars of Claim. There is no application for summary judgment. The claim is a substantial one for more than Euro 20 million and was issued as long ago as 1 June 2011. The application notice was issued on 6 July 2012. The case has been fully pleaded but, if it proceeds, there will be a need for amendment. On 13 July 2012 the court approved an agreed order for directions under which disclosure would have commenced by now. A trial has been fixed for October 2013. The slow pace of the action is attributable to efforts to settle and mediate this case, so far unsuccessful. The Claimants have, in response to the Defendant's application, issued an application to amend to plead misrepresentation. The proposed amendments are disputed and by agreement will, if unresolved, be the subject of a separate hearing. Hand down of this Judgment has been deferred to meet the commitments of Counsel.
- The first Claimant is a large company based in Dayton, Ohio which designs, makes and distributes electric motors and motorised devices. The second Claimant ("Porto") is a wholly owned subsidiary of the first Claimant incorporated in Portugal to manufacture in that country. I will refer to the two Claimants together as "Globe" except when dealing with them separately. The Defendant ("TRW") is an English company supplying components to major car manufacturers including Renault, Nissan and Fiat. In 2000 TRW nominated Globe as a supplier to it for motor products, to be installed in its electric power-assisted steering units, which it was in turn going to supply to form part of the platforms for models of cars to be produced by Nissan, Renault and Fiat.
- As this is a strike out application and not one for summary judgment TRW relies on no evidence, proceeding on the basis that, for the purposes of the application only, all the facts set out in the Particulars of Claim are taken to be true. Globe has produced witness statements from Mr Scott Arwine and Mr Derek Keegan, Vice Presidents of Globe, in support of its application to amend to claim misrepresentation and by way of response to the strike out application this evidence was referred to briefly at the hearing.
- The claim is brought under an Exclusive Supply Agreement ("the Agreement") dated 1 June 2001 by which Globe agreed to supply and TRW to buy all TRW's requirements for motors and leadframe assemblies for the lifetimes of the platforms I have mentioned. The central issue is whether the Defendant broke the Agreement by sourcing products from another supplier. Globe says that these products are covered by the Agreement but TRW says that they are different. Under the Agreement, Globe is obliged to provide, and TRW to purchase, all Products (as defined), including developments from them as the result of "Engineering Changes".
- There are two main aspects to the strike out application. First TRW contends that the process under the Agreement by which Engineering Changes are arrived at is "consensual" and thus does not impose binding obligations on either side. Secondly TRW says that Globe's claim that Porto is, as a result of variation or novation, a party to the Agreement is bound to fail.
Procedural Basis for the Application
- TRW must show that the paragraphs of the Particulars of Claim, the Reply and the Further Information listed in its application notice disclose 'no reasonable grounds for bringing the claim'. The approach to be taken by the court is materially the same as that to be applied to an application for summary judgment under CPR Part 24. These principles were summarised in Attrill v Dresdner Kleinwort  EWHC 1249 (QB) by Simon J at para 14 as follows:
"a. the court must consider whether the Claimants have a 'realistic' as opposed to a 'fanciful' prospect of success: Swain v Hillman  1 All ER 91.
b. A realistic claim is one that is more than merely arguable: ED&F Man Liquid Products v Patel  EWCA Civ 472 at 8.
c. In reaching its conclusion the court must not conduct a mini-trial: Swain v Hillman.
d. This does not mean that a court must take at face value everything that a Claimant says in statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED&F Man Liquid Products v Patel  EWCA Civ 10.
e. However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5)  EWCA Civ 550.
f. Although a case may turn out at trial not to be really complicated it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on a summary judgment hearing. Thus the court should hesitate about making a final decision without a trial, even when there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical 100 Ltd  FSR 3."
- This summary was approved by the Court of Appeal in Attrill  IRLR 613, at para 22, and was supplemented by Sir Andrew Morritt C:
"23. To that summary I would add a reference to paragraph 107 of the speech of Lord Hope in Three Rivers DC v Bank of England No 3  2 AC 1, 264 where he said:
'Conversely, I consider that if one part of the claim is to go to trial it would be unreasonable to divide the history up and strike out the other parts of it. A great deal of time and money has now been expended in the examination of the preliminary issues, and I think that this exercise must now be brought to an end. I would reject the Bank's application for summary judgment.'"
Mr Downes QC for TRW also places emphasis on the urging of Jacob LJ in Khatri v Cooperatieve Centrale Raiffeisen-Boerenleenbank  IRLR 715 at 4 and 5 to which the Commercial Court and Mercantile Courts readily respond;
"The court should not be over-astute to decline to deal with the construction of a contract summarily merely on the basis that something relevant to the matrix might turn up if there were a full trial. Most disputes as to 'pure' construction of a contract will be suitable for summary determination because the factual matrix necessary for its construction will itself be determinable on that application."
- The Agreement, dated 1 June 2001, consists of six Articles set out over seven pages with more lengthy appendices dealing with a variety of technical matters. The Agreement must of course be read as a whole and in context but the provisions particularly relied upon by the parties are as follows;
A. Buyer wants to purchase from Supplier 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.…
Purchase and Sale
1.1 Products The Products include, but are not limited to, (i) motor 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. Supplier shall not sell the part numbers referenced in this agreement to a third party.
1.2 Volume 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 order from time to time pursuant to this Agreement. The quantities will depend upon the requirements of Buyer's customers (currently Fiat, Nissan, Renault). At present Buyer estimates that it will require the following:….
1.8 Manufacturing Location: The supplier has committed to produce the products at a European manufacturing location as soon as practicable – anticipated to be in 2002….
2.4 Material Cost Adjustment. Adjustments which will be mutually agreed, will be determined as follows,
a. Each Party will have the right to seek a price adjustment if changes in raw material prices as listed on Appendix C cause the cost to Supplier of selected raw materials to vary by more than +/- 10% from the baseline assumptions stated in Appendix C.
b. Review of raw material prices will be carried out on the 30 June and 31 Dec. of each year, (based upon 6 monthly average compared to the baseline indices).
c. Supplier will not issue to Buyer an invoice for a retrospective price increase unless, following discussion with Buyer, written permission from Buyer has been received in advance.
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 minimise 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 shall 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.…
6.3 Entire Agreement; Amendment: This Agreement, which includes the Appendices hereto, is the only agreement between the Parties relating to the subject matter hereof. It can only be amended by a written document which (i) specifically refers to the provision of this Agreement to be amended and (ii) is signed by both Parties."
- An important feature is that Article 5 provides that the term of the Agreement will be for the lifetime of each of the platforms. This means apparently that the Agreement is likely to have a term of at least ten years. Construction must be approached therefore in the same way as with other long-term contracts.
Pleadings and assumed facts
- The Particulars of Claim set out facts including the following. In September 2000 TRW wrote to Globe appointing it as a nominated supplier on, as I have mentioned, the basis that Globe would either manufacture within a European community country or do so within another low-cost European country and sell in Euros. As a result, and as both sides knew, in June 2001 Globe established Porto to make motors and leadframe assemblies for TRW. The "Specifications" that were to be attached as Appendix A to the final Agreement were not in fact attached.
- Globe plead that "Engineering Change" has a particular automotive industry meaning and TRW relies on this. It is a process whereby changes made to a product, for whatever reason, are documented and managed. As part of ongoing product evolution, Engineering Changes may vary considerably in complexity and urgency and are not necessarily limited in scope. The need for change may be caused by product design, manufacturing process, product evolution or enhancement, cost reduction, correction of a design error, an assembly requirement, a change in the customer's requirements and/or an alteration in material, supplier, qualification, testing or manufacturing method.
- The motor and leadframe assemblies described as "Products" in the Agreement were known as "generation one" ("GEN1") and it was anticipated these initial products might be supplemented by further ones. As initial Specifications for the Products were not set out in a letter as originally envisaged these were identified by a series of meetings and exchanges between the parties over a period.
- Once the Agreement was in place and in reliance upon the exclusivity it afforded, its obligation to establish a European manufacturing facility and the long period over which the Agreement was to operate, Globe, with the knowledge and encouragement of TRW set up Porto, established the necessary facilities and entered into a written investment contract with the Portuguese state in September 2002. After the transfer of manufacture of the Products from Alabama to Portugal, Porto made the Products and supplied them to TRW, issued invoices to TRW and its nominees and received payment. The circumstances lead the Claimants to say that the Agreement was either varied to include Porto as a contracting party or novated so that Globe's obligations were transferred to Porto.
- In the first quarter of 2002 TRW asked Globe to begin the development of second generation products ("GEN2"). Throughout that year the parties consulted extensively and Globe carried out development work. In April 2002 Globe received from TRW initial specifications for GEN2, TRW later sent Globe a number of updated specifications for the GEN2 motors and assemblies. These motors and assemblies were required for incorporation into the electric steering systems to be fitted to the same platforms as those for GEN1, were predominantly of the same design as GEN1 and differed from GEN1 motors and assemblies in that TRW specified a number of minor Engineering Changes. In 2002 and 2003 TRW requested that Globe manufacture and supply a varied GEN1 motor and leadframe assembly known as the J77 motor. Globe contend that the specifications for the GEN2 motors were Engineering Changes within the Agreement.
- In 2003 Globe learned that TRW had entered into an Agreement to purchase the GEN2 products from another company DEAS. TRW later bought DEAS and has used DEAS not Globe to supply GEN2 motors and assemblies. Globe say that is a breach of contract which has caused it damage.
Defence and Reply
- The Defence accepts much of the commercial and engineering background. However it asserts that GEN2 began development before GEN1 came into production because it was by then already apparent that GEN1 could not meet customers' requirements. GEN2 began with a workshop in Detroit and a different team of engineers from those which TRW was using on GEN1. The GEN2 motors and leadframe assemblies were different from GEN1, so much so that these differences cannot be categorised as "Engineering Changes". There are other defences raised but this is the assertion which is taken up in the Reply.
- In the Reply, Globe says that the changes in specifications and requirements between GEN1 and GEN2 were Engineering Changes. The issue is not whether DEAS' design for GEN2 was an Engineering Change but whether the specifications and requirements constituted Engineering Changes. If Globe had been asked whether it "could and would" have supplied products to the GEN2 specifications and requirements making only Engineering Changes from GEN1, it would indeed have done so. Globe say that from 2002 they were ready to supply GEN2 to TRW but TRW chose for its own reasons to buy this from DEAS (and later from another subsidiary) when Globe could and would have been able to produce it by making only Engineering Changes to the GEN1 motors and assemblies.
- Until this application was brought it seemed as though resolution of the dispute depended upon analysis of GEN1, GEN2, the work to be produced by DEAS and what Globe could and would have designed and produced if given the chance. Those fact and expert-centred issues are now joined by those the subject of this application.
- Globe contend in the Particulars of Claim that the effect of Article 4 is that if TRW proposes any Engineering Change then, provided that TRW has given prior written notice Globe is obliged to agree to it. Mr Downes QC for TRW says that this is an unarguable and uncommercial approach. He says that the words "Supplier has to mutually agree" in Article 4.1 while ambiguous in themselves when read in context mean that any Engineering Change requires Globe's consent. He relies on the Buyer reserving "the right to propose". Article 4.2 does not distinguish between Engineering Changes proposed by the Buyer or the Supplier, either way the Supplier will "use all reasonable efforts in cooperation with the Buyer to minimise the effect of such Changes" and the Supplier will provide a written statement of the anticipated effects. He says that the rest of the Article indicates a process of mutual cooperation and agreement. He also submits that the recognition in Globe's pleading that Engineering Changes envisage approval by engineering, production, planning and/or manufacturing management and may be very wide ranging in extent is a further indication that the manufacturer could not agree to all and any changes being imposed unilaterally by the Buyer. The provisions are what Mr Downes describes as "consensual" and, in effect, impose no legal obligation upon either party.
- Mr Lowenstein QC says that the approach adopted by Globe in its pleadings is that most consistent with business common sense. The words "has to" in Article 4.1 mean "must" not "has the option as to whether or not to" agree. Article 4 draws a clear distinction between Engineering Changes initiated by TRW and those started by Globe where a change will only be effective if it first obtains "prior written approval" from TRW. If the clause required consent to be effective there would be no purpose in making this distinction. Similarly Article 4.2 distinguishes between a "notice of Engineering Change by Buyer" and a "proposed Engineering Change by Supplier", the distinction in Article 4.3 being between those changes "made by Buyer" and those "proposed by Seller". He also points to the provisions of Article 4.3 which require TRW to reimburse Globe with the costs associated with implementing an Engineering Change made, or as Mr Lowenstein sees it, imposed by TRW. In contrast when Globe proposes a change, costs are simply subject to negotiation. He also submits that this was a long-term contract to last for the lifetime of the platforms and during this period there would inevitably be evolutionary changes to TRW's customers' requirements. He says that the position becomes clearer still when one looks at the commercial context in which an item becomes an Engineering Change. It thereby becomes a Product as a result of which TRW must source all its requirements for it from Globe and Globe cannot sell the items elsewhere. The reciprocal exclusivity reemphasises the position.
- Mr Lowenstein also has some prejudice points. He draws attention to the timing of the application, the absence of a pleaded basis for TRW's construction claim and the fact that until recently Globe's construction of the Agreement had been expressly admitted by TRW. Mr Downes submits that the case has moved on and that the admission was not of the issue now raised. Mr Lowenstein sensibly does not argue strongly the formal requirements for the withdrawal of an admission but submits that the background is telling. That may be true. If TRW ever had this point in mind, which one is entitled to assume that they did given the sophistication of their representation, one would have expected the admission to have been expressed differently. This is so even though I accept Mr Downes' point that the issue only crystallised once the Reply had been served. Against all that the point must be examined on its merits.
- The position as I see it is as follows. This is a long-term written contract indicating that the parties intended to enter into a lasting and legally binding commitment. The concept of Product results in important exclusivities for both sides. The parties envisage that they may from time to time add Products but this will only occur by mutual consent (see 1.1). This course having been addressed in Article 1 I would initially expect Article 4 to deal with something else. The words "has to mutually agree" are poorly chosen and ambiguous but when read in context connote obligation not merely an opportunity to discuss. The distinction between Engineering Changes proposed by the Buyer as opposed to those put forward by the Supplier reinforces the indication that where TRW wants changes Globe has to agree to them. Mr Downes has some sound arguments but in most construction disputes there are points going each way. The process in Article 4 is consensual in the sense that it requires the parties to work together in terms one often comes across in longer term agreements. There has of course to be agreement at each point to Engineering Changes which may indeed be very wide ranging. The proposal for a change results (see Article 4.2) in an obligation to use "all reasonable efforts" to minimise its effects and submission "as soon as reasonably practical" of a statement dealing with various matters. The Buyer (Article 4.3) has to reimburse "all reasonable costs". The word "reasonable" appears again in the penultimate sentence. The parties thus intend that they will work together over Engineering Changes but, if one fails to do so, there are yardsticks of reasonability against which compliance with Article 4 can be measured. In contrast where the Supplier, Globe, proposes a change there is only a good faith obligation to negotiate (not firmed up by the single reference to "reasonable" in Article 4.2). Resolution of such a dispute might be expensive, time consuming and replete with expert evidence (except of course where a party failed altogether to engage in the process). Nonetheless I consider that there are enough objective considerations available to enable Article 4 to be legally enforceable. Mr Downes makes the point that the court will not grant specific performance in a case such as this. That is correct but damages are available to provide a remedy as far as money can, just as in any other case.
- I therefore refuse to strike out any part of the Particulars of Claim dealing with the construction issue. Since TRW asserts, correctly, that the factual matrix is not going to change between now and trial I am unclear what part of the contract construction claim will remain but I will refer to some of the relevant pleading issues.
- As, until this application was brought, the parties had focused on the disputed issue of whether GEN2 would constitute an Engineering Change, the pleaded case on the Agreement needs to be refined. At present the contractual mechanism is pleaded in paragraph 23 of the Particulars of Claim. At 23(d)(i) Globe pleads "In the event that TRW should propose any Engineering Change provided that TRW had given prior written notice, Globe was obliged to agree to implement that change …" That is admitted in the Defence but TRW says that all it meant by the admission was that Globe would have had to agree to implement a change before it could become effective. That clarification could usefully have been included in the Defence.
- In paragraph 2.4 of the Reply, Globe challenges what is described as TRW's focus upon the DEAS design for GEN2. The paragraph emphasises that the claim concerns TRW's changes in specification and requirements between GEN1 and GEN2 but not the differences between the manufacturing choices of Globe and DEAS. The Reply continues:
"… The key issues in this case are accordingly whether (1) if Globe had been asked, could and would it have supplied motors and leadframe assemblies (of whatever specification or nomenclature) that were direct substitutes for those actually supplied by TRW to its customers in order to satisfy their requirements for the platforms … and (2) could and would Globe have manufactured those products (of whatever nomenclature) as GEN1 motors and leadframe assemblies with only Engineering Changes?"
- Paragraph 30 of the Particulars of Claim pleads that once the Specifications of the GEN2 motors for Engineering Changes were proposed by TRW to Globe, Globe was bound by Article 4.1 to implement the changes and to manufacture the GEN2 motors for TRW. That is denied. At Paragraph 32 Globe asserts that it was a breach of the Agreement for TRW to enter into an Agreement to buy GEN2 from DEAS. This presumably follows the claim in paragraph 18 that Article 1.2 required TRW to buy its entire requirement for the Products from Globe. I understand Globe's case to be that GEN2 was an Engineering Change but any proposals for it should have been made to Globe by TRW and to no-one else. Globe now want to plead an alternative case, for which they seek permission, that as a matter of fact the process by which Globe produced designs that complied with TRW's Specifications was invariably consensual and Globe always agreed to implement all changes requested by TRW in any event and would always have done so. In principle, Globe's "could and would" case is arguable and should be permitted but for some of the reasons given by Mr Downes, I am not clear that it is adequately pleaded.
- I decline to strike out the Particulars of Claim on the "construction" ground because the obligations in Article 4 as regards a proposal by the Buyer are legally binding. Unlike TRW Globe did not seek a determination from the Court on this issue and simply resist the strike out. I will allow Globe to pursue its alternative case if it wishes. The remaining contract case, if it proceeds, needs repleading. I invite the lawyers to discuss their respective positions so as to produce a more coherent pleaded account of where each side stands on this issue.
- TRW contends that Porto has no real prospect of success as a Claimant. It claims damages under an Agreement to which it is not a party. If Porto were to become a party to the Agreement by variation or novation that would require an amendment affecting both Globe and TRW and those parties have by the Entire Agreement clause, Article 6.3, expressly agreed that there can be no such amendment except by a written document referring to the provisions to be amended signed by both parties. Mr Downes has the powerful argument that the very purpose of clauses of this kind is to avoid the cost, delay and uncertainty of having to deal with issues such as those now put forward by Mr Lowenstein. That point does not however apply to the third limb of Porto's claim which is that it performed the Agreement in part or in whole on behalf of Globe. This agency argument may, even if successful, not lead to the substantial damages claimed but it is (correctly) not suggested that it cannot go to trial.
- Mr Downes submits first that the foundation of a case is not made out. This is not a claim of explicit oral or written novation. Neither novation nor variation could be established without clear and unequivocal conduct by the Defendant from which the court could infer the necessary agreement: see Khatri v Cooperatieve Central Raiffeisen-Boerenleenbank BA  IRLR 715. Where an agreement to vary or novate by conduct is alleged, such agreement must be obvious and necessary to explain the parties' conduct: see Interserve FM Ltd v Omnisure Property Management Ltd (supra) per Langley J at  (variation by conduct); and Evans v SMG Television Ltd  EWHC 1423 (Ch) per Lightman J at  (novation by conduct). He argues that the claims are not adequately pleaded and taken at their highest can never meet the high standard required.
- As part of this Mr Downes also complains that the claims of variation, novation and agency are unparticularised. Mr Lowenstein responds, as I see it adequately, by pointing to Globe's claims in the pleadings that TRW placed orders directly with Porto, Porto supplied products directly to TRW, Porto invoiced TRW and TRW paid Porto direct. Payments were made in Euros not in US dollars as had been the position when Globe itself was the payee. Further Porto entered into a direct consignment agreement with TRW that would otherwise have been entered into by Globe. Globe has also exhibited examples of orders and invoices. Mr Lowenstein also relies on the witness statement of Mr Keegan (not of course a pleading) and says that at any trial there would be more evidence and disclosure from both sides illustrating in detail how each of the three potential parties dealt with each other. He says, accepting the law on novation and variation to be substantially as stated by Mr Downes, that this is a classic example of an aspect of a case that needs to go to trial, particularly in a context where the agency claim cannot be struck out and thus will go to trial anyway on substantially the same material.
- So far I agree with Globe. Commercial disputes involving claims by parents and subsidiaries acting to some extent on behalf of each other are fact sensitive and, depending on the outcome, can then lead to expression in a variety of legal formulations some of which can lead to late but legitimate changes of pleading. While I have no view of the real merits of the case it is clear that Globe and TRW had it in mind commercially that Porto or a similar European company or operation would be closely involved in the deal and in the events now in dispute. Justice requires that disclosure and the other pre trial processes should take place and the Claimants have an opportunity, subject to the question of Article 6.3, to take to trial how far if at all Porto has rights to claim against TRW. Mr Downes has another submission that, in effect variation and novation cannot be run as alternatives, which I do not accept for the reasons given by Mr Lowenstein. If Globe is right in claiming that, in effect, TRW not only went along with but instigated an arrangement by which Porto performed Globe's obligations under the Agreement but are now seeking to withhold the rights which in commercial fairness should go with those duties the court might well strive to find remedies. Of course Globe's claims may be misconceived but against the possibility that they are not, justice requires that this issue goes to trial.
- As I say, Mr Downes submits that the cost and delay of going to trial will be pointless if as a matter of law Article 6.3 bars variation or novation as pleaded by Globe. Even if the agency issue is tried anyway there are clear savings to be made. Furthermore this is a short legal point which the Court can and should decide now.
- Mr Downes submits that as a matter of law, Article 6.3 prevents novation or variation from arising. The wider principle is, perhaps surprisingly, undecided. In United Bank Ltd v Asif, (unreported, 11 February 2000, CA) the Court of Appeal upheld a decision to give summary judgment on the Claimant's claim and to strike out a related claim brought by the Defendant against the Claimant on the grounds that the judge was "incontestably right" to conclude that a purported oral variation of the written terms of an agreement could have no legal effect where the agreement stipulated that no variation of the agreement would be valid or effective unless made in writing and signed by the parties to the agreement. In World Online Telecom Ltd v I-Way Ltd  EWCA Civ 413 the Court of Appeal considered a similar clause and whether such an express term operated as an absolute bar to a subsequent oral variation. The Court declined to give summary judgment in favour of the defendant holding that the law was not sufficiently settled to justify giving summary judgment (see para  per Sedley LJ). However, Mr Downes argues, that World Online appears to have been based on a concession by the defendant that there was no firm English authority that such a clause prevented a party from advancing a fact-based argument that there had been an oral variation to the contract (see para ). Moreover, the Court of Appeal's attention does not appear to have been drawn to the earlier decision in United Bank Ltd v Asif). Both Counsel also refer to Spring Finance Ltd v HS Real Company LLC  EWHC 57 (Comm) HHJ Mackie QC where I was shown World Online and United Bank and said obiter at :
"My first impression, having heard the submissions of Counsel, was that there could in theory be an oral variation, notwithstanding a clause requiring that to be in writing, but that the court would be likely to require strong evidence before reaching such a finding. But it is unnecessary and inappropriate for me to express a considered view." (An observation which adds nothing to this discussion)
- Mr Downes submits that United Bank should be preferred to World Online which was decided without reference to United Bank. I should decide the point at this stage on the basis of what is said in United Bank.
- Mr Lowenstein submits that World Online illustrates that this issue should not be decided at a summary judgment stage. He also relies upon the decision in Partco v Wragg  2 Lloyd's Rep 343 at 352 where Potter LJ said:
"It is inappropriate to strike out a claim in an area of developing jurisprudence. In such areas decisions should be based upon actual findings of fact."
Mr Downes responds that this in not such an area, it is one short point.
- This is not the classic case of where a clause such as Article 6.3 is relied on, where, for example, a party to a guarantee or other contract, placed in difficulties, alleges an oral variation. In one sense the burden on a party in Globe's position is even higher than on one claiming an oral variation as Globe will have to prove not only the conduct but also that it is unequivocal. On the other hand there may be more force in an argument to overcome the effect of Article 6.3 where, as Globe claims in this case, the parties, without giving thought to the written contract, make significant changes to their basis of dealing. There is, as I have said, force in Mr Downes' submission about the need not to frustrate the very purpose of these clauses, all the more so where the parties are sophisticated and the clause has been specifically negotiated. Against that the law is unclear and I am not prepared to decide a difficult point without a clear factual basis. As a result of the particular circumstances of the two cases decided by the Court of Appeal the point was not given the detailed consideration which Rix LJ may have had in mind when giving permission to appeal in World Online. Whilst Mr Downes argues that this is a one-off not an "area of developing jurisprudence" the importance of matters of law being decided on the basis of actual findings of fact remains the same and the agency issue will go to trial anyway. It is also more difficult to make factual assumptions in a conduct, rather than a simple oral variation case. The alleged conduct springing from what may be quite complex dealings between three parties (legitimately requiring detailed disclosure, for example, of the internal dealings of all three) is more difficult to make useful assumptions about than an alleged oral variation at a meeting or in a telephone call.
- Several minor matters have been raised. First TRW seeks to strike out paragraph 70.2 of the Reply on a ground which Globe says is a misunderstanding. There is a further misunderstanding, this time apparently on Globe's part, concerning differences between the GEN1 motors and leadframe assemblies and "J77". These and any other similar matters should be the subject of sensible discussion and agreement between the lawyers. If they cannot reach agreement I will dispose of the matters when handing down this judgment.
- The application to strike out on the "construction" ground fails but the pleadings need amendment. The application to strike out the claims brought by the second Claimant also fails and the issue must go to trial. I shall be grateful if, not less than 72 hours before the hand down of this judgment, Counsel will let me have corrections of the usual kind and a draft order, both preferably agreed, and notes of any matters which they wish to raise at the hearing. It will be helpful if, before that hearing, the lawyers will give thought to and seek to agree any further directions for trial.
- I am grateful to Counsel and solicitors for the admirable way in which this application was presented and prepared.
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