Automotive Latch Systems Ltd v Honeywell International Inc, Court of Appeal - Commercial Court, September 30, 2008, [2008] EWHC 2171 (Comm)

Resolution Date:September 30, 2008
Issuing Organization:Commercial Court
Actores:Automotive Latch Systems Ltd v Honeywell International Inc
 
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Neutral Citation Number: [2008] EWHC 2171 (Comm)

Case No: 2006 FOLIO 26

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 30/09/2008

Before :

THE HONOURABLE MR JUSTICE FLAUX

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Between :

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Michael Douglas QC, Alison Potter and Marcos Dracos (instructed by O'Mahoney St John) for the Claimant

Ewan McQuater QC, David Head and James MacDonald (instructed by Wilmer Cutler Pickering Hale and Dorr LLP) for the Defendant

Hearing dates: 7 April to 18th July 2008

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JudgmentMr Justice Flaux:

Introduction

  1. This case concerns an ill-fated collaboration between the parties for the development and manufacture of a new kind of car door latch invented by Jean Pierre Chevalier, the managing director and principal shareholder of the Claimant company (to which I will refer as ALS). ALS is essentially the corporate vehicle Mr Chevalier was then employing for the development of the latch. Mr Joe Toledano was his co-director. He was the financial backer, his background being in the catering industry, but he took little part in the running of the business.

  2. I will refer to the latch which Mr Chevalier invented, as it has been referred to throughout the trial, as ``the ULS'', which stands for Universal Latch System. For present purposes, the ULS can be summarised as follows. As the term ULS suggests, the latch is intended to fit into any car door. It is operated by a single motor which is able to perform `superlocking', power closure and power opening, as well as the more usual functions of door latches. In that respect it differs from other latches which perform a wide range of functions such as power closure, but which use more than one motor. It is also much more compact than other premium latches which perform those functions.

  3. The Defendant (to which I will refer as Honeywell) is (as described in its own hand out prepared in July 2001 for presentation to potential customers for the ULS) a global advanced technology and manufacturing company employing over 120,000 people worldwide with a $25 billion plus annual turnover in 2000. It had experience in the aerospace industry, in sensing and control systems and the automotive industry. For the latter, it produced turbochargers and cooling systems amongst other products, although prior to the collaboration it had no specific experience or expertise in car door latches.

  4. By way of brief overview of the case, the Joint Collaboration Agreement (to which I will refer as ``the JCA'') was entered into on 17 May 2001 and terminated by ALS on 11 September 2003 under Article 10.1 for alleged breaches of the agreement by Honeywell. ALS contends that in 28 months of collaboration, the ULS had not advanced beyond the concept development phase and that only 10% of the work necessary for design validation had been completed. This is said to be breach by Honeywell of its obligation under Article 4.5 of the JCA to take all and any reasonable actions without unreasonable delay to manufacture the latch at a competitive cost. ALS makes specific complaints about absence of resources, unauthorised and pointless design changes, excessive time spent on drawing transfer, lack of direction and proper management, development of a rival e-latch to the detriment of the ULS and a number of other matters.

  5. ALS claims damages by way of lost profits on the basis that if Honeywell had performed its obligations properly, the ULS would have been developed sufficiently to procure nomination from Volkswagen for the new Passat and Jaguar for the new XK during 2003. From that platform, ALS's forensic accounting expert Mr Mathew-Jones has produced a ``loss of a chance'' model based on the evidence of ALS's industry expert Mr Ian Henry, predicting the relative probabilities of ALS capturing substantial shares of the latch market from various motor manufacturers in different parts of the world. Based on that model as revised by the time of trial, Mr Mathew-Jones assesses loss of profits ranging between £332 million and £457 million.

  6. Honeywell denies that it was in breach of the JCA at all. Its case is that it had no obligation to develop the design prior to the stage of the building of prototypes from soft tools and that any delay before that stage was attributable in one way or another to Mr Chevalier. More than adequate resources were put in place to develop the ULS, including the employment in due course of a latch expert, Mr Nigel Spurr. Even if there had been delay prior to the first soft tooled build in March 2003 (contrary to Honeywell's primary case) Honeywell made real and substantial progress with the development of the latch for manufacture between then and September 2003. ALS had seriously underestimated both the difficulties which Mr Chevalier's design posed and the progress which Honeywell made between March and September 2003.

  7. Even if Honeywell was in breach, Honeywell contends that ALS's claim faces insuperable problems both as to causation of loss (because amongst other reasons the Court has to assess the matter on the basis that Honeywell would have been entitled to terminate the contract itself under Article 10.3 of the JCA) and as to whether ALS has suffered any loss at all. The model put forward by Mr Henry and Mr Mathew-Jones is unrealistic and wildly optimistic, given that it was unlikely that Honeywell and ALS would have won the nomination for the Passat or the XK and that the latch market is intensely competitive. The view of that market put forward by Honeywell's industry expert Mr Brayshaw is to be preferred to that of Mr Henry and, based on Mr Brayshaw's evidence, Honeywell's forensic accounting expert, Mr Maher, has put forward a much more realistic quantum model. This shows that even on the basis that the ULS could have achieved a significant share of the market, either it would not have been profitable at all or at best ALS has suffered a modest loss, a few millions of pounds rather than hundreds of millions.

    Chronology of events

  8. This section of the judgment contains a chronology of some of the principal events before, during and after the JCA which should assist in putting the various issues which arise in context. It identifies but does not deal with detailed factual issues, which I will address as appropriate in the relevant section of the judgment.

  9. The first contact between Mr Chevalier and Honeywell was in about September 1999 when Mr Chevalier was looking at Honeywell as a possible supplier of sensors for the ULS. A number of meetings took place between September 1999 and the date of the JCA. Initially Honeywell's proposed involvement was limited to the sensors and possibly other elements of the electronic sub-assembly. It was at a meeting at Newhouse on 13 January 2000 that Dr Frank Turnbull of Honeywell first voiced the offer that Honeywell might make the whole latch.

  10. A non-disclosure agreement relating to Mr Chevalier's intellectual property in the latch was signed by Honeywell on 18 May 2000 and on 25 May 2000, Mr Chevalier sent Honeywell two Zip disks consisting of 71 files of drawings. It appears from a note of a meeting on 20 June 2000 that Honeywell was unable to open the files. This was because Mr Chevalier's drawings were created in one software package, Auto CAD, whereas Honeywell used Pro Engineer or Pro E, a different software package. The two were incompatible and there is apparently no software available to convert from one to the other, although Honeywell took no steps to investigate that until after the JCA was signed. Equally they did not ask for hard copies of the drawings.

  11. A further meeting took place at Newhouse on 24 July 2000. Honeywell's case is that at this meeting Mr Alan Wright of Honeywell informed Mr Chevalier that the ULS was more mechanically complex than anything previously produced at Newhouse. This was denied by Mr Chevalier in his evidence.

  12. Further meetings then took place in September and November 2000 at the latter of which Mr Chevalier handed a CD of drawings to Mr Shelley a mechanical design engineer at Honeywell. There was then a period between February and May 2001 during which drafts of what became the JCA were negotiated before a meeting on 17 May 2001 at which the JCA was finalised.

  13. On 6 July 2001 Mr Tom Cummings, the then project manager circulated an e-mail internally within Honeywell referring to the difficulty which Mr Shelley had had in transferring the data concerning the drawings from Auto CAD to Pro E and saying that what was proposed is that Mr Shelley should re-draw the drawings on Pro E ``from the bottom up'' in frequent consultation with Mr Chevalier. This drawing transfer was estimated to take nine months to one man year of work to carry out.

  14. In the six months or so after the JCA was entered, Honeywell held a number of meetings with OEMs to promote the ULS. Thus, on 9 July 2001, Honeywell had its first meeting about the ULS with Volkswagen. In August 2001, invitations were sent to a number of vehicle OEMs (including Nissan UK, BMW, Mercedes, Renault, PSA and Volkswagen) to view the latch at the Frankfurt motor show in September 2001. Before that show, meetings were also held with Jaguar and BMW. At the show various OEMs attended Honeywell's stand including Volkswagen, DaimlerChrysler and Mercedes.

  15. Starting on 11 October 2001, Honeywell had a series of meetings with MG Rover about the possible use of the ULS in their new RDX60 model, the projected replacement for the Rover 45. These culminated in a visit by MGR engineers to Newhouse on 11 and 12 February 2002 and, on 19 February 2002, Honeywell received a letter of nomination to supply the ULS to MG Rover for the RDX60. In the event, although a number of meetings took place between Honeywell and other OEMs in...

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