Aventis Agriculture Limited v Horstine Farmery Limited

In construing an exclusive supply clause, the defined Products may remain the individual component supplied, even though competitiveness must be assessed in the commercial setting in which that component is used. Where it has no practical use outside an identified system, price competitiveness is not confined to the supplier’s invoice price. The comparison may include system-wide consequences, including unavoidable costs of necessary components, reduced efficiency or working life, and royalties payable on a rival system. Contemporary dealings may confirm that a system-by-system comparison was intended where the contractual language is unclear. A new argument on appeal contradicting a common ground below may be refused and, in any event, failed on the merits here.

The appellant challenged a decision of His Honour Judge McGonigal in the Queen’s Bench Division, Leeds Mercantile Court, dated 26 June 2000. The judge construed clause 2.3.3 of an exclusive supply agreement and held that the purchaser remained obliged to buy exclusively from the respondent. He awarded damages of £1,163,198.30.

The appellant argued that competitiveness had to be assessed by comparing the individual Surefill valve with the rival Lock ’n’ Load valve. It also sought to raise a new argument that royalties payable in relation to the rival valve should be excluded because they were not manufacturing costs. The central issues were the proper scope of the contractual comparison and whether the new argument should be admitted.

Appeal dismissed. The court upheld the first-instance construction of clause 2.3.3. Dyson LJ agreed with Waller LJ. Wilson J also agreed and gave additional reasons based on the commercial context and the parties’ contemporary dealings.

1. Meaning of Products. The defined term referred to the Surefill granules valve device manufactured and supplied by Horstine. It did not extend to the complete closed-transfer system. The reference to manufacturers of valve systems performing the same or a substantially similar function did not enlarge the contractual subject matter beyond the valve.
2. Meaning of competitive terms. Competitiveness as to price, quantity, quality and delivery could not be assessed by examining the valve in isolation. Each valve had no practical use except as part of its identified system. The commercial comparison therefore required consideration of the actual consequences of adopting one system rather than the other.
3. Relevant costs and effects. The assessment could include the knock-on effects of using a valve, the costs of necessary components, reduced efficiency or working life, and royalties payable when the rival valve was adopted. A royalty was a cost flowing from the choice of the rival valve and system, regardless of whether it was technically a manufacturing cost.
4. Commercial context. The wording was unclear enough to permit consideration of the parties’ contemporary analyses. Those materials consistently compared the overall costs of the Surefill and Lock ’n’ Load systems and supported the construction adopted by the court.
5. Manufacturers’ point. The appellant was not entitled to introduce the royalty argument for the first time on appeal, particularly since the issue had been common ground below. The argument also failed on the merits under the proper construction of the clause.

No order was made immediately. Counsel were directed to lodge further written submissions, including submissions on costs.

1. Court of Appeal (Civil Division) — The appeal was dismissed in substance. The first-instance construction of clause 2.3.3 was upheld, and the proposed new manufacturers’ point was rejected. [2001] EWCA Civ 1500.
2. Queen’s Bench Division, Leeds Mercantile Court — His Honour Judge McGonigal held on 26 June 2000 that the purchaser remained bound by the exclusive supply obligation and awarded damages of £1,163,198.30.