Automotive Latch Systems Ltd v Honeywell International Inc

A contractual obligation to take all reasonable actions without unreasonable delay to manufacture a product may include developing the product from its actual contractual starting point to a manufacturable design. Whether the obligation has been performed depends on objective assessment of all relevant circumstances, including the parties’ conduct, the information available and the causes of delay. A party cannot ordinarily terminate for historical breaches which are no longer continuing and capable of remedy. A contractual option to terminate for commercial non-viability may be relevant when assessing damages. Loss-of-chance damages remain unavailable where the alleged opportunity is wholly speculative.

ALS and Honeywell entered into a joint collaboration agreement for the development, manufacture and sale of a universal car-door latch. ALS purported to terminate the agreement under Article 10.1 in September 2003, and finally in December 2003, alleging breaches including delay, inadequate resources, defective project management and failure to develop the latch. ALS claimed substantial lost profits based on alleged lost opportunities with Volkswagen, Jaguar and other manufacturers.

The court determined the scope and standard of Honeywell’s contractual obligations, whether Honeywell was in breach, whether ALS’s termination was valid, and whether any recoverable loss had been established.

1. Construction of the JCA. Article 4.5 required Honeywell to take all reasonable actions without unreasonable delay to develop the latch for manufacture and to do so at a competitive cost. That obligation included developing the mechanical sub-assembly from its actual state when the agreement was made to a manufacturable design. It was not confined to the work expressly itemised in the Scope of Work.
2. The standard was objective. Honeywell was not to be judged as an experienced specialist latch manufacturer, but its substantial engineering resources and general competence were relevant. Assessment of reasonable time required a broad, hindsight-informed consideration of all circumstances, including the parties’ conduct, information supplied before and after the agreement, customer requirements, third-party involvement and the causes of delay. The parties’ agreed priorities and ALS’s control over design changes were material.
3. Honeywell was in breach only to the limited extent that drawing transfer took about two months longer than reasonably required and that revisions following a tolerance analysis were delayed by about two weeks. There were no extant breaches when ALS served its termination notice in September 2003. The intervening design difficulties were substantially attributable to the state of the latch and changes controlled by ALS. The failure to complete a full tolerance analysis or design review before the prototype build was not itself a breach.
4. Article 10.1 concerned present failures capable of remedy during the 30-day notice period. It did not permit termination for past breaches which had ceased and were not continuing. ALS therefore had no contractual right to terminate in September or December 2003. The limited earlier breaches were not repudiatory. ALS’s purported termination was wrongful.
5. Article 3.5 permitted either party to develop similar or competing products, provided that doing so did not materially breach the agreement. Honeywell’s investigation of an e-latch and possible designs around ALS’s patents did not establish breach. Article 10.3 also gave Honeywell a commercial-viability termination option. Had damages fallen to be assessed, the court would have considered that option, subject to Honeywell not acting arbitrarily or relying on its own breach.
6. ALS’s lost-profit claim failed independently because profit sharing had never been agreed and the alleged Volkswagen and Jaguar opportunities were highly speculative. The claim therefore disclosed no recoverable loss.

Order: ALS’s claim failed on liability, termination, causation and quantum.