ADS Aerospace Ltd v EMS Global Tracking Ltd

A contractual obligation to supply products on order does not ordinarily require a manufacturer to maintain stock. Where a contract covers derivatives, a product becomes a derivative only when it has reached a stage at which it can effectively be manufactured or supplied; designs and a prototype are insufficient. A party is not obliged to develop a derivative unless the contract so provides. Estoppel by representation requires a representation of fact, reliance and detrimental alteration of position. Promissory estoppel cannot create new contractual obligations. A repudiation must be accepted clearly and unequivocally. Mere inactivity, failure to place further orders or acquiescence will generally be insufficient.

The claimant was the exclusive worldwide distributor of satellite-tracking equipment manufactured by the defendant under an agreement. The agreement covered the SAT-111 product and any future derivatives, required supply against orders, and provided for 12 months’ notice before cessation of manufacture.

The defendant developed a SAT-221 prototype after concerns arose about the availability of components used in the SAT-111. The parties did not reach a binding agreement to proceed with commercial production. The defendant later gave notice that it intended to cease manufacturing the SAT-111. The claimant alleged breach, repudiation, estoppel and loss of opportunity, contending that the SAT-221 was a contractual derivative.

The principal issues were whether manufacture of the SAT-111 had ceased prematurely, whether the SAT-221 was a derivative, whether any form of estoppel arose, and whether any repudiation had been accepted.

1. Claim dismissed. Judgment was entered for the defendant.

2. The agreement required the defendant to respond to orders within a reasonable time, allowing for manufacture and assembly. It did not require the defendant to maintain stocks of SAT-111 units. The claimant was itself required to maintain stocks and provide forecasts. The defendant had not ceased manufacturing the SAT-111 before giving notice on 30 July 2008. It had sufficient components to meet any realistically foreseeable orders.

3. The contractual reference to future derivatives was a matter of fact and degree, principally concerned with functionality and concept. A product became a derivative only when it had been developed to a stage at which it could effectively be manufactured or supplied. The SAT-221 remained a prototype and design-stage project. It required trials, possible adjustment or re-engineering, further documentation and certification. It was therefore not a contractual Product, and the defendant never became obliged to manufacture or supply it.

4. The discussions concerning the SAT-221 were at most an informal, subject-to-contract arrangement. They did not vary, waive or abandon the written agreement, particularly in view of the clause requiring modifications to be in writing signed by both parties.

5. No estoppel arose. The parties did not share an assumption that the SAT-111 was finished or that the SAT-221 would necessarily replace it. The claimant knew that the prototype remained subject to technical and commercial decisions. There was no sufficient representation of fact, reliance or detrimental alteration of position. Promissory estoppel could not create an obligation to develop and supply a new product.

6. There was no material breach or repudiation. In any event, any possible anticipatory breach concerning supply of SAT-111 units was overtaken by the formal notice, which confirmed that orders during the notice period would be met. The alleged acceptance by conduct also failed. Acceptance of repudiation must be clear and unequivocal. The absence of further orders was equivocal, and continued payment for airtime and requests for technical support indicated that the agreement was treated as continuing.

7. Any damages would in any event have required substantial reduction because the alleged sales opportunities were speculative and insufficiently corroborated.