Globe Motors Inc & Ors v TRW Lucasvarity Electric Steering Ltd

On a strike-out application, the court must assess whether the pleaded claim has a realistic, rather than fanciful, prospect of success without conducting a mini-trial. Difficult issues of construction should be decided summarily where the contractual language and relevant factual matrix are sufficiently clear, but fact-sensitive disputes about variation, novation and the effect of a contractual no-oral-modification clause may require trial.

A long-term agreement requiring mutual agreement to engineering changes can nevertheless impose legally enforceable obligations, particularly where objective standards such as reasonableness provide a basis for assessing compliance. A subsidiary’s claim should not be struck out where agency and related factual issues remain properly arguable.

The defendant applied under CPR 3.4 to strike out substantial parts of the claim arising from an exclusive supply agreement for electric motors and leadframe assemblies. The claimants alleged that the defendant breached the agreement by sourcing second-generation products from another supplier.

The defendant argued that the contractual engineering-change process was merely consensual and imposed no binding obligations. It also argued that the second claimant, a subsidiary, could not claim because it was not a party to the agreement and that an entire-agreement clause prevented variation or novation.

The central issues were whether the engineering-change provisions were legally enforceable and whether the subsidiary’s contractual or agency claims had no realistic prospect of success.

1. Strike-out principles. The court applied the approach summarised in Attrill v Dresdner Kleinwort [2010] EWHC 1249 (QB) and approved on appeal in Attrill v Dresdner Kleinwort [2011] IRLR 613. A claim must have a realistic prospect of success, but the court must avoid a mini-trial and should hesitate to decide finally without trial where fuller factual investigation may affect the outcome.
2. Engineering changes. The agreement was a long-term written contract creating important reciprocal exclusivities. Article 4 was ambiguous but, read in context, required Globe to agree to engineering changes proposed by TRW and imposed legally enforceable obligations. The parties had to work together, use all reasonable efforts to minimise the effects of changes, provide information and reimburse reasonable costs. Objective standards of reasonableness supplied sufficient yardsticks for enforcement. The distinction between buyer-proposed and supplier-proposed changes reinforced that construction.
3. Porto’s claims. Claims based on variation or novation by conduct require clear and unequivocal conduct, and the alleged agreement must be obvious and necessary to explain the parties’ conduct. The court considered the relevant principles in Khatri v Cooperatieve Centrale Raiffeisen-Boerenleenbank BA [2010] IRLR 715, Interserve FM Ltd v Omnisure Property Management Ltd and Evans v SMG Television Ltd [2003] EWHC 1423 (Ch). Nevertheless, the pleaded dealings between Globe, Porto and TRW were sufficiently arguable. The agency claim could not be struck out and the related variation and novation issues were fact-sensitive.
4. Entire-agreement clause. The court declined to determine summarily whether Article 6.3 prevented variation or novation by conduct. The law was unclear, the alleged conduct involved complex dealings between three parties, and useful assumptions could not safely be made without disclosure and findings of fact. United Bank Ltd v Asif and World Online Telecom Ltd v I-Way Ltd were considered, as was Partco v Wragg [2002] 2 Lloyd’s Rep 343.
5. The strike-out application failed on both the construction ground and the claims brought by Porto. The pleadings required amendment and refinement, but the issues were to proceed to trial.