Globe Motors, Inc & Ors v TRW Lucas Varity Electric Steering Ltd (Rev 1)

A long-term exclusive supply agreement may cover products which evolve during the life of the relevant vehicle platform. “Engineering Changes” means changes to the specifications or other requirements relating to existing products. The boundary between an engineering change and a new product is a question of fact and degree. A buyer may require engineering changes under a collaborative contractual mechanism, although the parties must work together reasonably. Where the supplier could and would have developed a direct substitute using engineering changes, the buyer must source its requirements from that supplier. A contractual requirement for written amendments may be varied by conduct where the evidence is clear. In a conventional commercial contract, volume estimates did not ordinarily create a separate tortious duty of care.

The claimants brought contractual and negligent-misstatement claims arising from an exclusive supply agreement dated 1 June 2001. The agreement concerned electric motors and leadframe assemblies for specified vehicle platforms and required the defendants to purchase their requirements from the claimants.

The defendants later developed and purchased Gen 2 motors from another supplier. The central contractual issues were whether Gen 2 products fell within the agreement, whether the claimants could and would have developed a substitute by engineering changes, and whether the defendants thereby breached their exclusivity obligations. Further issues concerned the liability of a parent company, the contractual status of the Portuguese subsidiary, estoppel, damages and alleged negligent volume representations.

1. Construction. The expression “Engineering Changes” referred to changes in the specifications or other requirements relating to the Products. It was not confined to minor or incremental alterations. The boundary between an engineering change and a new product was a question of fact and degree. The agreement did not incorporate either party’s internal engineering-change procedures.
2. The definition of “Products”, read with the long-term and exclusive nature of the agreement, was not limited to the products existing at the outset. Products which evolved from the Gen 1 motor through Article 4 could remain within the agreement. The reference to a 38Nm system did not limit the Renault P1 commitment to systems having precisely that rating.
3. Article 4.1 obliged the supplier to agree to engineering changes proposed by the buyer, subject to the collaborative and reasonableness standards arising from the agreement. The court could not compel collaboration, but could determine the parties’ rights and award damages if collaboration broke down.
4. On the hypothetical evidence, the claimants could and would have developed a suitable Gen 2 motor within an acceptable period. Although it would not have met every written specification of the other supplier’s motor, it would have been a direct substitute. The defendants were therefore obliged to purchase the relevant requirements from the claimants and breached the agreement by purchasing the Gen 2 motors elsewhere. The claimants were entitled in principle to compensatory loss-of-profit damages. Further argument was required to assess quantum, provisionally on a revised Pinto B approach.
5. The second defendant was not liable because it was not a party to the agreement and the claimants were not parties to the business-transfer arrangements. The second claimant had, however, become a contracting party by clear and consistent conduct. The written-amendment clause did not prevent that variation.
6. There was no estoppel. The negligent-misstatement claim failed because no duty of care arose in the circumstances of this conventional agreement between sophisticated commercial parties. The claimants’ contractual claim succeeded; the claim against the second defendant and the negligent-misstatement claim failed. A further hearing was directed on damages and consequential matters.