Rolls-Royce Holdings Plc v Goodrich Corporation & Ors

An option may be transferred by novation inferred from conduct where that inference is necessary to provide a lawful basis for the parties’ dealings. Written agreements may satisfy contractual consent and formalities requirements, or support waiver of them. An option-period extension ordinarily extends the time for exercising the option unless clear words provide otherwise. Where expiry depends on the parties’ determination of a future event, the determination requires a mutually manifested position. Contractual damages assume performance of the breached obligation, not a hypothetical variation or steps avoiding breach. Initial Provisioning requires Spares ordered for a particular operator’s fleet. Pool stock does not qualify, although units ordered for a specific operator’s initial store may do so. A contractual price debt ordinarily accrues on delivery and transfer of property.

RR Holdings sought declarations that it had validly exercised a call option under the Put and Call Option Agreement and an order requiring Goodrich to provide the associated information documents. Goodrich disputed the option’s validity, relying on the identity of the contracting party, contractual formalities, the effect of later agreements and Governmental Approval provisions.

Goodrich also claimed damages, injunctive relief and payment of the difference between the contractual and invoiced prices for engine-control units supplied for Rolls-Royce’s Parts Availability Service. The central issues were whether the option was validly exercised, whether the service breached the exclusivity provisions, what constituted Initial Provisioning, and whether the unpaid contractual price was recoverable as a debt.

Call option

1. The court held that RR Holdings had become the party entitled to exercise the option by novation inferred from conduct. Applying Evans v SMG Television Limited [2003] EWHC 1423 and Musst Holdings Limited v Astra Asset Management UK Limited [2023] EWCA Civ 128, the necessary inference from the parties’ dealings was that RR Holdings, not RR Group, was the contractual party. The Letter Agreements also supplied written consent or waiver of the relevant formalities. The alternative contractual-estoppel analysis was accepted, but was expressly unnecessary to the result.
2. The December 2017 Letter Agreement extended the period during which the option could be exercised. The contemporaneous agreements had to be read together, and the option did not expire merely because the Modified Right to Purchase had not yet become unconditional.
3. The Governmental Approval defence failed. The relevant clause did not cause immediate expiry upon a predictive assessment that approval would not be obtained by the Longstop Date. A determination required a mutually manifested position. Although both parties had reached the relevant views, Goodrich had not communicated its position before the option notice took effect. RR Holdings was therefore entitled to declarations that the option had been validly exercised and to delivery of the preliminary information documents.

Exclusivity and Initial Provisioning

1. The exclusivity obligation was co-extensive with the services Goodrich was obliged to provide. The definition of Aftermarket Services contained the relevant rework and Spare Parts elements, including Initial Provisioning, but did not prohibit Rolls-Royce from offering a wider customer package where the relevant rework was performed by Goodrich and the relevant units and parts were sourced from Goodrich. Direct supply to the customer was unnecessary. The Parts Availability Service was not an Exchange Service under section 3 of the ECSURS.
2. Initial Provisioning meant Spares ordered in support of a particular operator’s fleet. General pool stock was not Initial Provisioning, and later use of a pooled unit to back-fill an operator’s store could not change its character. Units ordered to establish a specific operator’s initial on-site store did qualify. The evidence supported 116 such units, while the remaining relevant pool units did not.
3. The notification provisions concerning Initial Provisioning had been varied by the parties’ conduct. Goodrich’s claims for exclusivity damages, an injunction and specific performance therefore failed.

Price and final orders

1. Contractual damages for breach of a negative covenant had to be assessed on the basis that the covenant was performed, not on a hypothetical variation permitting the conduct. The court rejected the proposed Parts Availability Service counterfactual.
2. Clause 11.1 required the correct price to be specified in each Spares Order. Under the Sale of Goods Act 1979 and the ECSURS, property and delivery ordinarily gave rise to the price debt. Clause 9.5 did not make an accurate invoice a condition of accrual. World List Price was therefore payable for 321 units, producing a debt of US$112,285,440. A late amendment advancing the debt claim was permitted because the essentials were already in issue and no adjournment or reopening of evidence was required.