Acrow (Automation) Ltd v R Chainbelt Inc.
| Jurisdiction | England & Wales |
| Judge | THE MASTER of THE ROLLS,LORD JUSTICE PHILLIMORE,LORD JUSTICE MEGAW |
| Judgment Date | 30 July 1971 |
| Judgment citation (vLex) | [1971] EWCA Civ J0730-1 |
| Date | 30 July 1971 |
| Court | Court of Appeal (Civil Division) |
[1971] EWCA Civ J0730-1
The Master of The Rolls (Lord Denning)
Lord Justice Phillimore and
Lord Justice Megaw
In The Supreme Court of Judicature
Court of Appeal
Appeal by plaintiffs from judgment of Mr. Justice Donaldson on 28th July, 1971.
Mr. Anthony Lincoln, Q.C., and Mr. David Donaldson (instructed by Messrs. Herbert Smith & Co.) appeared on behalf of the Appellant Plaintiffs.
Mr. L.J. Libbert (instructed by Messrs. Baker & McKenzie) appeared on behalf of the Respondent Defendants.
This case raises points of very considerable importance in international trade. Acrow (Automation) Ltd. is an English company carrying on business here. They manufacture many things, but we are particularly concerned today with their manufacture of a special automatic equipment for conveying goods. It is known as the "lo-tow" system. Acrow have, we are told, many orders for it awaiting execution. This equipment is manufactured here by Aero, under licence. It is a licence from an American corporation called the S.I. Handling Systems Inc. of Pennsylvania. I will call it S.I. It has patents covering the manufacture and sale of this equipment - or rather the greater part of it - both in the United States and in this country. It has an English subsidiary called S.I. Handling Systems Ltd. which negotiates business here.
On 28th December 1967 the American S.I. granted to Acrow Ltd. a licence giving to Acrow Ltd. the sole and exclusive right to manufacture the equipment in England and sell it here and in the Scandinavian countries and some others. Acrow Ltd. have to pay royalties on the articles manufactured under the licence. The licence was granted for five years at least. It could not be determined except by three months notice expiring on 31st December 1971, and then only if the royalties did not reach a prescribed minimum figure. The agreement provisions expressly that the agreement was made in England, it was to be read and construed according to English law, that it would be enforced in the Courts of England, and neither party would object to it being so enforced.
Now I turn to a particular part of the equipment. It is a chain which is essential to the use of the equipment. It is notmade In England, it is made in America by an American corporation, Rex Chainbelt Incorporated of Winconsin. This corporation has patents covering the manufacture and sale of this chain both in the United States and in England. It has an American subsidiary called Rex International Inc. Both the Rex companies carry on business here and have addresses for service here registered under the Companies Acts.
In order to manufacture the "lo-tow' equipment in England, Acrow order this special chain from Rex International Inc., who pass on the order to Rex Chainbelt in America. Rex Chainbelt then sent the chain over from Winconsin to England. Acrow Ltd. then incorporate this chain into the equipment so as to make it one working whole. The chain is an essential part. Acrow Ltd. cannot get on without it.
S.I. and Rex Chainbelt are very closely associated. It is said in the correspondence that S.I. paid for the tooling which is used by Rex Chainbelt in tracking the chains: and that In consequence S.I. can give directions to Rex Chainbelt telling them to whom they may, or may not, supply the chains. It Is not clear whether S.I. have a contractual right to give these directions or not. But it is clear that they assert such a right.
For the first three years of the licence, there was no difficulty? Acrow ordered the chains, as they needed them, from Rex International, who passed on the order to Rex Chainbelt. Rex Chainbelt then sent the chains over from Winconsin to England. Acrow used the chains in making the lo-tow equipment.
In February 1971 & dispute arose. It appears that S.I. wanted Acrow to promote some of their other products In addition to lo-tow: but Acrow were unwilling to do so. S.I.,then made up their minds to determine the licence agreement altogether before the term of live years expired. They wrote letters to Acrow purporting to determine the licence agreement immediately. In the first letter, dated 5th February 1971, S.I. recognised that the association between S.I. and Acrow had been "of the best", but said that they should try and find some other form of working arrangement. In the next letter, dated 10th February, 1971, S.I. purported to terminate the licence agreement, as from that date, by reason of breaches of the agreement. S.I. went on to give particulars of the alleged breaches. They had never complained of them before. It looks very much as if S.I. were putting forward these breaches as an excuse for terminating the licence. In any case the breaches were of a minor character. They did not go anywhere near the root of the contract such as to justify its termination.
Acrow refused to accept this letter as a termination of the licence. They replied on 22nd February, 1971, saying that they intended to continue to manufacture and sell the lo-tow equipment under the licence. S.I., however, still asserted that the licence had been terminated. They took two steps. In the first place, they wrote to customers of Acrow saying that the licence had been terminated. In the second place, they gave directions to Rex Chainbelt and Rex International telling them not to supply chains to Acrow. This, of course, was tantamount to destroying Acrow's business in this equipment. It was, I would think, a breach of contract. In the licence agreement, it was clearly an implied term that S.I. would do nothing to impede Acrow in the manufacture and sale of the lo-tow equipment. And yet here were S.I. stopping the supply of the chains which were an essential part of the equipment. Facedwith these steps, Acrow went to their solicitors, who took action.
On 5th May 1971 Acrow issued a writ in the Courts of this country against S.I. and its English subsidiary. The English subsidiary was served here and duly entered an appearance. S.I. was properly served out of the jurisdiction under the Rules in that behalf, but it did not enter an appearance. Acrow applied to the Court for an interim injunction. At the hearing, the English subsidiary gave an undertaking in the terms asked. The Judge, Mr. Justice Caulfield, made an injunction against S.I. in the terms asked. It is dated 15th June 1971:-
"It is ordered that the First Defendants'1 (that is S.I.) by themselves their servants or agents or howsoever otherwise be restrained and that an injunction is hereby granted restraining them from;-"
((a) (b) and (c) restrain them from telling customers that the licence had been terminated &c.) "(d) doing or procuring to be done any acts that impede the Plaintiffs in the manufacture fabrication assembly use and sale of the said products in the said Territories until after the further hearing of the said summons as aforesaid or until further order.
Acrow's solicitors immediately informed S.I. and Rex International of the injunction. But then a very serious thing happened. S.I. determined to ignore the injunction. They gave instructions to the Rex companies that chains were not to be supplied to Acrow. On the very day that the injunction was granted, 15th June 1971, the President of S.I. wrote to theVice-President of Rex International:
"Confirm our conversation when you called today, the proceedings in England are against an English company and have no bearing on either S.I. or Rex Chainbelt. Under no circumstances should you ship chain to Acrow until advised by us."
The President of S.I. was quite wrong. The proceedings in England were not only against the English subsidiary, they were also against the American parent, S.I. The licence agreement expressly gave jurisdiction to English Courts. The English Court had quite properly granted an injunction against S.I. restraining them from impeding Acrow in the manufacture and sale of the lo-tow equipment, i.e. from breaking an implied term in the licence agreement. S.I. were bound by this., injunction just as much as if it had been granted by United States Courts, It would be enforced by proceedings in the English Courts, as, for instance, by a writ of sequestration of the property of the S.I. in the United Kingdom. It would not be enforced directly in the Courts of the United States, but those Courts would, I have no doubt, out of comity, recognise the injunction, especially as it gave effect to a contract that was governed by English law and was expressly subject to the jurisdiction of the English Courts.
The directions given by S.I. to the Rex companies - ordering them not to supply chains to Acrow - were a plain breach of the injunction. They impeded Acrow in the assembly, use, and sale of the lo-tow equipment. They were also a plain breach of the implied terms in the licence agreement.
After the injunction was granted, Acrow ordered chains from Rex International, who passed the orders on to Rex Chainbelt.On 1st July 1971 Rex Chainbelt refused to implement the order. They wrote:
"We have been in touch with S.I. again since the injunction was issued, and it is still their position that we should not accept orders for the chain. if for any reason there should be a change in the attitude of S. I., we should be glad to resume shipments of this specific chain."
On 9th July 1971 the solicitors for Rex Chainbelt wrote to Acrow's solicitors:-
"The business, relationship between your clients and ours has hitherto been friendly, and our clients would be more than willing to supply your clients with Chainbelt if they were not prevented by their contractual arrangement with S.I. from doing so."
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