Ads Aerospace Ltd v Ems Global Tracking Ltd

Hearing dates: 2–5, 9–11 and 17 July 2012

This case relates to an agreement between the parties for the exclusive distribution of satellite tracking devices for aeroplanes or helicopters. Unfortunately, the relationship between the parties broke down some three years into the agreement and thus it is that the parties find themselves in litigation. The case raises interesting issues about repudiation, acceptance of repudiation by conduct, contractual interpretation and estoppel by convention and representation as well as promissory or proprietary estoppel.

Satellite Tracking

Satellite tracking devices are used in different applications: land, marine, personnel and aviation. Although the technology used in each market is similar, aviation is different because the devices have to be tested, certified and approved to demanding environmental standards. The aviation devices are accordingly more expensive than those for other applications although the light aircraft sector of the market is somewhat cheaper being less regulated than airline aeroplanes.

Any satellite tracking device requires two distinct functionalities. It needs to know precisely where it is and it achieves this in the same way that any "SatNav" device does, by comparing its position with the GPS satellite array. The GPS system was originally a US military system, but is now used by civilian markets. Russia has its own system, called Glonass, which does the same thing albeit using slightly different technology and different satellites. Secondly, it needs to be able to communicate that position to the end user. It does this by sending data to a satellite, which then forwards it to a ground station. This is the "Sat- com" element of the device. Depending on the level of sophistication of the technology in the device, and the level of service that the user has paid for, the data can range from one way, infrequent, short data bursts and more recently into voice and broadband transmission. From the ground station the data can be distributed to the end user in a number of ways, most commonly nowadays by web based applications.

There are two principal satellite systems providing worldwide sat- com coverage: Inmarsat and Iridium. Inmarsat was founded in 1979 as an inter-governmental organisation in order to provide a sat- com network for shipping. The satellites were launched in the early 1980s and are positioned in geostationary orbit (that is, 22,000 miles above the earth's equator) and they travel at the same speed and in the same direction as the earth as it rotates on its axis; so from a specific location on the earth they appear to be stationary and effectively remain fixed in relation to any point on the earth's surface. A small number of satellites can provide global coverage (with the exception of the Polar Regions). In the early 1990s the International Maritime Organisation stipulated that all ships over 300 gross tonnes were required to carry an Inmarsat terminal that could send position reports, distress and telex messages. Inmarsat defined the necessary standard for the terminal (known as the "Inmarsat C" standard). One of the companies that produced an Inmarsat C terminal was Thrane and Thrane ("T&T"), a Danish company: its product was called the "Maritime C" terminal, and it sold in significant numbers. T&T decided to design an equivalent product for the aeronautical market, called the "Aero-C. The Aero-C was first produced in 1993 and remained in production until 2008.

The Iridium satellite constellation, by contrast to the Inmarsat system, comprises 66 satellites in low earth orbit (typically at an altitude of around 500 miles above the earth's surface). Iridium was conceived and launched by Motorola in the 1990s in order to provide mobile telephone services. In the event, other mobile phone service providers rapidly built base station networks in areas of high, and wealthy, populations: the Motorola model, although capable of providing mobile phone access globally (as opposed to having to be within range of a base station) was unable to compete on price, and was left with limited markets (oil exploration, disaster relief, search and rescue and military) which were insufficiently lucrative, and Iridium entered Chapter 11 bankruptcy protection in 2001, emerging in 2003. One of its main customers was and is the Department of Defence in the United States.

The respective merits and demerits of the two systems are the subject of much debate in the sat- com world, and indeed in this case, as the witness and expert evidence reveals. The principal points of contention are technical (coverage and availability) and political (because of Iridium's connection with the US, and in particular the Department of Defence). Both systems (Inmarsat and Iridium) therefore started life with a particular market in mind. In Inmarsat's case it was safety related maritime tracking, distress reporting and telex communication (that is, principally data communication). Iridium was initially intended to provide voice communication services for mobile phone users. In fact, both systems are now used to provide sat- com across the broad range of markets, that is: maritime, terrestrial, aeronautical and personal and in both data and voice. Iridium was until May 2012 unable to be used in Russia legally.

The end-user is the purchaser of a tracking device, called a terminal, which is installed on an asset (an aeroplane, a ship or vehicle) and enables the user remotely to monitor the status and location of the asset. Most end-users operate a fleet of assets, such as security companies tracking vehicles in the Middle East or fleet owners tracking their ships. The terminals, which are small pieces of hardware about the size of an A5 sheet of paper and about 5 centimetres deep, are fitted with GPS technology that enables them to communicate their position to orbiting satellites using radio frequency waves. The terminals are fitted with an operating script that enables the user to program the terminal for autonomous operation and set configuration parameters such as the rate at which messages are transmitted.

The satellite relays messages between terminals and an earth station that hosts the equipment cabinets owned by companies such as Satamatics Ltd ("Satamatics"), the former name of the Defendant. The antenna at the earth station is a large dish approximately 3 metres or more in diameter. An earth station converts the data to and from radio frequency signals suitable for transmission via satellite, and is the hub that communicates with the satellite, but it does not process user data as such. The earth station antenna is connected to a cabinet of electronics. The cabinet processes the messages received from, or to be transmitted to, the satellite. A number of cabinets can be connected to the same antenna and hence communicate with the same satellite. Each cabinet controls the air interface, which is the communication link between the satellite and the earth station. The cabinet uses the internet to send and receive the users' messages to Satamatics' data centres.

The data centres support the messaging applications through the temporary storage of user messages in both the send and receive directions. The data centres also support authentication and billing functions. Users access their data through web based application servers based at the data centre, or through their own application servers that connect to the data centre through a defined internet connection. The data formatted by the data centres is sent on to an internet application which the end-user can see on their computer. The application displays the messages sent from the terminal, including information on the location of the asset that it is fixed to. The end-user can also send messages from the application back to the terminal, using the same process but going the other way.

In order to access the satellites owned by Inmarsat or Iridium, companies such as Satamatics pay for airtime, which is effectively access to the satellite channels on the Inmarsat or Iridium network. The cost of obtaining access to the satellite network depends on how much bandwidth and power is required. There are a range of services providing different bandwidth and power; one of these services is the Inmarsat D+ service, which requires low bandwidth and low power. This makes it (relatively) low cost. Satamatics used the Inmarsat D+ service for the aeronautical tracking product that is the subject of this dispute. Having purchased airtime for the D+ service from Inmarsat, Satamatics passes the airtime costs on to its customers (in this case, ADS), with a mark-up, by billing them under a tariff system similar to those for mobile telephones: the higher the number of messages required, the higher the monthly airtime cost.

The Parties

Hans Karlsen is the founder and CEO of Airborne Data Services Limited and ADS (Aerospace) Limited, the Claimant in this action; I will refer to them both as "ADS". He is an expert in the aerospace industry and in particular the market for satellite communications. He has a degree in aeronautical engineering and an MBA from Witwatersrand University, and his entire career has been spent in aviation. Between 1986 and 1993 he worked for Inmarsat, the first provider of a global satellite constellation for mobile communications. At Inmarsat, in 1993 Mr Karlsen sponsored the necessary...