CRS GT Ltd v McLaren Automotive Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Phillips |
| Judgment Date | 23 November 2018 |
| Neutral Citation | [2018] EWHC 3209 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | CL-2017-000421 |
| Date | 23 November 2018 |
[2018] EWHC 3209 (Comm)
Mr Justice Phillips
CL-2017-000421
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
Graham Chapman QC and Simon Hale (instructed by Shoosmiths LLP) for the Claimant
Zoe O'Sullivan QC and Abra Bompas (instructed by Ashurst LLP) for the Defendants
Hearing dates: 11, 12, 16, 17, 18, 19 and 24 April 2018
Approved Judgment
The claimant (“CRS”) is a company in the business of designing, engineering and manufacturing Gran Turismo (or “GT”) series racing cars.
The defendants (“MAL”, “MGL” and “McAllico” respectively) are members of the McLaren group of companies, a leading automotive design, engineering and assembly specialist, producing and selling high performance road-legal vehicles and also GT racing cars. I will refer to the defendants collectively as “McLaren”.
These proceedings concern joint projects between CRS and McLaren for the design, construction and sale of two types of GT racing car, namely, the “GT3 car” and the “GT4 car”, each based upon McLaren road cars. The vehicles contain “carry over” parts from those cars, modified McLaren road car parts and a number of entirely unique parts (the modified and unique parts together being referred to as “non-standard” parts).
There are distinct disputes in respect of the GT3 car and the GT4 car. In relation to the GT3 car, the issue is whether, pursuant to the terms of a formal written contract dated 29 October 2010 (“the GT3 Agreement”) between CRS, McAllico 1, MGL and Cobra Group Limited (the latter two guaranteeing McAllico's and CRS's obligations respectively), CRS has the exclusive right to provide aftersales services to GT3 customers (including the exclusive right to sell non-standard parts) following the expiry of the GT3 Agreement 2. If so, CRS seeks an order for specific performance or alternatively damages in lieu of specific performance.
The dispute in relation to the GT4 car is whether CRS has the exclusive right to supply car sets for assembly and to provide aftersales services to GT4 customers, including the exclusive right to sell non-standard parts. However, the parties did not execute a formal contract for the design and production of the GT4 car. A Heads of Agreement (“the HoA”) was signed by CRS and MAL on 3 February 2016, which envisaged that a more detailed, formal contract would be agreed in relatively short order. No such formal contract was in the event agreed, but the project commenced nonetheless. Some sixteen months later, McLaren decided to bring CRS's involvement in the GT4 project to an end.
CRS' position is that the HoA was a binding contract in its own right, alternatively that a binding agreement was concluded at some point thereafter by conduct, providing that CRS has an exclusive right to provide non-standard parts for the GT4 car 3. CRS seeks
specific performance of this alleged right, alternatively damages in lieu of specific performance.McLaren contends that the HoA did not amount to a binding contract and has not become binding by reason of subsequent conduct. McLaren does accept the existence of a number of ad hoc contracts relating to the production of 44 GT4 cars and the supply of 87 sets of GT4 non-standard parts (“the Ad Hoc Contracts”). McLaren further contends that, if there was a contract concluded by conduct, then this did not grant CRS the exclusive right to supply non-standard parts. Finally, if there was a contract providing CRS the exclusive right to supply non-standard parts, specific performance is not an appropriate remedy nor should damages be granted for breach.
McLaren also accepts that, although not pleaded by CRS until late in the day, CRS is entitled to payment for its part in the GT4 project on a quantum meruit or unjust enrichment basis, such payment being in the amounts set out in a business case agreed between the parties and revised on 26 January 2017: indeed, McLaren has been making and continues to make payment to CRS on this basis. CRS applied at the end of its case to amend to add a far wider quantum meruit claim for benefits received by McLaren under the project (including increased value of its brand and increased sales of other cars). I refused that application, save to the extent that the proposed amendment added the claim already accepted by McLaren.
I note for completeness that McLaren pleaded (and pursued) a counterclaim for alleged defective performance of the Ad Hoc Contracts but abandoned it shortly before trial.
The facts
The GT3 project
In 2007 Chris Niarchos, the ultimate beneficial owner of the Cobra group of companies and a successful GT racing driver, and Andrew Kirkaldy, another talented racing driver with a degree in engineering, formed a sub-Formula 1 racing team based on a small existing team run by Mr Kirkaldy. In 2009 that team became known as CRS Racing. During that year CRS Racing had discussions with Chris Goodwin, the official development driver for McLaren, about a possible role in the development, design and sale of what would become the new McLaren GT3 car, based on the McLaren MP4-12C road car. In the Spring of 2010, with Mr Goodwin acting as an intermediary, CRS Racing entered into formal discussions with McLaren.
CRS was incorporated on 29 September 2010 as the vehicle which would contract with McLaren. Mr Niarchos holds 50% of the issued share capital of CRS through companies in the Cobra group. The other 50% is held by Mr Kirkaldy and Mr Goodwin in equal shares. All three are directors of CRS and Mr Kirkaldy is the Managing Director.
On 29 October 2010 the GT3 Agreement, extending to some 74 pages (including schedules), was executed as a deed. In outline:
12.1. CRS agreed to design and develop the GT3 car according to an agreed specification, with the “Principal Objective” of CRS being profitable and the car being capable of competing in and potentially winning championships in which it competes;
12.2. CRS also agreed to manufacture GT3 cars in volumes for which it received orders from McLaren in accordance with the agreed Business Plan;
12.3. CRS would sell the cars so manufactured to McLaren at 95% of the price at which McLaren would sell to customers;
12.4. McLaren would lend to CRS 30% of the maximum cash outflow set out in the Business Plan.
To facilitate the above arrangement, McLaren:
13.1. (in clause 3.5.1) granted CRS an exclusive, worldwide and royalty-free licence for the Contract Period (defined in clause 10.1 as continuing until 31 December 2016 unless terminated earlier) in respect of the McLaren Licensed Rights, namely: (i) the Intellectual Property Rights in the design and make up of the MP4-12C road car necessary to design, develop and manufacture the GT3 car and sell it only to McLaren; (ii) the right to use the McLaren name and logo to be depicted on the GT3 car to the extent directed by McLaren; and (iii) the right to use the name and logo of McLaren as part of the name “McLaren GT Racing” to describe the project and CRS;
13.2. (in clause 3.5.2) agreed that it would not, in respect of the Contract Period, grant a licence in respect of the rights granted to CRS to any third party, including any which would compete with CRS's supply of Customer Services and Support (which definition included race car parts and assemblies, engine sales/leases, and spares and update packages;
13.3. (in clause 3.6) agreed that during the Contract Period it would not give support to other teams and covenanted not to compete with CRS during the Contract Period.
However, the above agreements and restrictions were subject to “Exclusivity Exceptions” as follows:
“ 3.5.2…. Provided that McLaren shall have the right to grant such third party licence or to undertake such activities itself (but excluding racing): (i) in preparation for McLaren entering into a replacement for CRS in circumstances where McLaren reasonably believes this Agreement will terminate prior to the expiry of the Contract Period or within 12 months prior to the expiry of the Contract Period; or (ii) in circumstances where McLaren wishes to commission a new GT related project for a vehicle that is different to the GT Car and the parties are unable to agree commercial terms for such project (“Exclusivity Exceptions”).
The key provision in the GT3 Agreement, for present purposes, is clause 4.5.3, which reads as follows:
“ 4. CRS' Obligations
…
4.5 Sale and Purchase of GT Car
…
Clause 4.5.3 All after sale service and post sales customer interface shall be the responsibility of CRS including without limitation the Customer Services and Support and the provision of such parts and services after the expiry of this Agreement for period in accordance with market norms.”
CRS agreed that the GT3 project with McLaren would be their sole business:
“ 5.1 Business of CRS
CRS agree with McLaren that the design, development, manufacture and sale of the GT Car and the delivery and sale of track support for the GT Car, spares packages for the GT Car, repairs of the GT Car and update packages for the GT Car will at all times be the sole business of CRS.”
Specific provision was made for tooling during “ the continuance of this Agreement” as follows:
“ Tooling 7
7.1 In order to fulfil its obligations under this Agreement, CRS shall acquire for its own account such items of capital equipment, plans, moulds, jigs, fixtures and templates that are created specifically to enable individual components to be manufactured/modified for the GT Car (“Tooling”). Tooling shall also be deemed to include such items purchased in...
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