Days Medical Aids Ltd v Pihsiang Machinery Manufacturing Company Ltdand Others

Hearing dates: 27 th October to 17 th November and 9 th and 10 th December 2003

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

INTRODUCTION

The Claimant ("DMA") seeks substantial damages from the Defendants for the alleged wrongful repudiation by the first Defendant ("Pihsiang") of an Agreement dated 6 February 1996 ("the Agreement") by which DMA and Pihsiang agreed that DMA should be the exclusive distributor throughout the UK and mainland Europe of Pihsiang's "entire range of scooters". The "scooters" are intended for use by people with mobility restrictions and are small battery driven vehicles. That is reflected in the sort of price a retail customer could expect to pay today for a new scooter (£850 rising to £4000 plus) and the trade name Pihsiang gave them, "Shoprider" reflecting one of the promoted uses of the scooters, to provide a powered means of access from the home to the shops.

The Agreement was expressed (Clause 1) to be for "the initial period" of a "five year term commencing on the date of signing". By Clause 10 it was provided that:

"DMA will endeavour to increase sales year on year. On the expiry of the first five year term of this agreement provided that DMA has discharged its obligations under the agreement and is maintaining a sales level of not less than 5000 units per annum, DMA shall have the right to renew the agreement for another five years on the same basis as herein, except that the amount payable each year under Clause 2 shall be US $20,000. This right of renewal shall extend to all subsequent five year periods on the same basis for as long as permitted by law."

The "amount payable each year under Clause 2" by DMA to Pihsiang was expressed to be $221,600 in each of the five years of the initial term. A copy of the Agreement as executed is attached to this judgment together with the side letter by which DMA agreed to pay the five payments of $221,600 in a single sum of $1,108,000 on commencement of the Agreement and similarly to pay the five payments of $20,000 on each five year renewal in one payment of $100,000 on the first day of each five year term. The Agreement provided (Clause 13) that it was governed by English law.

The Agreement expressly provided that it was made between DMA, Pihsiang and the second and third named Defendants, to whom I shall refer, as the parties did, as Mr and Mrs Wu. Mr and Mrs Wu each signed the Agreement which recorded in the recital that they also undertook the obligations of Pihsiang under the Agreement and undertook "not to do anything directly or indirectly or omit to do anything that contravenes this agreement". Hence DMA's claims are also made against Mr and Mrs Wu personally.

The initial term of the Agreement expired on 5 ^th February 2001. There are issues as to whether it was validly renewed by DMA under Clause 10. If it was, there is no dispute that by 26 April 2002, when DMA's solicitors wrote accepting Pihsiang's alleged repudiation of the Agreement, Pihsiang was indeed in repudiatory breach by reason of supplying scooters to other distributors in Europe. Indeed it is now known Pihsiang had in fact been doing so since November 2000 and increasingly thereafter.

THE ISSUES

The principal issues which arise, as agreed by the parties during the course of the hearing, were as follows. Insofar as pleaded issues are not included it is because they were abandoned. Examples are the implied terms alleged in Pihsiang's defence (paragraph 18) and many of the allegations of breach made by Pihsiang against DMA. The major issues concerning validity of the Agreement were first raised only by amendment to Pihsiang's Defence in September 2003.

THE AGREEMENT

(1) Parties

Are the Second and/or Third Defendants (Mr and Mrs Wu) parties to the Agreement? In particular:

(a) Is the Agreement void as against them on the grounds of non est factum?

(b) Is DMA estopped by representation from alleging that Mr Wu and/or Mrs Wu are individually bound by Pihsiang's obligations under the Agreement?

(2) Construction

On a true and proper construction of Clause 10 of the Agreement, what are the pre-requisites to renewal by DMA under that clause?

Without prejudice to the generality of 1.2 above, what is the meaning of the phrase "discharged its obligations" in Clause 10 of the Agreement? In particular (but without limitation):

(a) does this refer to substantial compliance;

(b) is it concerned with material obligations and

(c) does it refer to the obligations in Clauses 1–10 of the Agreement only or also to the "Further Obligations" in clause 11 ?

Upon a true and proper construction of Clause 11 (and as necessary any other relevant terms) of the Agreement, what relevant or material obligations were placed on DMA in relation to performance?

(3) Scope/variation

Whether the Agreement was varied by conduct so as to cover both scooters and power chairs within its terms.

Whether the Defendants are estopped from denying that the Agreement extended to cover both scooters and power chairs.

(4) Validity

(a) Restraint of trade

Was the Agreement when made one to which the restraint of trade doctrine applied?

If so, has DMA established that the terms of the Agreement were reasonable as between the parties?

If DMA has not done so:

(a) Can and should the Court sever any part of the Agreement so as to render the remainder of the Agreement valid and enforceable against the Defendants?

(b) Is the Court precluded from applying the restraint of trade doctrine as a matter of EC law and, if so, to what extent and for what period ?

(b) Article 81

Whether the Agreement (as renewed from time to time or at all) fell or would have fallen within Article 81(1):

(a) did the Agreement have as its "object" the prevention, restriction or distortion of competition?

(b) did the Agreement have as its "effect" the prevention, restriction or distortion of competition?

If the Agreement was or would have been prohibited by Article 81(1) EC, would it have benefited from exemption under Article 81(3) pursuant to a block exemption regulation. In particular,

(i) Does the Vertical Agreements Block Exemption Regulation 2790/99 apply?

(ii) For the purposes of calculating the relevant market share under that Regulation, what is the relevant product and geographic market in relation to the Agreement?

(iii) Whether DMA's share of the relevant market under the Regulation in the period 1996–2015 was or would have been under or over 30%.

(iv) Does the Exclusive Distribution Block Exemption, Regulation (EEC) No. 1983/83 apply ? If so, did the Agreement fall within it ? What are the consequences if the Agreement failed to fall within it?

Would the Agreement have benefited from a retrospective individual exemption and/or been judged by the Court to fulfil the conditions laid down in Article 81(3) ?

If part only of the Agreement was void or unenforceable for violation of Article 81(1), is such a part severable from the remainder of the Agreement?

PERFORMANCE OF THE AGREEMENT

To what extent (if at all) did DMA fail to comply with its obligations under the Agreement? In particular, did DMA breach its obligations under Clause 3 of the Agreement by failing to promote sales to the best of its ability in countries in the Annexe to the Agreement other than the UK?

Was the effect of any such failure to deprive DMA of the right to exercise its option under Clause 10 of the Agreement to renew the Agreement for a further 5 year term in February 2001?

RENEWAL OF THE AGREEMENT/ESTOPPEL/WAIVER

Did the Defendants waive any such breaches as are established or did the Defendants act, by way of acquiescence or otherwise (including agreement or acceptance by conduct), such that the Agreement was renewed in any event and/or DMA remained entitled to renew the Agreement?

If, as at February 2001, DMA was not entitled to renew the Agreement, are the Defendants nonetheless estopped from denying either that DMA was entitled to renew and did renew the Agreement under Clause 10 in February 2001 or estopped from denying that the terms on which the parties continued to contract after February 2001 were on the terms of the Agreement as renewed? In particular:

(a) Did the Defendants represent to DMA that they accepted that the Agreement had been renewed?

(b) Did DMA act in reliance or intended reliance upon the statements and conduct of the Defendants or on a common assumption and/or to its detriment and, if so, what (if any) was the legal effect of it so doing?

(c) To what extent, on what basis and to what legal effect did DMA continue to act as distributor for Pihsiang after February 2001?

BREACH/REPUDIATION OF THE AGREEMENT

Did the Agreement terminate on 6 February 2001?

DMA's LOSS AND DAMAGE

Has DMA suffered loss and damage as set out in the Amended Particulars of Claim and Amended Reply and, if so, what loss and damage and to what extent is it recoverable from the Defendants?

Was any loss and damage proved by DMA caused by (and otherwise sufficiently proximate...