Rafael Advanced Defense Systems Ltd v Mectron Engenharia, Industria E Comercio SA
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 27 March 2017 |
| Neutral Citation | [2017] EWHC 597 (Comm) |
| Date | 27 March 2017 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000145 |
[2017] EWHC 597 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: CL-2017-000145
Zoe O'Sullivan QC (instructed by RPC) for the Claimant
Paul Stanley QC (instructed by K&L Gates LLP) for the Defendant
Stephen Houseman QC (instructed by Clifford Chance LLP) for the Notified Third Parties
Hearing date: 16 March 2017
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.
On 3 March 2017 Phillips J. granted the Claimant a without notice injunction restraining the Defendant from, inter alia, divulging confidential intellectual property to third parties. The Defendant and two third parties who were notified of the injunction oppose the continuation of the order. This is my ruling on the question whether the injunction should be continued until final arbitral award.
The Claimant ("Rafael"), an Israeli company, is the developer of communications technology and hardware known as BNET. The Defendant ("Mectron"), a Brazilian company, entered into a contract with the Brazilian Air Force ("FAB") in June 2012 for the provision of a communications system ("the LBR2 project"). It is common ground that contract ("the Prime Contract") contemplated that Mectron would use Rafael's BNET technology. At about the same time Rafael and Mectron entered into a non-disclosure agreement. On 1 May 2013 Rafael entered into a contract with Mectron for the supply of BNET ("the Supply Contract").
In early 2015 Odebrecht (the parent company of Mectron) entered into discussions with Rafael for the purchase of Mectron's communications business. Those negotiations ended in March 2015 because the parties could not agree on price. At the end of 2015 Odebrecht announced that it was looking for an investor in the whole of Mectron. When it was decided that that was not possible Odebrecht decided in March 2016 to pursue the sale of Mectron's communications business. Elbit, another Israeli company and a competitor of Rafael, concluded a letter of interest with Odebrecht giving Elbit an exclusivity period to complete a deal. In April 2016 Rafael learnt of rumours that Odebrecht was seeking to conclude negotiations with a potential buyer, AEL, another Brazilian company, but one which had a relationship with Elbit.
On 19 May 2016 Mectron and AEL concluded a share purchase agreement. The communications part of Mectron's business was to be transferred to a newly created company and AEL would then purchase the shares in that company. The share purchase agreement provided for certain agreements to be assigned including the Prime Contract. The Supply Contract between Rafael and Mectron was not, however, amongst those contracts to be assigned. A clause in the agreement contemplated that the Supply Contract might be terminated by agreement but if that were not possible payments would be made by AEL to Mectron compensating it for payments made to Rafael in which case the deliverables received by Mectron under the supply contract would be transferred. However, if such transfer was not "permitted" then Mectron would refrain from transferring them and would not use them for any purpose.
In June 2016 representatives of Rafael sought to discuss a way forward with FAB involving collaboration between AEL and Rafael with protection of Rafael's intellectual property rights in the BNET technology. In July 2016 representatives of Rafael met with FAB at the Farnborough Air Show and raised the possibility of a joint venture between Rafael and Stefanini (another Brazilian company) and FAB.
On 19 July 2016 by letter Rafael sought assurances from Mectron that Rafael's confidential information disclosed to Mectron under the Supply Contract between Rafael and Mectron would be protected.
On 8 August 2016 Rafael informed FAB that it intended to propose the acquisition of Mectron's communications business by Rafael and Stefanini. But on the same day the Brazilian competition authority, CADE, approved the Mectron/AEL sale. That approval was challenged by Rafael on 23 August 2016 but CADE rejected the challenge.
In September 2016 Rafael met with FAB and urged FAB to reject the Mectron/AEL sale.
On 14 September 2016 Mectron replied to Rafael's letter of 19 July 2016. Mectron confirmed that "is in full compliance with all its confidentiality and non-disclosure obligations, including those arising from the Supply Contract executed with Rafael."
On 23 December 2016 a meeting took place between Rafael and COPAC, another Brazilian agency. COPAC said that it intended to approve the Mectron/AEL sale "as long as the BNET technology was retained." COPAC expected Rafael and Elbit to seek agreement as to how Rafael could continue to provide the BNET technology.
On 1 January 2017 a meeting took place between the CEOs of Rafael and Elbit in Israel. Although Elbit suggested that they would use Rafael's technology and would protect its intellectual property rights no agreement was reached.
On 2 January 2017 AEL advised Rafael by letter that it had agreed to buy Mectron's communications business including the Prime Contract between Mectron and FAB. AEL asked for Rafael's assurance that Rafael would continue to supply "the best and most compete technological solutions under the Sub-contract and will support Mectron Com in the program." Rafael replied on 9 January 2017 that the matter would be discussed between the CEOs of Rafael and Elbit.
On 19 January 2017 there was a meeting in Brazil between Rafael, Stefanini and FAB during which FAB was pressed to prefer the proposed Rafael/Stefanini joint venture. There was also a meeting with Odebrecht concerning Rafael's wish to purchase Mectron's communications business. Odebrecht was unable to discuss such a proposal before 15 March 2017.
On 7 and 8 February 2017 there were discussions between Rafael and Elbit but no agreement was reached. Rafael told Elbit that Rafael was on the point of seeking an injunction. On 13 February 2017 Rafael wrote to COPAC raising its IP concerns and repeating the joint venture proposal. On the same day FAB wrote to Mectron giving its conditional and informal consent to the Mectron/AEL sale.
On 20 February 2017 there was a meeting at COPAC's offices in Brasilia between Rafael and COPAC. Rafel was informed that COPAC had approved the sale to AEL "on the express basis that AEL must deliver LBR2 according to its current specification i.e. including Rafael's BNET technology."
On 21 February 2017 amendments were made to the Mectron/AEL share purchase agreement whereby the parties acknowledged the need to protect third parties' IP rights and for key employees to sign Non-Disclosure Agreements. Certain Mectron employees who had been trained in Israel were eliminated from the list of key employees.
On 22 February 2017 Rafael made clear to AEL that it did not consent to any assignment of the Supply Contract between Rafael and Mectron to AEL.
Also on 22 February 2017 (though the letter is in fact dated 19 February 2017) Rafael wrote to Mectron. This was the first communication between Rafael and Mectron since 14 September 2016. Rafael made clear that it did not consent to any assignment of the Supply Contract to AEL and requested an undertaking that Mectron would not assign that contract. Rafael reserved its right to seek injunctive relief. Although no undertaking was sought protecting Rafael's IP rights it is clear from the terms of the letter ("there is substantial deployment of our Confidential Information and Background Intellectual Property…within the performance between us of the Supply Contract") that protection of such rights was Rafael's concern.
The final event on a busy 22 February 2017 was that the Mectron/AEL sale was closed.
No reply was received by Rafael to its letter to Mectron. That was probably because of the Brazil Carnival which had started on or about 17 February and continued to 5 March 2017.
In the meantime Rafael applied to the Commercial Court in England seeking without notice interlocutory relief against Mectron, though informal notice of the application had been given on 2 March 2017. This court made an order on 3 March 2017 restraining Mectron from assigning the Supply Contract and from permitting AEL or Elbit from using Rafael's IP rights as defined in the Supply Contract. That order was served that day by email.
On 6 March 2017 Mectron replied to Rafael's letter dated 19 February (but sent on 22 February). Mectron confirmed that it "will not assign any rights or delegate any duties under the Supply Contract to any third parties without the previous consent from Rafael, pursuant clause 33 of the Supply Contract." Mectron added: "Furthermore, as already stated in our letter of September 14, 2016, we confirm that no Confidential Information or Background Intellectual Property of Rafael, in connection with the Supply Contract, has been transferred, assigned, or disclosed to any third parties." Although I was invited to draw adverse inferences from Mectron's failure to mention the injunction I was not persuaded that it was appropriate to do so. The letter was a response (although delayed, probably because of the Carnival) to Rafael's letter dated 19 (22) February and it seems to me possible that it was thought appropriate to reply to that letter first before responding to the injunction which would no doubt require legal advice.
On 7 March 2017 Rafael wrote to FAB saying that it...
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