Rolls-Royce Holdings Plc v Goodrich Corporation
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 03 July 2023 |
| Neutral Citation | [2023] EWHC 1637 (Comm) |
| Docket Number | Case No: CL-2021-000052 |
| Year | 2023 |
| Court | King's Bench Division (Commercial Court) |
and
Mr Justice Foxton
Case No: CL-2021-000052
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Daniel Toledano KC, David Caplan and Michael Kotrly (instructed by Slaughter and May) for the Claimant and the Third to Tenth Parties
Simon Croall KC and Stewart Chirnside (instructed by Bristows LLP) for the Defendant
Hearing dates: 20, 24, 25, 27 April, 2, 11, 15 and 16 May 2023
Further written submissions: 6 and 15 June 2023.
Draft Judgment Circulated: 19 June 2023
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE Mr Justice Foxton
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Monday 03 July 2023.
The Honourable
A THE PARTIES AND THE ISSUES IN OUTLINE
The Claimant ( RR Holdings) is the holding company of the Rolls-Royce group of companies ( the Rolls-Royce Group), which group is engaged, inter alia, in the design, development, manufacture and sale of aircraft engines. The Third to Tenth Parties ( the RR Entities) are other companies in the Rolls-Royce Group.
The Defendant ( Goodrich) is part of a group of companies which supplies engine control products and aftermarket services in relation to Rolls-Royce aeroengines, and which is ultimately owned by Raytheon Technologies Corporation ( RTC).
On 31 December 2008, the two groups of companies formed a joint venture company (the Tenth Party or JVC). Various documents were entered into in relation to the joint venture, including:
i) A Put and Call Option Agreement dated 31 December 2008 entered into between Rolls-Royce Group plc ( RR Group) and Goodrich ( the PCOA) which would give RR Group the right to purchase Goodrich's aftermarket maintenance business ( the AM Package).
ii) Two agreements (the Aftermarket Services Agreement or ASA and the Agreement for the Supply of Goods and Work for Engine Repair Services or ECSURS) under which Goodrich was granted certain exclusivity rights in relation to the provision of engine control aftermarket services ( the Exclusivity Obligation).
The issues which arise at this trial are:
i) whether RR Holdings has validly exercised the PCOA call option by written notice of 8 October 2018 ( the PCOA Issues);
ii) whether the RR Entities are in breach of the Exclusivity Obligation ( the Exclusivity Obligation Issues); and
iii) whether the RR Entities are in breach of certain other provisions of the ECSURS ( the Other ESCURS Issues).
The subject-matters of the PCOA and Exclusivity Obligation and Other ECSURS Issues are substantially different, and they are addressed separately and sequentially in this judgment.
B THE PCOA ISSUES
B1 The Relevant Background
The PCOA
On 31 December 2008, a number of agreements were entered into between RR Group, then the holding company of the Rolls-Royce Group, and Goodrich in connection with the formation of the JVC. These included a joint venture agreement ( JVA) and the PCOA.
Clauses 6 to 9 of the JVA provided for circumstances in which Goodrich could require RR Group to buy its shares in the JVC, or RR Group could exercise a right to buy those shares. This included when there was a change of control in Goodrich (clauses 7.5 to 7.8).
Where RR Group exercised its right under the JVA to acquire Goodrich's shares in the JVC, it also became entitled under the PCOA to require Goodrich to sell it the AM Package – the Call Option. The option was only exercisable by serving a Call Option Notice during the Call Option Period which was defined, in relevant respect, as the period “commencing on the date on which [RR Group] has served on [Goodrich] a Buyout Notice” exercising its right to acquire Goodrich's shares in the JVC following a Change of Control of Goodrich, and terminating “on the earlier of: (i) the withdrawal or lapse of the Call Option in respect of such Buyout Notice; and (ii) the first anniversary of the date of such Buyout Notice”.
If the Call Option was exercised during the Call Option Period, then Goodrich was obliged to provide a package of information known as the Call Option Exercise Preliminary Information Documents to RR Group, who then had 40 days from the receipt of those documents to notify Goodrich whether it wished to withdraw the Call Option Notice. If it did not do so, then the parties were obliged to effect the sale of the AM Package from Goodrich to RR Group on a pre-agreed form of contract annexed to the PCOA, known as the Combined Asset and Share Purchase Agreement, or CASPA, for a price to be determined in accordance with a mechanism set out in the PCOA and the CASPA.
Clause 15 of the PCOA provided that neither party could “assign, transfer, charge or otherwise deal with all or any of its rights or obligations … under this Agreement …. without the prior written consent of the other party”, but that “if the proposed dealing is an assignment and if the proposed assignee is a party's Affiliate, such prior written consent shall not be unreasonably withheld or delayed”. It also provided that “any such purported assignment, transfer, charge or other dealing without the prior written consent of the other party shall be null and void”.
Clause 16 provided that “any release, delay or waiver by any party in favour of the other party of any … [of] its rights under this Agreement shall only be binding if it is given in writing”.
Clause 17 provided that “a variation of this Agreement (or of any of the documents referred to in it) is valid only if it is in writing and signed on behalf of [RR Group] and [Goodrich]”.
The Scheme of Arrangement
On 23 May 2011, a scheme of arrangement came into effect which replaced RR Group with RR Holdings as the holding company of the RR Group. The scheme was effected by a share transfer by which shareholders in RR Group received one share in RR Holdings for each share they held in RR Group, with RR Group becoming a wholly owned subsidiary of RR Holdings. The existing directors of RR Group, with the exception of Sir John Rose who retired, became directors of RR Holdings.
On 30 November 2011, a draft of a proposed amendment to the JVC and the PCOA was sent by Adrian Thompson of Goodrich to Gareth Hopkinson of Rolls-Royce, which was intended to address an issue which had arisen as a result of a proposed relocation of the base of operations of the AM Package, Mr Thompson stating “we look forward to receiving your comments/confirmation that it is acceptable to R-R”. The draft made no reference to RR Holdings. Mr Hopkinson responded with a mark-up on 1 December which introduced references to RR Holdings, and described the amendments as having been made under clause 26 of the JVA and clause 17 of the PCOA. The mark-up described the parties to the proposed amendments as including RR Group and RR Holdings, and included a signature block for RR Holdings as well as RR Group. Mr Thompson replied stating “the proposed edits to the ‘parties’ clause and ‘whereas’ section are all fine (assuming that [RR Holdings] is a party to the JVA by the time this amendment is signed)”, and he made the same comments about the amendments to the signature block.
On 31 December 2011, a Deed of Adherence was signed referring to the scheme of arrangement, confirming that RR Holdings was entitled to the benefit of, and obliged to observe, covenant, and be bound by, the terms of the JVA “as if each reference to RR Group in the Agreement was a reference to RR Holdings”. On the same date, “Amendment No 1” was signed on terms which included the references to RR Holdings introduced by Mr Hopkinson by both RR Group and RR Holdings (the same individual signing for both companies).
The Raytheon acquisition
In September 2011, United Technologies Group, now known as Raytheon Technologies Corporation or RTC, entered into an “Agreement and Plan of Merger” to acquire Goodrich. The proposed acquisition raised issues for the Rolls-Royce Group, both in relation to the JVC and in relation to the operation of the AM Package by Goodrich, and also competition issues in the USA because RTC owned Pratt & Whitney, a major manufacturer of aeroengines. The RR Group raised their concerns with the US Department of Justice ( DOJ) who brought proceedings against Goodrich and RTC intended to address competition concerns. In the event, following negotiations between all interested parties, those concerns were addressed by twin-tracks of activity:
i) contractual arrangements between the Rolls-Royce Group and Goodrich; and
ii) the terms of a “Proposed Final Judgment” ( PFJ) to which Goodrich and RTC consented, as a condition of the DOJ not objecting to the acquisition;
as part of a co-ordinated course of conduct.
Thus, on 7 June 2012:
i) RR Holdings and RTC entered into an agreement ( the 2012 Raytheon Letter Agreement) which referred to the PCOA which it described as an agreement between RR Holdings and Goodrich, and agreed that RR Holdings would enter into a letter agreement with Goodrich in agreed form ( the June 2012 Letter Agreement) and that RTC would procure that Goodrich also enter into the June 2012 Letter Agreement.
ii) RR Holdings and Goodrich entered into the...
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