SSL International Plc and Another (Claimants/Appellants) v TTK Lig Ltd and Others

JurisdictionEngland & Wales
JudgeLord Justice Stanley Burnton,Lady Justice Arden,Lord Justice Mummery
Judgment Date19 October 2011
Neutral Citation[2011] EWCA Civ 1170
Docket NumberCase No: A3/2011/1850 & A3/2011/2040
CourtCourt of Appeal (Civil Division)
Date19 October 2011

[2011] EWCA Civ 1170

[2011] EWHC 1695 (Ch)

[2011] EWHC 2045 (Ch)

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Mr Justice Mann

Mr Justice Peter Smith

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Mummery

Lady Justice Arden

and

Lord Justice Stanley Burnton

Case No: A3/2011/1850 & A3/2011/2040

Between:
SSL International PLC
LRC Products Limited
Claimants/Appellants
and
(1)TTK Lig Limited
(2)T R Venkatesh
(3)TT Jagannathan
(4)TT Raghunathan
(5)DR Latha Jagannathan
(6)Bhanu Raghunathan
(7)H T Rajan
(8)Girish Rao
Defendants/Respondents

Thomas de la Mare and James Segan (instructed by Jones Day) for the Appellants

The Respondents did not appear and were not represented

Hearing dates: 9 and 12 August 2011

Lord Justice Stanley Burnton

Introduction

1

In these proceedings, the Claimant Appellants ("SSL" and "LRC", to whom I shall refer collectively as "the Claimants") seek injunctions and damages against the Defendant Respondents ("the Defendants") arising from the breakdown of the relationship between the Claimants and, principally, the Third, Fourth, Fifth and Sixth Defendants in relation to the First Defendant (TTK"), which is an Indian joint venture company in which SSL, through a subsidiary, on the one part and those Defendants on the other part are respectively equal shareholders. The business of TTK is the manufacture of condoms, and it was the principal supplier of condoms for the Claimants.

2

These are appeals by the Claimants against orders made by Mann J and Peter Smith J. Before Mann J the Claimants sought, on an application made without notice, urgent injunctive relief requiring TTK, among other things, to make deliveries of condoms to SSL. Mann J refused to make that order. Before Peter Smith J, the Claimants sought judgment against TTK in default of its filing an acknowledgment of service for similar injunctive relief. Peter Smith J refused to grant that relief.

3

None of the Defendants has filed an acknowledgment of service. In the case of TTK, if the claim form was validly served on it, as the Claimants contend, it was in default when the Claimants made their application to Peter Smith J. None of the Defendants has appeared or been represented below or before us, although solicitors acting for them have made it clear that they dispute the jurisdiction of the Court.

4

Following the resumed hearing on 12 August 2011, we announced our decision to dismiss these appeals. We said we would give our reasons in writing. These are my reasons for dismissing the appeals.

The facts

5

I can take most of the facts from the judgment of Mann J. I shall also refer to the Particulars of Claim, since it is contended by the Claimants that they are entitled to judgment on the basis that the facts alleged in their pleading have been proved. The Defendants have not put in any evidence, so the account of the facts is necessarily one-sided and provisional at this stage.

6

The two claimants are members of the Reckitt Benckiser Group. That group has recently taken over the business formerly run by London International of the manufacture and sale of condoms, particularly under the Durex brand. It is a very large business.

7

SSL markets and manufactures condoms, particularly, but not exclusively, under the Durex brand. LRC is the member of the group which owns the various trade marks and perhaps other intellectual property. It is also the company that is used for transfer pricing, i.e., it is invoiced by and pays TTK for the supply of condoms that it manufactures. However, the Claimants' case is that it is SSL which is the contracting entity for the purchases from TTK.

8

TTK is an Indian company, that is to say, incorporated in India. It was formed as a joint venture company for the manufacture in India of Durex condoms and for distribution of those condoms, and of condoms under other names in India. Its manufacturing plants are in India.

9

The joint venture was originally between London International, on the one hand, and various individuals in India on the other. Part of its function, and a major part of its function, was to manufacture and supply condoms to the then London International Group. For practical purposes, the joint venture can be treated as being a fifty-fifty one, that is to say, London International had almost exactly 50 per cent of the shares and the voting.

10

On the Indian side, the joint venture involved a group of Indian investors known collectively as the TTK Group. It was set up originally in 1963, when the Durex brand was owned by London International Group Limited. When the Reckitt Benckiser Group acquired the London International Durex business, it effectively succeeded to the joint venture arrangement on the European side and it succeeded to the various agreements constituting the joint venture. TTK continued its function as the manufacturer of condoms for the Reckitt Group.

11

The joint venture agreements provide that the joint venture is governed by Indian law.

12

The current vehicle through which the Reckitt Group holds the interests in the joint venture is New Bridge Holdings BV: it holds almost 50 per cent of the shares in the first defendant company.

13

TTK supplies 50 per cent of the worldwide supply of condoms sold by SSL. In the UK SSL has an 83.4 per cent of the market. There are two other manufacturing facilities, one in China and one in Thailand. They are working almost to capacity.

14

The Defendants other than TTK are officers and/or shareholders in TTK. The Third to Sixth Defendants are the principal shareholders, and they are the most significant, but not quite all, of the individual Indian participants in the joint venture.

15

Under the terms of the joint venture, each side has the right to appoint four nominee directors to the board of TTK. There are controls as to the sort of decisions that can and cannot be taken without the consent of the joint venture participants. Major decisions require the consent of both sides of the joint venture.

16

TTK sells some of the condoms it manufactures within India, under various names including Durex and Koh i Noor, and it also sells some on a not-for-profit basis to the Indian government. It does so pursuant to licences granted by LRC or its predecessor owners of the relevant marks. It is obliged to sell the rest of its output into what is now the SSL Group, formerly the London International Group. It cannot sell its condoms elsewhere.

17

80 per cent of TTK's operating profit comes from manufacturing for the Reckitt Group. The remaining 20 per cent comes from its own trade in India, to which I have already referred.

18

The manufacture and packaging of condoms is jurisdiction sensitive: the nature of the goods supplied, the quality of the product and the packaging and accompanying leaflets vary from market to market, the market for these purposes being individual countries. Thus, for Australia, the packaging and requirements are or may be different to those for, for example, New Zealand, the United Kingdom, or the United States. Thus packaged condoms are not generic goods which can be sold in any country. Once manufactured and packaged for a given country, it is difficult, if not impossible, to sell them elsewhere. Once condoms had been manufactured and packaged, they were then shipped directly from India to required destinations around the world.

19

Until the present dispute arose, the terms of the manufacture and supply by TTK to the Claimants incorporated a pricing based on what was called fully absorbed manufacturing costs (FAMC). The price to which TTK was entitled was FAMC plus 15 per cent.

20

TTK distributes condoms in India under a distribution agreement which came to an end on 30 June 2011. It is apparently the re-negotiation of that agreement which is an important part of the background to the dispute which has arisen.

21

Reckitt have recently been looking at their arrangements with TTK and made new proposals, not apparently to the liking of their Indian partners. Amongst the proposals is the non-renewal of the distribution agreement and its substitution by different arrangements. Some board meetings of TTK, which involved directors from each side, have historically taken place in the UK. However, at some point in April 2011, the Indian directors called one in India to take place on 2 May.

22

For various reasons, that was not wholly convenient to two of the nominated directors of the claimant. For that and other reasons, the Claimants proposed that two of the directors who could not attend would cease to be directors and would be substituted by two others nominated by them. The Reckitt group therefore submitted resignation documents for the two outgoing directors, and expected the two new directors to be appointed under the joint venture arrangements.

23

Unfortunately, the resignations were accepted, but the two new nominees were not voted in. Instead, the Indian side of the joint venture voted in two new directors who were not in the Claimant's camp but were in the Defendants' camp. That is apparently a breach of the joint venture agreement, but was effective under Indian company law. Thus the Indian side of the joint venture gained control of TTK. They immediately set about requiring different terms for their relationship with the Claimants. In particular, they required a new five-year agreement between the Claimants and TTK, pursuant to which the TTK would continue to supply. They proposed to increase the margin available to the first defendant from FAMC plus 15 per cent to FAMC plus 50 per cent. They also required a guaranteed...

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