Triumph Controls – UK Ltd v Primus International Holding Company
| Jurisdiction | England & Wales |
| Judge | Mrs Justice O'Farrell |
| Judgment Date | 11 March 2019 |
| Neutral Citation | [2019] EWHC 565 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-2016-000104 |
| Date | 11 March 2019 |
[2019] EWHC 565 (TCC)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice O'Farrell DBE
Case No: HT-2016-000104
Rajesh Pillai & Nathaniel Bird (instructed by Reynolds Porter Chamberlain LLP) for the Claimants
Edward Pepperall QC & Helen Gardiner (instructed by Harrison Clark Rickerbys Limited) for the Defendants
Reading dates: 13 th & 14 th June 2018
Hearing dates: 18 th, 19 th, 21 st, 22 nd, 25 th, 26 th, 27 th, 28 th June 2018 2 nd, 3 rd, 5 th, 9 th, 10 th, 11 th, 12 th, 13 th, 17 th, 18 th & 19 th July 2018
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.
| Part 1 — Background | Paragraphs 1 – 96 |
| The Share Purchase Agreement | 66 – 87 |
| The Dispute | 88 – 96 |
| Part 2 – Notice of Claims | Paragraphs 97 – 128 |
| Clause 20 Service | 102 – 111 |
| Proper notice of nature and amount claimed | 112 – 121 |
| Clause 6.6 claim | 122 – 128 |
| Part 3 – Nadcap Warranty Claims | Paragraphs 129 – 247 |
| Nadcap Issues | 177 |
| Warranty 6.1 | 178 – 193 |
| Accreditation at time of completion | 194 – 199 |
| Manipulation of the 2012 Audit | 200 – 225 |
| Reasons for the 2013 failure | 226 – 237 |
| Impact of loss of Nadcap accreditation | 238 – 244 |
| Warranty 6.2 | 245 – 246 |
| Conclusion | 247 |
| Part 4 – Operational Warranties Claim | Paragraphs 248 – 356 |
| Delivery and quality issues | 251 – 252 |
| Operational warranty claim issues | 305 – 306 |
| Material contracts | 307 – 313 |
| Knowledge for the purpose of clause 8.2 | 314 – 317 |
| Breach of the warranties | 318 – 326 |
| Disclosure | 327 – 352 |
| Completion Accounts | 353 – 355 |
| Conclusion | 356 |
| Part 5 – FLP Claim | Paragraphs 357 – 482 |
| FLP Issues | 395 – 397 |
| Documents forming the FLPs | 398 – 399 |
| Scope of the warranty | 400 – 402 |
| Were the FLPs carefully prepared? | 403 – 463 |
| What should carefully prepared FLPs have shown? | 464 – 470 |
| Would Triumph have walked away from the acquisition of Primus or would the purchase price have been lower? | 471 – 481 |
| Conclusion on FLPs | 482 |
| Part 6 – Clause 6.6 Claim | Paragraphs 483 – 485 |
| Part 7 – Quantum | Paragraphs 486 – 496 |
| Part 8 — Conclusion | Paragraphs 497 – 498 |
The claimants (“Triumph”) are subsidiaries of Triumph Group, Inc. (“TGI”), a multinational aerospace and defence manufacturer and service provider based in Pennsylvania, USA.
The defendants (“Primus”) are subsidiaries of Precision Cast Parts Corporation (“PCC”), a multinational manufacturer of complex metal components.
On 27 March 2013 Triumph and Primus entered into a share purchase agreement (“the SPA”) whereby Triumph purchased the share capital of three Primus companies. The purchased companies, based in Farnborough, UK, and Rayong, Thailand, manufacture composite and metallic components for the aerospace industry.
The purchase price paid by Triumph under the SPA was US$ 76,530,145.
In these proceedings Triumph claims damages limited to US$ 63,530,145 in respect of alleged breaches of warranty, namely:
i) the loss of Nadcap accreditation in respect of the Farnborough facility (“the Nadcap Claim”);
ii) undisclosed delivery and quality problems at Farnborough (“the Operational Warranty Claim”);
iii) failure by Primus to prepare financial projections with care (“the FLP Claim”); and
iv) failure by Primus to notify Triumph of the claimed breaches of warranty (“the Clause 6.6 Claim”).
Primus disputes the claims on the grounds that:
i) the alleged breaches of warranty are denied;
ii) Triumph failed to give adequate notice of the claims;
iii) it is denied that causation has been established; and
iv) the basis and valuation of quantum is disputed.
The aerospace manufacturing industry
The design, testing and final assembly of aircraft for supply to ultimate customers is carried out by prime contractors (“Primes”), also known as Original Equipment Manufacturers (“OEMs”). The OEMs operate production lines on which aircraft are assembled in large hangars.
Tier 1 suppliers are responsible for integrating and delivering substantial components of the aircraft, such as engines, major structural parts and avionics systems to OEMs for final assembly.
Tier 2 suppliers manufacture and supply components to Tier 1 suppliers for further integration into major components but do not have design responsibility. The Primus companies in Farnborough and Thailand purchased by Triumph are Tier 2 suppliers.
Tier 3 suppliers manufacture and provide individual parts and components.
Tier 4 suppliers supply materials and processing services.
The aerospace industry is highly competitive and OEMs are required to meet tight delivery schedules to deliver completed aircraft to their customers. As a result, OEMs demand similar timescales from their supply chains. The tight schedules and lean manufacturing approach, under which limited stocks of parts are held, creates pressure on the supply chain to meet delivery schedules and achieve the required product quality.
Composite material production at Farnborough
Composite materials are a combination of two or more materials, usually a sheet of resin and a reinforcement matrix. In the aerospace industry, composites are used because they are stronger, stiffer, lighter, more durable and can be more easily moulded into different shapes than their metal equivalents.
The most common composites used in the aerospace industry are carbon fibre reinforced plastic (“CFRP”) and glass reinforced plastic (“GRP”). Carbon or glass fibres are woven into fabric and impregnated with a polymer resin, commonly polyester or epoxy, which acts as the bonding agent (known as “pre-preg” material). The pre-preg material is moulded into the desired shape and cured to form a solid component.
The Farnborough composites division facility of Primus specialises in three types of processes for the production of composites: hand lay-up, metal bond and compression moulding. The key steps in the production of composite parts at Farnborough can be summarised as follows.
Uncured composite manufacturing raw materials, such as pre-preg material, film adhesives and compounds, are kept in cold storage pending requirement. Each material has a specified storage temperature, to avoid deterioration of the material affecting the cure or bonding process, and a specified maximum shelf life, typically between 6 and 24 months. When it is ready to be used, the composite material is defrosted. Once defrosted, the frozen shelf life is replaced by a maximum working life. Any unused material can be re-frozen or chilled as specified and the working shelf life is reduced accordingly.
The defrosted rolls of flat film adhesive, resin impregnated glass or carbon fibre fabric pre-preg material are rolled out on a cutting table and cut to the required shape for ply lay-up. The cut plies are then placed into heat sealed plastic bags and refrozen for storage. The cutting process must be carried out in a controlled contamination area (“CCA”). The CCA maintains a positive air pressure to ensure that particles of dirt are pushed out of the room and away from the exposed material. The entrance to the CCA is fitted with an airlock and there is a clean filtered air supply, controlling temperature and humidity, to maintain the integrity of the uncured materials.
Some component parts require thicker sections for strength, rigidity or acoustic attenuation requirements. Such composites are achieved by the use of a honeycomb material, normally metallic or Nomex, a paper honeycomb coated in resin, that is sandwiched within the composite structure. The honeycomb is machined using circular table saws or routing tools and tool block guides to trim and create the necessary profile of the material. This task must be carried out in an environmentally monitored area (“EMA”), an area where contaminants detrimental to adhesion and bonding may be restricted and where basic environmental conditions such as temperature and humidity may be monitored. In addition, segregation of the metallic honeycomb from Nomex is required in order to avoid contamination by foreign objects which could affect bond strength. Honeycombs are usually degreased after machining and placed in heat sealed bags.
At Farnborough some of the composite assemblies comprise aluminium alloy clad metallic sheet parts. These require anodising and priming before bonding in the composite structure. During the anodising process, a thin anodic layer is deposited on the aluminium surface through electrolysis in a bath of chromic acid. After anodising, the parts are sent to the priming booth for spray application of primer to the bonding surfaces. Following curing of the primer, the anodised and primed parts are placed in protective bags before delivery to the clean room for assembly.
Before honeycomb is laid up into the composite structure, a film adhesive is applied to the bonding surfaces (reticulation). This is performed in a CCA environment. Backing film is removed from the adhesive and laid on the honeycomb surface. Heaters on a beam are passed slowly over the honeycomb and resin film, placed on a wire frame support. The heated resin film flows into the ends of the core...
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