ADS Aerospace Ltd v EMS Global Tracking Ltd
Citation:  EWHC 2310 (TCC),  EWHC 2904 (TCC)
ADS was a small company which intended to supply satellite tracking devices for aeroplanes and helicopters. EMS, in partnership with ADS, manufactured such devices and provided the relay services between geostationary satellites and the fitted devices. In December 2005 the parties entered into a contract for the development of a particular device – the SAT-111 – which was to be exclusively distributed by ADS. The contract provided that one year’s notice had to be given before EMS was released from its obligation to supply the devices to ADS. The contract additionally provided that ADS was to be the sole distributor of any derivative product of the SAT-111.
The SAT-111 was a modified version of an earlier device – the SAT-101 – adapted for the aeronautical market. Soon after entering the contract the parties discovered that an EU directive would prevent the manufacture of any further SAT-101 devices, making it difficult to supply ADS with SAT-111 devices. In that regard, the parties discussed the possibility of developing a new device – the SAT-221 – which ADS would sell instead.
However, as a result of the very low sales levels experienced by ADS and the introduction by EMS of a new account manager for the ADS account, the commercial relationship between the parties began to break down.
ADS claimed that when EMS indicated that it would likely cease to manufacture SAT-101 devices but would have a certain level of stock on hand to adapt for any further orders for SAT-111 devices it was in breach of its obligation to supply the devices or give one year’s notice. It additionally claimed that the prototype of the SAT-221 which EMS had developed was a derivative product which ADS had the right to distribute and EMS was obliged to supply. ADS additionally claimed that EMS was estopped from denying these facts based on communications between the parties. ADS claimed for loss of profit as a result of the alleged breaches.
At trial Akenhead J found for EMS. He held that the SAT-221 prototype was just that – a prototype – and therefore not capable of being a derivative product. Therefore EMS had no obligation to supply it. Further, he rejected the allegation that EMS was in breach of their obligation to supply the SAT-111 or give one year’s notice. EMS had given notice some time after it suggested that it could no longer manufacture new SAT-101 devices. Before and during the notice period EMS had indicated that it had sufficient stock of SAT-101 devices on hand to satisfy the few orders that ADS would likely place. In fact the stock retained by EMS was sufficient to supply ADS’s demands before and during the notice period. Akenhead J found that there was no representation or shared understandings capable of founding an estoppel.
In a later judgment on costs, Akenhead J declined to reduce EMS’s costs on the basis that it refused ADS’s offer of mediation. The offer was made a few weeks before trial where ADS had already turned down several offers to negotiate a settlement. Therefore, EMS had not been unreasonable in refusing to mediate and was entitled to their full costs, assessed on the standard basis.