Inventor shouldn't have terminated contract months after alleged breach, court rules

Jean Pierre Chevalier invented a new kind of car door latch which performed more functions and took up less space than standard latches. In 1999 he was in contact with aerospace and car manufacturing company Honeywell and they agreed in 2001 that Honeywell would manufacture Chevalier's latch.

In 2003 Chevalier's company, Automotive Latch Systems (ALS) ended the joint collaboration agreement (JCA) between the companies, claiming that Honeywell had failed to act in accordance with the contract.

When it walked away from the deal, ALS sued Honeywell for lost future profits that would have been earned by the latch.

Honeywell claimed that Chevalier had no right to walk away when he did and that it had not failed in its contractual duties. The Court agreed with Honeywell.

The contract between ALS and Honeywell contained a clause, Article 4.5, which gave Honeywell an obligation to take reasonable action without delay to make the latch at a competitive cost.

ALS claimed that Honeywell broke this clause in the contract, giving it the right to walk away. It said that Honeywell had not put enough resources into the project, had made unauthorised and pointless changes to the design of the latch and had delayed the project.

ALS first took action in September 2003 and finally terminated the agreement in December 2003. The court found that there had been delays, but that any problems had long been fixed by the time ALS ended the contract.

"The line which Mr Chevalier sought to take in his evidence was that, whilst he accepted that the relationship between the parties had broken down, this was because the project was going nowhere in September 2003," said the High Court's Mr Justice Flaux. "I have reached the firm conclusion that there were no extant breaches of the JCA [joint collaboration agreement] as at 11 September 2003 or for that matter 16 December 2003 when Mr Chevalier finally terminated the JCA."

The Court found that there was a contractual entitlement to terminate the agreement for a number of reasons, but that Chevalier and ALS could not invoke that much later, once the problems had been fixed.

"When the provision talks about an entitlement to terminate for a failure of the other party's contractual obligations, thirty days after receipt of a letter setting out the reasons for termination "said letter not having achieved its purpose during this period", it is clear that the thirty day period is intended to enable the party in breach to take steps to remedy the breach," said Mr Justice Flaux.

"In other words it is focussing on present breaches which are capable of being remedied. What it does not entitle the party who serves the notice to do is to say: "There were breaches of Article 4.5 in the past, sixteen months ago and six months ago. I did not serve a notice on you on either occasion, even though I might have done and, even though in the intervening period, there has been no further breach of Article 4.5, I can serve a notice on you now in respect of those past breaches"," said the ruling.

Mr Justice Flaux said that he had never come across any witness as thoroughly prepared as Chevalier, who had prepared a 370 page document of his accounts of what had happened. The judge said, though, that Chevalier's account could not always be trusted.

The reality is that whilst Honeywell was at fault to some extent…Mr Chevalier's version of events is skewed and Honeywell is simply not the demon Mr Chevalier makes it out to be," he said. "I was left with the overwhelming impression that there was a strong element of the "Walter Mitty" about Mr Chevalier, in the sense that when it comes to the [latch] and what he sees as the invincibility of his design, there is something of the fantasist about him."

The judge said that in his view the contract was not actually terminated because of the delays complained of. "When the circumstances which led to his decision to terminate are examined critically, it becomes apparent that, ultimately, this complaint comes down to Mr Chevalier's personal animus about Honeywell project management and Mr Spurr and Mr Kilker in particular," he said.

The Court found that Chevalier should not have ended the agreement when he did, and that therefore there are no grounds for the payment of damages to him.

It said, though, that even if that had not been the case it would have been very difficult for ALS to have justified its claim that there were opportunities lost because of Honeywell's behaviour and that it should be paid in lieu of profits that could have been earned.

"Even if ALS could have overcome that obstacle, it faced another insuperable obstacle in the way of recovery of any damages for loss of profits, that the basis upon which profits were to be divided between the parties had never been agreed," said the ruling.

"The loss of a chance model for quantum upon which ALS relies is wholly unrealistic and the claim on that basis so speculative that no damages would be recoverable on the basis of the loss of a chance," said Mr Justice Flaux.