Scomadi Ltd & Anor v RA Engineering Co. Ltd & Ors

Factual and Procedural Background

This case concerns a dispute over a range of retro-style motor scooters inspired by classic 1960s Lambretta scooters. The Plaintiff companies developed updated versions sold under a specific marque and entered into agreements with the Additional Counterclaimant, a manufacturer based in China, for design and production. The relationship deteriorated, leading to litigation involving multiple claims including breach of contract, intellectual property infringement, and related issues. The dispute focuses on three scooter models produced by the Additional Counterclaimant and distributed by the Defendants.

The Plaintiff and Additional Counterclaimant had executed two agreements: a Design and Manufacture Agreement (DMA) and a Supplementary Agreement (SA). The SA was intended to clarify and vary terms of the DMA, particularly concerning design ownership and royalties. The case involves interpretation of these agreements and whether the Defendants' trade in the scooters was permitted under them.

The litigation also involves claims of infringement of Registered Community Designs (RCDs) held by the Plaintiffs, with issues regarding their validity, novelty, and infringement by the Defendants' scooters.

Legal Issues Presented

1. Whether the Supplementary Agreement was a legally enforceable contract between the Additional Counterclaimant and the First Plaintiff, including questions of drafting, consideration, and estoppel.
2. Whether the Defendants’ trade in the scooters was permitted pursuant to the Supplementary Agreement and the Design and Manufacture Agreement, including correct interpretation of these agreements, timing of engagement with third-party manufacturers, and circumstances of termination.
3. Whether the Registered Community Designs were novel, had individual character, and whether any features were solely dictated by technical function.
4. Whether the Defendants infringed the Registered Community Designs and whether they were liable as joint tortfeasors.
5. Whether the Defendants were entitled to declarations of non-infringement regarding the scooter models.

Arguments of the Parties

Plaintiffs' Arguments

• The Supplementary Agreement was drafted without their prior input and was presented for signature without notice.
• The SA lacked valid consideration and thus was not binding.
• The SA did not survive termination of the DMA, especially in cases of breach by the Additional Counterclaimant.
• The SA only permitted sale of scooters already manufactured after termination, not further manufacture.
• The Defendants’ trade in scooters was not permitted under the SA or DMA.
• The Registered Community Designs were valid and infringed by the Defendants’ scooters.
• The Defendants were liable for infringement and should be restrained accordingly.

Defendants' Arguments

• Both parties contributed to drafting the SA, which was a binding contract.
• There was valid consideration for the SA, including continuation of the venture and variation of commercial terms.
• The SA was intended to apply in the event of breakdown of the joint venture and was a complete code reflecting joint design ownership.
• The SA permitted the Additional Counterclaimant to be the exclusive manufacturer and allowed both sides to continue manufacturing post-termination.
• The term "finding a third party manufacturer" was satisfied by a commercial decision to proceed with a third party, not necessarily a formal contract.
• The Registered Community Designs were narrow in scope and the Defendants’ scooters did not infringe two of the three designs.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed the contract issues, applying established principles of contract interpretation emphasizing the perspective of a reasonable person with knowledge of the factual matrix. Both parties contributed to the drafting of the Supplementary Agreement (SA), which the court found to be a valid, binding contract supported by consideration. Consideration arose primarily from the continuation of the venture and the variation of commercial terms, consistent with the practical benefit doctrine established in Williams v Roffey.

Regarding estoppel, the court found no need to consider it as the Defendants succeeded on consideration.

The court interpreted the SA as a comprehensive resolution scheme intended to apply if the joint venture broke down. Clause 2A acknowledged the Additional Counterclaimant's significant design contribution, establishing joint ownership of design rights and creating an estoppel preventing the Plaintiffs from denying this. Clause 2B permitted the Additional Counterclaimant to sell scooters if the Plaintiffs engaged a third-party manufacturer for the same or similar scooters, effectively allowing both parties to continue manufacture post-termination.

The court rejected the Plaintiffs’ arguments that the SA ceased upon termination of the DMA or only allowed sale of existing stock. It found these arguments amounted to rewriting the agreement rather than interpreting it. The term "finding a third party manufacturer" was held to be satisfied by a commercial decision to proceed with a third party, not necessarily a formal contract, with the relevant decision occurring by late October 2016. Consequently, the Additional Counterclaimant was entitled to terminate the DMA and SA.

The court found the alleged breaches by the Additional Counterclaimant were not fundamental or repudiatory and that the purported termination was lawful.

On the Registered Community Designs (RCDs), the court applied established law on validity and infringement. It found two of the RCDs valid and one invalid due to prior marketing. The court analyzed the designs’ novelty and individual character, noting that they were variations on classic Lambretta scooters with minor detailed differences from prior art.

The court rejected the Defendants’ argument that design features were solely dictated by technical function, emphasizing the presence of aesthetic considerations.

Regarding infringement, the court found that one scooter model (the GT) infringed one valid RCD (RCD2) but not the other. The other two scooter models (GP1 and GP2) did not infringe either valid RCD due to differences in overall impression. The court noted the narrow scope of protection conferred by the RCDs.

Because the Defendants were entitled to manufacture and sell the scooters under the SA, the issue of RCD infringement was effectively rendered moot. Nevertheless, the court addressed it and concluded no infringement except as noted.

The court found that if infringement had occurred, the Defendants would be jointly liable as tortfeasors, but this did not arise on the facts.

Holding and Implications

Holding: The court held that the Supplementary Agreement was a valid and binding contract that permitted the Defendants to manufacture and sell the disputed scooter models. The Registered Community Designs RCD1 and RCD2 were valid, while RCD3 was invalid. The GT scooter infringed RCD2 but not RCD1; the GP1 and GP2 scooters did not infringe either valid RCD.

Implications: The decision permits the Defendants to continue manufacturing and selling the scooters under the terms of the SA, recognizing joint ownership of design rights between the parties. The ruling clarifies the interpretation of contractual provisions regarding design rights and manufacturing rights post-termination. No new precedent beyond the application of established contract and design law principles was set. The court indicated it would grant declarations of non-infringement for the GP1 and GP2 scooters in due course.