An interesting decision of the Court of Appeal which I have only just come

across RTS Flexible Systems v Muller

http://www.bailii.org/ew/cases/EWCA/Civ/2009/26.html

Overturning a decision of Christorpher Clarke J

http://www.nadr.co.uk/articles/published/CommercialReports/RTS%20v%20Muller%202008.pdf

Simplified, the facts are that RTS are the suppliers of automated

machinery for packaging food, and Muller negotiate with them for the

supply of some yoghurt packaging machines.

Initially the parties contract on the basis of a 'letter of intent', but

this, it is now accepted, expires and is no longer relevant.

The agreement to replace the letter of intent contained a clause (48)

which stated that

"This Contract may be executed in any number of counterparts provided that

it shall not become effective until each party has executed a counterpart

and exchanged it with the other."

This never occurred.

Meanwhile, machinery was delivered and paid for.

A dispute arose. Before Clarke J the only issue seems to have been what

the contract's terms were, but before the Court of Appeal the manufacturer

changed tack and argued that because of clause 48 there was no contract at

all. They did so because this would mean that their potential liability

would then be limited (see para [48] of Waller LJ's judgment) to

reimbursing anything they had been overpaid over and above a quantum

meruit.

Clarke J, following Steyn LJ in Trentham v Archital Luxfer [1993] 1 Lloyds

LR 25, held that there was a contract which arose from the parties'

performance. The Court of Appeal concluded that as the negotiations

disclosed that there was no contract unless the conditions in clause 48

were satisfied, that there was as a result no contract, following a

similar approach of Goff J in British Steel Corporation v Cleveland

Bridge[1984] 1 All ER 504.

My own view, is that the view of Clarke J and Steyn LJ is to be preferred.

If there are two sets of negotiations, one of which does not result in a

contract, that does not necessarily prevent the other from resulting in a

contract. Similarly, the fact that the one set of negotiations resulted in

no contract, doesn't mean that no contract arose when the machinery was

manufactured, delivered, accepted and paid for. Can it really be the case

that the manufacturer (RTS) had given no undertaking that the machinery

supplied would work, so that if it didn't they would not be liable for the

(vast?) consequential loss that Muller might consequently suffer? Did

Muller, after installing the machines, really intend that their

contractual obligation to pay for what they had received was still

conditional on the exchange of a counterpart?

The Supreme Court have given leave to appeal  (the Court of Appeal had

refused).

RS

--

Robert Stevens

Professor of Commercial Law

University College London