The ‘C’ Word – Contracting Through Conduct

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In the recent case of Reveille Independent LLC v Anotech International (UK) Ltd it has been found that a binding contract had been formed between the parties, notwithstanding that it contained a clause expressly requiring the document to be signed.

The document in question was a deal memorandum relating to a proposed arrangement in which the Claimant TV production company would license its intellectual property rights in the Master Chef US brand to the Defendant cookware distributor.  The memorandum had been signed by the Defendant’s managing director, with the addition of a manuscript note that the agreement was subject to a condition precedent that a branding dispute with the chef Gordon Ramsey had to be resolved.  The Claimant submitted that it had also signed the memorandum and a binding contract had been established, though a signed copy had not been sent to the Defendant; instead it had been filed away.

The Claimant subsequently sought to enforce the agreement and sued the Defendant for non-payment in breach of contract.

The Defendant put forward a three-pronged defence, as follows:

  1. The memorandum had not been signed by the Claimant contrary to the requirement for a signature within the memorandum and so no binding contract was formed;
  2. Even if the memorandum had been signed, its signing had not been communicated to the Defendant and so no binding contract was formed;
  3. If a contract was found to be formed, it was subject to the condition precedent, that is, to resolve the conflict with Gordon Ramsey, which had not been concluded, meaning the contractual obligations were not yet effective.

The Claimant, however, pointed to the parties’ conduct following negotiations over the memorandum.  The Claimant gave evidence that it had used the Defendant’s products within its shows, by way of product placement, without objection at the time.  Furthermore, the Defendant’s sales staff had utilised the Master Chef US logo within its email signatures, and its managing director had requested that invoices be sent to him for payment.

The Judge ruled that the condition precedent relating to the branding dispute was ineffective: it was common ground between the parties that the Claimant was not in a position to prevent Ramsey from marketing his own products in the US and it followed that it was unlikely that the parties would have agreed to such a condition.

Mackie HHJ also noted that the clause containing the signature requirement was included for the Claimant’s benefit alone.  It was therefore within the Claimant’s capacity to waive that obligation, so long as such waiver was communicated to the Defendant, which it had been by subsequent conduct.

In fact, the Judge held that the Defendant’s acknowledgement that it had an obligation to pay was conclusive of the matter:  “What more powerful evidence of the fact that the Defendant had received notice of acceptance and, like the Claimant, had performed the contract could there be?”

The Judgment in this case serves as a useful reminder as to the potential pitfalls during the negotiation of commercial contracts and that it may be entered into by virtue of the conduct of the parties.  Businesses are advised to be aware that what they perceive to be pre-contract discussions or preparations, may be interpreted as agreement to a contract or performance of contractual obligations.  If you require assistance in producing and negotiation commercial contracts, contract John Pickervance in the Corporate and Restructuring Department by telephone on 0800 689 3206 or via our Contact Form.

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