In Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443 the Court of Appeal ruled that a binding contract can be made by the parties' conduct even when a written 'Deal Memo' stated that it was not binding until it was signed by both parties, and it had been signed by one party only.
A U.S. television company (Reveille) brought a claim against a UK-based cookware distributor (Anotech) for breach of contract. The claim was based on an alleged agreement that Reveille would integrate and promote Anotech's products in episodes of the MasterChef U.S. television series and license to Anotech certain rights to use the MasterChef brand.
The parties started to negotiate a short form agreement known as the "Deal Memo". The Deal Memo stated that it would "not be binding on [Reveille] until executed by both [Anotech] and [Reveille]". Anotech amended, signed and returned Reveille's Deal Memo to Reveille (therefore making a counter-offer). Reveille did not sign the Deal Memo. Negotiations over the long form agreements, which were intended to replace the Deal Memo, later broke down and were never completed.
The trial judge held that the Deal Memo was binding on the basis that Reveille had accepted the contract by conduct. The Court of Appeal unanimously upheld the trial judge's decision that, notwithstanding the fact that Reveille had not signed the Deal Memo, Reveille had accepted the terms of the amended Deal Memo by its conduct and therefore a legally binding contract had been formed.
The Court of Appeal summarised the relevant contract law rules as follows:
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Consent to a contract is found in the acceptance of an offer, and acceptance can be by conduct provided that conduct, is objectively intended to constitute acceptance (Brogden v Metropolitan Railway Co (1877) 2 App Cas 666).
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An offer in the form of a draft agreement can be accepted when it was never signed (Brogden v Metropolian Railway).
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If a party has a right to sign a contract before being bound it can, by using clear and unequivocal words or conduct, waive the requirement and conclude the contract without signature (Oceanografia SA de CV v DSND Subsea AS (The Botnica) [2006] EWHC 1360 (Comm)).
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A party can waive a prescribed mode of acceptance if it acquiesces in a different way provided that acceptance has not prejudiced the other party (Chitty on Contracts 32nd ed at [2-066-67]; MSM Consulting Ltd v United Republic of Tanzania [2009] EWHC 121 (QB)).
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Where parties have not complied with a signature requirement a draft agreement can still be binding if essentially all the terms have been agreed and the parties' subsequent conduct indicates this (RTS Flexible Systems v Molkeroi Alois Muller GmbH [2010] UKSC 14).
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The subsequent conduct of the parties is relevant in proving the existence of a contract and its terms (Chitty at [13-129]).
These contract law rules take effect against the background of recognised legal polices, in particular:
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The need for certainty in commercial contracts (Cobbe v Yeoman's Row Management Ltd [2008] UKHL 55).
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In commercial dealings "the reasonable expectations of honest sensible business persons must be protected" (RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH approving dicta of Steyn LJ in G. Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25).
The Court of Appeal found that Reveille had waived the provision that there would be no binding contract in absence of its signature on the Deal Memo, and there was no prejudice to Anotech. Reveille accepted the terms of the Deal Memo by conduct, which led to a binding contract. In particular, Reveille: (i) integrated Anotech's products into episodes of MasterChef; (ii) approved Anotech's request to deploy the MasterChef brand at a show; and (iii) treated Anotech as one of its licensees by jointly emailing it and other licensees and inviting it to join Reveille 's weekly licensee calls.
Subsequent conduct by both parties confirmed the existence of the contract. Reveille performed its obligations under the Deal Memo and Anotech also acted as if it was bound. While Reveille's failure to sign the contract was at the expense of certainty as to the precise date the contract was formed, Reveille had performed all its obligations in the Deal Memo with Anotech's involvement and to Anotech's benefit.
Comment
While the Court of Appeal's decision applies wellestablished contract law principles to a fact-specific finding, the decision sets out a helpful summary of the law and policies in this area, including the principle that "the reasonable expectations of honest sensible business persons must be protected".
This case serves as an important reminder that, in the interests of certainty, where possible, all parties should sign an agreement before work starts. Even where an agreement includes formal requirements for acceptance, the parties' conduct may show that these requirements have in fact been waived.
The decision reinforces the fact that, whatever has been stated in writing, parties can agree something different orally or by conduct. This is what happened in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 (covered in the May 2016 Litigation & Dispute Resolution Review) in which the Court of Appeal made obiter comments that a "no variation except in writing" clause did not stop a contract being varied orally.
Ultimately these decisions underline a commercial risk. Despite the best efforts of lawyers to draft certainty into commercial contracts (eg not binding until signed, no variation unless in writing) the actions of those acting or appearing to act on behalf of a contracting party can still end up agreeing to things outside the constraints of these provisions.
