The Commercial Court has ruled that a party had accepted the terms of an agreement by its conduct, even though it had not signed the agreement and the agreement purported to require the signatures of both parties to take effect: Reveille Independent LLC v Anotech International (UK) Ltd  EWHC 726 (Comm).
The case is a reminder of the importance of ensuring, where possible, that all parties have signed on the dotted line before any substantive work is commenced. Anything else is a recipe for uncertainty. Even where a contract sets out particular formal requirements that must be complied with, it may still bind the parties if their conduct demonstrates that they have waived those requirements.
It is clear that some work may be undertaken in anticipation of an agreement being reached without that conduct amounting to acceptance of the terms of an agreement. However, this case suggests that the more significant and long-running the work is, the harder it becomes to resist the conclusion that the parties intended to be bound. Chris Bushell and Sam Waudby, a partner and associate in our dispute resolution team, consider the decision further below.
The claimant, a US television company, brought a claim against the defendant, a distributor of cookware, for breach of contract. The claim stemmed from an alleged agreement in which the claimant would licence to the defendant certain intellectual property rights relating to MasterChef US and permit the integration and promotion of the defendant's products into three episodes of the television series.
The parties began negotiations for a legally binding short form agreement (the "Deal Memorandum"). This was intended to be replaced by detailed long form agreements to be negotiated subsequently. In the event, the long form agreements were not agreed as negotiations between the parties broke down.
The claimant contended that in March 2011 it entered into a binding agreement with the defendant on the terms set out in the Deal Memorandum. The defendant's position was that it was not bound by the Deal Memorandum as:
- The Deal Memorandum stated that it was not to be binding until signed by both parties and it had not been signed by the claimant.
- It had not been accepted by conduct; any steps taken were merely in anticipation of agreement being reached either on the Deal Memorandum or subsequently on the long form agreements.
- Even if the Deal Memorandum was binding, it was subject to a condition precedent which had not been fulfilled. This arose from the defendant's handwritten amendment, "Branding Conflict with Gordon Ramsay to be concluded" (the "Brands Conflict Term").
The court (His Honour Judge Mackie QC) held that the Deal Memorandum was binding. Although the claimant had not established that it had signed the Deal Memorandum, it was clear that the contract had been accepted by conduct and it was not subject to a condition precedent.
Acceptance by conduct
The judge referred to the well-established principle that the signature of the parties to a written contract is not a precondition to the existence of contractual relations, as a contract can be accepted equally well by conduct.
Although the Deal Memorandum provided for a prescribed mode of acceptance, in that it had to be signed by both parties, that was stated to be for the claimant's benefit alone so it could waive the requirement. However, this did not assist the claimant unless it could be shown that they had in fact waived the requirement. The fact that the signature requirement was for the benefit of the claimant did not mean that the claimant could simply decide, after the event, to ignore it.
The question for the court was whether there had been acceptance by conduct and whether that acceptance had been effectively communicated to the defendant.
In answering the question, the judge considered what the claimant actually did in order to carry out the alleged contract with the defendant. He found that the claimant had integrated the defendant's products into the television episodes as required. It was persuasive in this regard that the defendant's managing director later acknowledged that his company was liable to pay for those integrations.
The judge also found that the defendant had been given the right to use and did, or at least attempted to, use the claimant's intellectual property. The defendant had marketed cookware bearing the MasterChef logo and its sales literature and press releases referred to the fact that it had the licence for MasterChef US.
The judge concluded that it was overwhelmingly clear that the work envisaged by the Deal Memorandum had been carried out. That did not necessarily mean there was acceptance by conduct but it went a long way towards it.
The defendant argued that the examples of alleged performance by the claimant were essentially in the same category as pre-contractual work of a type which had clearly taken place. The matters relied upon by the claimant were, it said, consistent with the parties acting in anticipation of agreement being reached on either the Deal Memorandum or the long form agreements. The judge dismissed this argument, saying that the relevant acts were significant and consistent only with the parties recognising that they were contractually bound.
Although he acknowledged that some work might be done without the parties entering into a contract, here the work had continued and intensified after the defendant signed the contract and the defendant had communicated with others on the basis that the deal was done. Most significantly, the defendant had acknowledged the existence of a binding commitment by agreeing to pay invoices on the basis of the Deal Memorandum.
The Brands Conflict Term
The judge then had to decide the meaning of the Brands Conflict Term. The defendant argued that this term constituted a condition precedent to the agreement which required the claimant to stop Gordon Ramsay (the presenter of MasterChef US) selling his own range of cookware products in the USA, and that the condition had not been fulfilled.
The claimant denied that the term was a condition precedent and argued that the term only obliged it to take reasonable steps to stop a website, QVC, from using the MasterChef brand to promote Mr Ramsay's range of cookware (a requirement with which it had complied).
Adopting the usual approach to contractual interpretation, the judge preferred the claimant's interpretation. It was significant that both sides knew from the outset that the claimant could not prevent Mr Ramsay from marketing his own range of cookware in the US provided that he did not infringe its intellectual property. The claimant would not have agreed to take on an obligation that both sides knew it could not meet, still less to make the existence of the entire contract conditional upon fulfilment of such an obligation.