The Commercial Court of England & Wales has recently ruled that an unsigned agreement can bind parties, even where it is expressly stated in the agreement that a signature is required. Referring to the long-established principle that a contract can be accepted by the conduct of the parties alone, the Court made clear that a party cannot always walk away from a contract on the basis that it has not been signed.
A TV company and a distributor of cookware were negotiating the licensing of IP rights in relation to MasterChef US. Negotiations had begun in relation to a short agreement, which was in time intended to be replaced by a longer agreement. Work commenced, though the agreement was never signed. The TV company brought a breach of contract action against the distributor, which in turn sought to avoid the agreement.
The TV company contended that a binding agreement was in place. However, the distributor argued otherwise on the following grounds:
- The short agreement expressly stated that it was not binding unless signed.
- Any steps taken were in anticipation of agreement being reached, rather than constituting acceptance of the agreement by conduct.
- Even if binding, the agreement was subject to a condition precedent, which had not been fulfilled.
In reaching its decision, the Court looked at the extent of work already carried out by the parties. While the distributor had argued that any work carried out was merely in anticipation of an agreement being concluded, the Court found that the acts reached a level of significance so as to be consistent with the parties recognising that they were contractually bound. Further, the existence of the deal had been communicated to third parties and there was an acknowledgement of amounts due in the form of invoices.
While it is generally commercially accepted that parties may commence some work pre-contract, it is recommended to have signed terms in place as soon as possible. This decision shows that any substantial performance of an un-signed contract could lead to a determination that the parties have waived requirements for signature and have demonstrated by their conduct that they intended to be bound by the contract.