The Court of Appeal has upheld a decision of the Commercial Court which found 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) Limited  EWCA Civ 443.
The decision is a useful reminder that a failure to comply with formal requirements specified in a draft contract does not necessarily mean that no binding agreement has been formed: where the conduct of the parties is sufficiently clear and unequivocal, a court may be willing to find that an agreement has been accepted by conduct.
This is consistent with the Court of Appeal's recent obiter comments to the effect that a contractual provision requiring amendments to be in writing and signed by both parties will not necessarily prevent the contract being amended orally or by conduct (see this post for more detail).
Chris Bushell and Sam Waudby, a partner and associate in our dispute resolution team, consider the decision further below.
The facts are described in more detail in our earlier blog post on the decision. In summary, the dispute concerned whether a binding contract came into existence between the parties in 2011 by which the claimant agreed to integrate and promote the defendant’s products in three episodes of MasterChef US, as well as license to the defendant the right to use the MasterChef brand on its products for sale in the US and Canada.
Long form agreements negotiated between the parties were never completed or signed. However, the Commercial Court held that there was a binding contract between the parties in the form of a deal memorandum which the claimant had accepted through its conduct and which had been signed by the defendant though not the claimant (the "Deal Memorandum").
The defendant appealed. While it did not dispute the Commercial Court’s findings of fact, it contended that the Commercial Court was wrong to conclude there was a binding contract when the Deal Memorandum expressly stated that it would not be binding on the claimant until the claimant had signed. It argued, amongst other things:
- The claimant’s conduct should be seen as conduct in anticipation of a contract being subsequently agreed, rather than conduct amounting to acceptance of the agreement.
- The judge had ignored the significance of payment in analysing whether a contract was formed, in particular that the claimant had failed until September 2011 to demand payments which were due upon signing the Deal Memorandum.
- The judge had failed to recognise the importance of certain exchanges between the parties on 12 April 2011, which showed they were not in agreement as at that date.
- The judge should only have examined conduct prior to 12 April 2011 as constituting possible acceptance since, on the defendant's argument, there was no offer open for acceptance after that date. In fact, the judge had examined the claimant’s conduct throughout 2011, taking account of facts which were legally irrelevant.
The Court of Appeal dismissed the appeal.
The provision in the Deal Memorandum which stipulated that the agreement would not be binding on the claimant unless signed was clearly for the claimant’s benefit. In not signing, the claimant as offeree was waiving a prescribed mode of acceptance. That should be treated as effective, so long as there was no prejudice to the defendant as offeror. The only prejudice the defendant could point to was the commercial uncertainty as to whether it was bound by the Deal Memorandum. The court decided that any such prejudice was outweighed by the benefit the defendant received from the claimant’s performance of its obligations under the agreement.
The Commercial Court was right to focus on whether there were clear and unequivocal acts on the claimant's part, which the defendant knew about, constituting acceptance by conduct of the offer made by the defendant. There was clear evidence of acceptance by conduct by the claimant, conduct in which the defendant was closely involved. This included the fact that the claimant had integrated the defendant’s products into the television episodes as required, and the defendant had sent the claimant some 2340lbs worth of its cookware products for this purpose. As a result, the Court of Appeal considered that by around 12 March 2011 a binding contract had been formed. Conduct by the parties after that date did not go to acceptance but was evidence that the parties believed there was a binding contract in place.
The court dismissed the defendant's arguments relating to the claimant's delay in invoicing the defendant for payments which would have been due if the Deal Memorandum were binding. It noted that there are a variety of commercial and practical reasons for creditors not pressing debtors for payment. Whatever the reason for delay, it was more than counterbalanced by the various other factors demonstrating that a contract was in place.
The decision acknowledged that the Commercial Court had not fully addressed the issue of the exchanges between the parties on 12 April 2011. In those exchanges, the claimant had sent the defendant a copy of the Deal Memorandum on which a handwritten amendment (included on the earlier version of the Deal Memorandum signed by the defendant) had been removed. The claimant had asked the defendant whether it was willing to sign the new version, as the claimant understood that the issue the amendment sought to address had been resolved. The defendant did not sign the new version of the agreement and responded that the issue had not been resolved.
The Court of Appeal concluded that the claimant's request was not, as the defendant contended, a counter-offer since, as explained above, a binding contract had been formed a month beforehand. Rather, as a matter of legal analysis, it was the claimant's attempt to have a document executed reflecting the terms of the contract the parties were performing . There was no pressing need for the claimant to insist on the defendant signing the document, since both parties were performing the terms of the contract already and it was anticipated that long form agreements then in negotiation would supersede it.