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Supr eme Court *RTS Fl exible Systems Lt d v Mol kerei Al ois Mlle r GmbH & Co KG (UK Produc tion) [2010]UKS C 14 2009 Dec 2, 3; 2010 March 10 Lord Phillips of W orth Matravers PSC, Lord Ma nc e, Lord Collins of Map esb ury , Lor d Ker r of T ona ghm ore, Lor d Clarke of Stone- cum-Ebony JJS C Contract Ñ Formation Ñ Intention to create legal relations Ñ Agreement ÔÔsubject to contractÕÕ Ñ Letter of intent setting out draft contract with standard terms to take e›ect when executed Ñ Letter of intent expiring with negotiations as to detailed terms continuing and work having commenced Ñ Work completed and  part paid for without parties executing contract Ñ Subsequent dispute as to  performance of work Ñ Whether contract arising by reason of performance Ñ Whether including standard terms in draft agreement as to liability Ñ Whether Ô Ôsubj ect to contr actÕ Õ provi so waiv ed The claimant, a supplier of automated packaging machines for the food industry, negotiated with the defendant, a dairy product supplier, to design and install two production lines in one of the defen dantÕs factories. The defendant sent the claiman t a letter of intent dated 21 February 2005 setting out a draft contract, providing that the work had to be completed by 30 September 2005 for a price of £ 1 . 6m and incorporating standard terms and conditions, published by the Institutes of Mechanical Engineers and Electrical Engineers and referred to as ÔÔMF/ 1ÕÕ, which contained liquidated damages provisions and limitations on liability but which, by clause 48, provided that the contract would not be binding unless signed and execu ted by the parties. The partie s did not sign or execute that agreement, which was ready for execution on 5 July 2005, but proceed ed with the pr oj ect. On 25 August 2005, at the defendantÕs request, the claimant agreed to vary the agreed order of inst al lati on of th e two li ne s. F ol lowing comp le tion of the wo rk, and with the claimant having received stage payments amounting to 70% of the agreed price, a dispute arose as to whether the equipment supplied by the claimant complied with the agreed speciÞcations and the defendant refused to make any further payments. The claimant commenced proceedings for payment of the balance of the purchase price on the basis that there was a continuing contract on the terms of the letter of intent contract or, alternatively, that it had been replaced by a new contract which incorporated the MF/ 1 conditions, or that no contract had been formed after the expiry of the letter of intent but it was entitled to a quant um meruit. The defendant counterclaimed for damages of £ 3m arising out of the performance of the equipment supplied by the claimant, on the basis that the actual contract between the parties wa s, gi ven clause 48 and the failure to si gn the draft co nt ra ct , a si mp le contract ba sed on the work having been carried out and payment made, and which had no limi tatio ns on liabi lity . The High Co urt ordered the trial of prelimi nary issues to determine the nature of the con tractual relationship betw een the parties. The judge held that after the letter of intent had expired a new contract had been concluded which was to apply retrospectively but which excluded the MF/ 1 conditions. On the cl ai ma nt Õs ap peal, the C ou rt of Ap pe al held that th ere had be en no co nt ract . On the defendantÕs appeal Ñ Held , allowi ng th e ap peal , th at th e question whether there wa s a bind in g contract between parties, and if so upon what terms, required consideration of what was co mmun ic ated be tween th e pa rt ies by words or conduct and wh ether it le d objective ly in accordance wit h the rea son able exp ect ati ons of hon est sensib le A B C D E F G H 753 RTS Ltd v Molkerei Alois Muller GmbH & Co KG (SC(E) ) RTS Ltd v Molkerei Alois Mu ¨ller GmbH & Co KG (SC(E)) [2010] 1 WLR [2010] 1 WL R

[2010] 1 W.L.R. 753

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