THE INGREDIENTS OF A BINDING CONTRACT

In RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14, [2010] 1 WLR 753, the Supreme Court allowed an appeal from the decision of the Court of Appeal (on which see our March 2009 issue, pp4-7) and held that the parties had entered into a binding contract. In doing so, the Supreme Court affirmed that, when deciding whether parties have concluded a binding contract, a court has regard, not to the subjective understandings of the parties, but to what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had reached agreement on all essential terms. On the facts of the present case, these requirements were satisfied. Although clause 48 of the draft written contract provided that the contract would ‘not become effective until each party has executed a counterpart and exchanged it with the other’ the parties were held to have agreed to waive this ‘subject to contract’ stipulation so that it was no barrier to the existence of a binding contract between the parties.