Cases - RTS Flexible Systems Ltd v Molkerei Alois Muller

Record details

Name

RTS Flexible Systems Ltd v Molkerei Alois Muller

Date

[2010]

Citation

GMBH UKSC 14

Keywords

Construction contract – Letter of intent – Basis of contract

Summary

This case demonstrates why parties should not proceed for longer than absolutely necessary on the basis of a letter of intent. Starting a project under these conditions make the basis of the contract uncertain.

In this case RTS were appointed by Muller on the basis of a letter of intent. The parties had all but finally agreed contractual terms at the time that the contract created by the letter of intent expired. Nevertheless the works proceeded. A dispute then arose between the parties as to the basis of the contract (if any) upon which the works were completed.

In the High Court the judge found that a contract of sorts existed after the expiry of the letter of intent, but not on the terms of the nearly concluded contract that the parties were negotiating.

In the Court of Appeal the appeal court judges found that no contract existed after the letter of intent expired.

In the Supreme Court the supreme court judges found that a contract did exist on the basis of terms very similar to those of the nearly concluded contract. The court found that the parties had waived their rights to rely on a term which stated that the contract would not apply until after all of the terms had been agreed.

As Lord Clarke said in his judgment, ‘The moral of the story is to agree first, and start work later.’