RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Company KG

Hearing dates : 11 th, 12 th November 2008

Lord Justice Waller :

Introduction

1. This is an appeal from a judgment of Christopher Clarke J handed down on 16 ^th May 2008, by which he ruled on certain preliminary points. The points arose out of a dispute in relation to the delivery by the appellants of certain equipment to the respondents. The appellants, RTS Flexible Systems Limited (“RTS”), say they are not appealing any of the judge's findings of fact. As the judge pointed out the problem arises out of the fact that the parties for good commercial reasons decided to start work before the terms of their contract had been agreed on a presumption that ultimately terms would be finalised. The challenge is to his conclusion as to whether there was ultimately a contract made on the terms as found by him. The judge found there was concluded a contract without the incorporation of conditions known as MF/Those terms if incorporated would have contained limitations on liability and/or liquidated damages provisions. The issue on the appeal is whether the judge was right in saying there was a contract at all (and indeed whether RTS are entitled to contend for no contract) and whether if there was a contract he was right in excluding the MF/1 terms.

2. It is in the circumstances possible to take most of the key findings of the judge and incorporate them into this judgment as the basis for considering the judge's conclusions.

The Facts

3. The defendant/respondent to the appeal —Molkerei Alois Müller GmbH & Co KG (“Müller”) —is a well known leading European dairy product supplier. At its premises in Market Drayton it produces, amongst other things, different brands of yoghurt and dairy rice products. The claimant/appellant on the appeal, RTS, specialises in the supply of automated machines for packaging and product handling in the food and consumer goods industry.

4. Müller wished to automate the process of collating and flow wrapping multi-packs of different flavours of twin pots of yoghurt. It also wished to produce multipacks of its single pot products which could be placed into a tray that had originally held 12 single pots. Müller and RTS made contact initially in 2000. Discussions continued in subsequent years, particularly from December 2003 onwards. In April 2004 RTS produced a quotation – Quotation A. Thereafter RTS produced 10 further quotations for equipment (down to Quotation K), all of them, after Quotation A, in a format requested by Müller. In the course of this process the scope of the project expanded, contracted and then expanded again as Müller discussed its requirements with RTS and other potential suppliers.

5. The work which, in the event, RTS undertook was the design, manufacture, assembly, works testing, delivery, installation and commissioning at Müller's factory in Market Drayton of the equipment described as Line 1 and Line 2 as shown on the drawing annexed to the judge's judgment.

6. RTS was not to supply all the equipment for Lines 1 and 2. It was Müller who was to supply, inter alia, the packaging equipment for the Lines. The ability of the lines to produce the desired number of packs per minute was dependent on the proper functioning of all the equipment and the efficient interaction of different pieces of equipment. That which was not to be supplied by RTS was described as “ Free Issue Equipment”.

7. On 13 ^th January 2005 RTS issued its Quotation I. Mr Bradford of RTS also wrote to Müller expressing concern as to the time that it could take to reach agreement on the contract conditions, should RTS be successful in winning the contract. He indicated that RTS would be happy to enter into a contract with Müller based on the MF/1 conditions, appropriately modified to meet the specific requirements of the project. He expressed concern about the sheer extent and number of the changes that Müller had proposed in October 2004 and about the content of those changes. He enclosed for Müller's consideration a copy of some conditions which had applied to another contract which RTS had recently carried out. He added:

“As a final point, bearing in mind the importance of the project timescales, we would also be quite prepared to commence work even before signature of a contract, on the basis of a Letter of Intent/Instruction to Proceed”.

8. On 13 ^th February Mick St John telephoned Etienne Croquette to tell him that RTS had been awarded the contract.

Quotation J

9. On 16 ^th February RTS issued Quotation J. Section 2 headed “ Pricing Schedule” specified a fixed price of £ 1,682,000 for the design, manufacture, assembly, works testing, delivery, installation and commissioning “of the equipment as described and as generally shown as Line 1, Line 2 and De-Palletising Cell” on the drawing in Appendix 3, which was similar to the drawing appended to the judgment. It also provided for Liquidated Damages if the Site Acceptance Test (“SAT”) of Lines 1 and 2 or of the De-Palletising cell was delayed from the agreed programme date and the delay was entirely due to the fault of RTS. The damages were to be 0.5% of the Total Contract Value (“TCV”) per whole week of delay up to a maximum of 5 weeks.

10. Section 3 was headed “ Conditions of Contract”. It provided in clause 3.1 that the quotation was “ based on the RTS Standard Terms and Conditions of Sale”. Clause 3.2 provided that RTS' parent company would guarantee RTS' performance. Clause 3.3 provided a schedule of payments: 30% of TCV on receipt of order; 30% on delivery to RTS of the major items (i.e. robots) of bought out equipment; 20% on delivery; 10% on completion of commissioning; and 10% within 30 days, but no later than 90 days of takeover. Clause 3.4 provided for variations to be at RTS' 2005 standard rates for labour and materials at cost plus 12.5%. Clause 3.5 stated that the quotation was based on the assumptions and exclusions detailed in Section 8.

11. Section 4 set out the User Requirements for both Lines and the De-Palletising Cell. Section 5 set out the Technical Description of both Lines and the De-Palletising Cell. Section 6 was a Summary of Performance Criteria. Section 7 specified the Scope of Supply. Section 8, headed “ Limits of Proposal”, contained Exclusions and Assumptions.

12. The Quotation had a number of appendices. Appendix 1 headed “ Product Specification” was a one page diagrammatic representation of the cartoning and flow wrapping sequence. Appendix 2 headed “ Production Throughput Data” contained the calculations referred to in paragraph 19 above. Appendix 3 was a general arrangement drawing. Appendix 4 was a specification of the robots. Appendix 5 contained Müller mechanical and electrical specifications. Appendix 6 contained the Parent Company Guarantee, which was never given. Appendix 7 contained the Provisional Project Plan. That provided for delivery of the Free Issue Equipment by 6 ^th May 2005. Appendix 8 was a diagram of de-palletising sequences. Appendix 9 was a diagram indicating the locations of tray handling conveyors.

The Letter of Intent

13. On 21 ^st February Müller sent to RTS the following Letter of Intent:

“Project: Build, delivery, complete installation and commissioning by RTS Advanced Robotics Limited (“RTS”) of the Automated Pot Mixing Lines 1 & 2 and the De-Palletising Cell (“the Equipment”) for the Repack line (“Repack Line”) within the Repack facility in Market Drayton of Molkerei Alois Müller GmbH & Co (UK Production)(“Müller”).

Thank you for your mail dated 16 ^th February 2005 setting out your offer (number FS04014 – Issue J) to supply the Equipment to Müller (“the Offer”)

Please accept this letter of intent as confirmation of our wish to proceed with the Project as set out in the Offer subject to the following terms:-

(i) The agreed price for the engineering, build, delivery, installation and commissioning as set out in the Offer is GBP 1,682,000 (one million six hundred and eighty two thousand sterling) …

(ii) RTS is now to commence all work required in order to meet Müller's deadlines set out in the Offer to allow commencement of full production by Müller on the Repack Lines by 30 ^th September 2005. Delivery of line also to be in accordance with the timetable set out in the Offer.

(iii) That the full contractual terms will be based on Müller's amended form of MF/1 contract and the full terms and the relevant technical specifications will be finalised, agreed and then signed within 4 weeks of the date of this letter. Prior to agreement on the full contractual terms, only Müller shall have the right to terminate this supply project and contract. However, should Müller terminate, Müller undertakes to reimburse RTS for the reasonable demonstrable out of pocket expenses incurred by RTS up to the date of termination. Müller will not be liable for any loss of profits (whether direct or indirect), loss of contracts, loss of anticipated savings, data, goodwill and revenue or any...