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

JurisdictionEngland & Wales
JudgeLORD CLARKE
Judgment Date21 July 2010
Neutral Citation[2010] UKSC 14,[2010] UKSC 38
Date21 July 2010
CourtSupreme Court
RTS Flexible Systems Limited
(Respondents)
and
Molkerei Alois Müller Gmbh & Company KG (UK Production)
(Appellants)

[2010] UKSC 14

before

Lord Phillips, President

Lord Mance

Lord Collins

Lord Kerr

Lord Clarke

THE SUPREME COURT

Hilary Term

On appeal from: [2009] EWCA Civ 26

Appellant

Kenneth MacLean QC

Michael Fealy

(Instructed by Pinsent Masons LLP)

Respondent

Stuart Catchpole QC

Charles Manzoni QC

(Instructed by Addleshaw Goddard LLP)

LORD CLARKE (delivering the judgment of the court)

Introduction

1

This is the judgment of the court. The appeal arises out of a dispute between RTS Flexible Systems Limited ('RTS') and Molkerei Alois Müller GmbH & Co KG ('Müller') in relation to work carried out and equipment supplied by RTS to Müller. The different decisions in the courts below and the arguments in this court demonstrate the perils of beginning work without agreeing the precise basis upon which it is to be done. The moral of the story to is to agree first and to start work later. The claim was brought by RTS for "money due under a contract, alternatively damages". A number of issues arose between the parties and by an order dated 11 January 2008 Akenhead J ordered the trial of specific preliminary issues. That trial came before Christopher Clarke J ('the judge') and on 16 May 2008 he handed down a judgment in which he determined each of them.

2

The parties had initially intended to enter into a detailed written contract which would set out all the complex terms on which the work was to be carried out and the equipment supplied. However, as often happens, the terms were not finalised before it was agreed that work should begin. It was common ground before the judge that the parties entered into a contract formed by a Letter of Intent dated 21 February 2005 and a letter from RTS dated 1 March 2005 ('the LOI Contract'), the purpose of which was to enable work to begin on agreed terms. The judge held that the LOI Contract was treated by the parties as expiring on 27 May 2005. The judge further held that after the lapse of the LOI Contract the parties reached full agreement on the work that was to be done for the price that they had already agreed, which was £1,682,000 and had been agreed in the LOI Contract. He held that the natural inference from the evidence was that their contract was that RTS would carry out the agreed work for the agreed price. It was not however essential for them to have agreed the terms and conditions and they did not do so. They continued after the expiry of the LOI Contract just as they had before, by calling for and carrying out the work without agreement as to the applicable terms. The judge declined to hold that the parties' contract included the final draft version of certain terms known as the MF/1 terms (the 'MF/1 terms').

3

RTS appealed to the Court of Appeal. At the outset of his judgment Waller LJ, with whom Moses LJ and Hallett LJ agreed, made it clear that RTS had said that it was not appealing any of the judge's findings of fact. The issue before the Court of Appeal was whether the judge was right in holding that there was a contract between the parties at all after the expiry of the LOI Contract and whether, if there was a contract, he was right in holding that it was not on the MF/1 terms. Waller LJ also made it clear that there was an issue as to whether RTS was entitled to contend that there was no contract. The Court of Appeal allowed the appeal and made a declaration that the parties did not enter into any contract after the LOI Contract came to an end.

4

The essential issues in this appeal, which is brought by permission given by the House of Lords, are whether the parties made a contract after the expiry of the LOI Contract and, if so, on what terms. As to terms, the argument centres on whether the contract was subject to some or all of the MF/1 terms as amended by agreement. Müller submits that the judge was correct to hold, both that there was a contract after the expiry of the LOI Contract, and that it was not on any of the MF/1 terms, whereas RTS submits that the Court of Appeal was right to hold that there was no contract but that, if there was, it was on all the MF/1 terms as amended in the course of negotiations. The importance of the MF/1 terms is that they contain detailed provisions as to many matters, including liquidated damages. In this judgment we will focus on those two issues, although part of Müller's challenge to the decision of the Court of Appeal that there was no contract is a submission that it should not have permitted RTS to take the point because it had not been taken before the judge. We will refer briefly to that issue en passant.

The relevant facts

5

Both the judge and Waller LJ have set out the background facts in considerable detail. It is only necessary to refer to some of the facts in order to resolve the issues in this appeal.

6

We begin with the Letter of Intent, which was dated 21 February 2005 and sent by Müller to RTS, and which included the following:

" Project: Build, delivery, complete installation and commissioning by 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… Müller …

Thank you for your mail dated 16 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 …

(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 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 other indirect or consequential loss arising from such termination. No further legal rights or remedies shall be available to RTS upon such termination.

Please confirm your acceptance of the above by signing below where indicated.

This letter of intent shall be governed by English law and subject to the exclusive jurisdiction of English courts."

It is important to note that the Letter of Intent provided for the whole agreed contract price and was not limited to the price of the works to be carried out during the currency of the LOI Contract. It is also of interest and, we think, of some importance that it was contemplated from the outset that the full contract terms were to be based on Müller's MF/1 terms.

7

On 1 March RTS wrote to Müller confirming that it had started work subject to Müller accepting two points. The first was that the equipment would be commissioned by 30 September and would be ready for Site Acceptance Testing ('SAT') activities as shown in the programme. But the equipment would not then be expected to be at full production quantities. Section (ii) of the Letter of Intent would be revised by omitting "full". The second point referred to section (iii) and made the point that during the four week period covered by the Letter of Intent RTS would incur costs in both engineering time and in order to meet the project programme. It would for example place orders for long lead items such as robots, conveyors and tray erectors. RTS said that, in the event of termination, it would require reimbursement for these costs, including the cancellation costs of subcontract commitments as well as any out of pocket expenses, albeit without profit. Those points were subsequently accepted by Müller.

8

The judge held at his para 39 that it was implicit in the LOI Contract that upon expiry of the four weeks it would come to an end. Neither party challenged his conclusion that after the expiry of the LOI Contract it was not revived, either in the Court of Appeal or in this court. In answering the question posed under Issue 1.1, namely what were terms of the LOI Contract and the obligations of the parties under it, the judge said this at para 42:

"a) The agreed price for the engineering, build, delivery, installation and commissioning of the work set out in the Quotation was to be £1,682,000;

b) RTS was bound to embark on such work as was necessary to ensure the provision of the equipment to be supplied by it in accordance with the provisions of sections 4–8 of Quotation J and the timetable set out in Appendix 7 thereof. Commissioning was to be completed by 30 September 2005 and the equipment was to be ready for production (but not full production) and Site Acceptance Testing as shown in that Appendix at that date;

c) Müller and RTS were to have a period of four weeks from 21 February 2005 to finalise, agree and sign a contract based on Müller's amended MF/1 form of contract. Following the expiry of that period the contract would terminate;

d) Prior to agreement of the full contractual terms and conditions based on Müller's amended MF/1 contract, only Müller had the right to terminate the supply project;

e) If Müller did so terminate or the term of the contract expired, it would...

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