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Contract by conduct: A cautionary tale

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20/05/2015


The Commercial Court has served a salutary reminder that parties should not become complacent towards the close of contractual negotiations. Written contracts can become binding by virtue of conduct, even regardless of apparent completion formality requirements.

In Reveille Independent LLC v Anotech International UK Ltd [1] the claimant US TV company negotiated terms with the defendant British distributor of cookware for the licensing of intellectual property rights in the MasterChef brand and the integration and promotion of the defendant’s products in the programme. The parties negotiated a short form written agreement (“the Deal Memorandum”), which was never signed and which was intended to be replaced by long form agreements. The long form agreements were never agreed and negotiations between the parties broke down. In the meantime, the cookware had been integrated during MasterChef episodes; the defendant had acknowledged that it was liable to pay for such promotion; and the defendant had marketed products and literature bearing or referring to the MasterChef logo. When the claimant subsequently brought a claim for breach of the Deal Memorandum, the defendant argued that there was no binding contract as (1) the Deal Memorandum stated that it was not to be binding until signed by both parties and it had not been signed by the claimant; and (2) any steps taken had merely been in anticipation of a binding agreement being concluded either under the Deal Memorandum or pursuant to the long form agreements.

The Commercial Court did not accept the defendant’s arguments. It decided that a binding contract had come into existence.

Commercial clients, contract managers and anyone involved in commercial negotiations should note that binding agreements can arise easily, and often inadvertently.

Key points

  • The signature of parties to a written contract is not essential for a binding contract to arise.
  • That is the case even where the written terms of the contract itself require signatures or other completion formalities.
  • Written or other requirements or formalities can be waived, and waiver can be demonstrated by behaviour.
  • Any offer or contract can become binding by virtue of a party’s acceptance by conduct.
  • Contracts can be partly written, partly oral and partly implied by behaviour.
  • Contracts can be concluded via e-mail, or even by clicking a button on a website.
  • The law recognises commercial reality to the extent that some work can be carried out in anticipation of a contract being put into place, without binding contractual obligations immediately arising.
  • However, whether and when a contract will come into existence will be a question of fact and degree in each case. The more significant, costly and long-running any work is, the more likely it is that a contract has arisen by conduct.
  • Here, acknowledgement by one of the defendant’s directors that liability to pay for promotion had arisen was particularly persuasive of the existence of a binding contract.
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[1] [2015] EWHC 726 (Comm)

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