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Müller wins Supreme Court battle over yoghurt packaging machine

11 March 2010

European food producer Müller has won a battle over the contract for a yoghurt packaging machine it bought for its dairy in Shropshire.

Delivering the Supreme Court’s judgment in the dispute, Lord Clarke said the parties intended to sign a detailed written contract but, “as often happens”, the terms were not agreed before the work began.

He said that instead they relied on a letter of intent, which specified the price of the machinery at more than 1.6m. After the letter of intent expired after a few months, they reached full agreement on the work to be done but failed to agree detailed written terms and conditions.

Giving judgment in RTS Flexible Systems v Molkerei Alois Müller Gmbh & Company KG [2010] UKSC 14, Lord Clarke said the “essential issues” in the appeal were whether the parties had made a contract after the expiry of the letter of intent and, if so, on what terms.

Müller argued that the trial judge was correct to hold that there was a contract after the expiry of the letter, but it was not one based on the final draft version of certain terms, as RTS believed.

Lord Clarke said it would be “too simplistic and dogmatic” to say that there would always or usually be a contract on the terms agreed subject to contract.

“The court should not impose binding contracts on the parties which they have not reached,” he said. “All will depend upon the circumstances.”

However, he went on: “We entirely agree with the judge that the parties initially intended that there should be a written contract between them which was executed by each and exchanged between them.”

Disagreeing with the Court of Appeal, which ruled that there was no contract at all after the letter of intent expired, Lord Clarke concluded: “The circumstances point to the fact that there was a binding agreement and that it was not on the limited terms held by the judge.

“The price had been agreed, a significant amount of work had been carried out,agreement had been reached on 5 July and the subsequent agreement to vary thecontract so that RTS agreed to provide line 1 before line 2 was reached without any suggestion that the variation was agreed subject to contract.

“The clear inference is that the parties had agreed to waive the subject to contract clause, viz clause 48. Any other conclusion makes no commercial sense.”

Lord Clarke allowed Müller’s appeal. Lords Phillips, Mance, Collins and Kerr contributed to the judgment.

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