Articles

Published by: Steven Smith

Acceptable conduct?

A recent Judgment handed down in the High Court visited the interesting question of whether or not parties had to have signed a written contract in order for it to be legally binding.

Previously the cases have all been “fact specific”. Each case turns on its own facts. The question of whether or not parties have had to sign a written contract in order for it to be binding comes up in commercial/business life on a daily basis.

Many a businessman has said:

“there was a draft agreement that went between parties but we never signed anything so it certainly couldn’t be binding”.

A recent case has helped throw more light on what is an interesting legal question, but to those in the business world has sometimes been a troubling state of affairs. The case of Reveille Independent LLC v Antotech International UK Ltd concerned a Deal Memorandum between the parties which said that it would not be binding until it was signed by both parties. On the face of it, both parties wanted the certainty of knowing that binding legal relations would come into force only when both of them had signed the written agreement. However, the Judge in the case held that the Deal Memorandum was binding because it was clear that the contract had been accepted by the conduct of both parties.

Whilst the Claimant had not signed the Memorandum, the Judge found that the actions of the parties were “consistent only with the parties recognising that they were contractually bound”. The “killer blow” in this case was that the Defendant had acknowledged the existence of a binding contract by agreeing to pay invoices on the basis of the Memorandum. The Judge held that the parties’ conduct in effect amounted to a waiver of the prescribed formalities (i.e. the requirement that the written agreement must be signed) and the agreement was, therefore, held to be binding.

This case highlights the risks of undertaking any work before an agreement is finalised. It is a salutary reminder that any agreement and the terms contained within should be finalised before a party commences any substantive work. To do so otherwise creates a very uncertain situation and despite the existence of formal requirements as to how the contract must be executed, the parties’ conduct may still result in a binding agreement.

The Reveille case is particularly noteworthy because the Judge’s findings, on the face of it, go against an express term of the contract. It serves to show that the Courts will, where necessary, imply terms and/or intentions based on a party’s conduct. It goes to show how important it is to be aware of your/your business’ conduct and what consequences that conduct may have. In the litigation world we say:

“actions have consequences”

but in the Reveille case, that was certainly the case and simply highlights the importance of having a clear understanding of what your conduct might mean in a legal context.

I understand this case is subject to an appeal so watch this space!