Contract formation – parties must play to the whistle to get the ball over the line

United Kingdom

Summary judgment applications are often high risk but they can lead to high reward in the right circumstances. The case of Rosalina Investments Ltd v New Balance Athletic Shoes (UK) Ltd [2018] shows that if the court has all the information it requires to make a decision, it should "grasp the nettle and decide".

The dispute concerned whether a contract had been formed in protracted negotiations.  It is an important reminder of the principles of contract formation, as well as the factors the court will consider to determine the intention of the parties in the negotiations. To avoid prematurely creating a legally binding contract, parties must remember to give consideration to their actions and wording during the negotiation stage.

Background

New Balance Athletic Shoes (UK) Limited ("NBUK") had an endorsement agreement with the management companies of Marouane Fellaini (“the Companies”), a football player for Manchester United and Belgium. Under the agreement, NBUK supplied Mr Fellaini with football boots and clothing. Mr Fellaini wore and promoted NBUK products and products of related group companies.

The agreement expired and the parties entered into discussions to negotiate a new agreement. Various drafts passed between the parties.  NBUK decided to withdraw from negotiations and no agreement was signed by all the parties.

The Companies claimed that a new contract was formed by correspondence between the parties. NBUK applied for summary judgment/strike out of the claim.

The Decision

May J considered that she had before her, all the communications crossing the line between the parties, which related to the renewal of the agreement. As such, and following RTS Flexible Systems v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14, no further evidence would assist in determining whether a contract had been concluded.

May J held that this was a matter suitable to be decided summarily, and following Global Assset Capital Inc v. Aabar Block SARL [2017] 4 WLR 163, she needed to "grasp the nettle and decide".

As the case concerned two parties negotiating a contract by exchange of correspondence, the normal contractual rules applied for the formation of a bilateral contract i.e. offer; acceptance; consideration and an intention to create legal relations. It was then for the court to decide whether the parties had reached an agreement.

The court followed the rule in RTS, and considered the full run of communication between the parties to assess objectively what the parties had intended. The Judge ruled that witness evidence from the parties and disclosure of their internal communications, would not assist in determining whether a contract was concluded thus differentiating the case from Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394, which involved a unilateral contract. 

In taking this decision, the court determined that the parties had only intended to be bound by the contract once they all had signed a revised agreement. The key factors in influencing the court's decision are summarised in the Judgment, they include:

  • A threatened refusal by the Companies to provide endorsement services until the new agreement was signed.
  • Related personal guarantees were not signed and sent to NBUK until almost a month after the date on which the Companies alleged that the contract had been completed.
  • The use of the language habitually used by legal professionals, including using the term 'amendment' which indicated a contract not yet over the finishing line;
  • The repeated references in emails passing between the parties for the agreement to be signed; and
  • The fact that the parties continued to negotiate over important terms (e.g. termination and retainer clauses) and the absence of resistance to them.

The Companies unsuccessfully applied for permission to appeal the decision.

Comment

Summary judgment applications are often high risk but they can lead to high reward in the right circumstances. If the court has all the information it requires to make a decision, it should "grasp the nettle and decide".

Parties must remember that where a contract has been made by correspondence: (a) the court will consider the whole of that correspondence (not stopping at the date the contract is said to have been formed); and (b) the principles of contract formation are to be objectively assessed.

This is also an important reminder of the principles required to create a legally binding contract, as well as the factors the court will consider to determine the intention of the parties in protracted negotiations. Parties must be mindful of their actions and wording used during the negotiation stage to avoid prematurely creating a legally binding contract (or not – as the case may be).