Has a Contract Been Formed?

Work is all too often carried out in the construction industry without the terms of a contract having been first agreed. The perils of this situation are well illustrated by RTS Flexible Systems Ltd v Molkerei Alois Muller & Co KG, a case which reached the Supreme Court, where judgment was given on 10 March 2010.

The case involved the supply, installation and commissioning of an automated system of packaging yoghurt pots. The work was commenced pursuant to a letter of intent. Following the expiry of the period covered by the letter of intent, the work continued, while the parties negotiated over the detailed terms of the contract. It was envisaged that the contract would be on the MF/1 conditions, clause 48 of which provides that a contract will only come into effect on the contract being executed. No contract was ever executed, although most of the terms were agreed in correspondence.