Case: RTS Flexible Systems v Molkeri Alois Müller, Court of Appeal 12 February, 2009

Müller, the dairy product supplier, decided to automate its yoghurt-making process and packaging lines at its Market Drayton factory. It approached several equipment suppliers before it had finalised the details, including RTS, a specialist supplier of automated machines for food and consumer goods.

Discussions continued for four years as Müller’s ideas developed. In April 2004 RTS produced quotation A for the design, manufacture, delivery, installation and commissioning of equipment for lines one and two at Müller’s factory. As Müller’s requirements developed, RTS issued further quotations and by 13 January, 2005 the two were discussing quotation I.

RTS’s Mr Bradford offered to start work on the basis of a Letter of Intent. On 13 February Müller’s Mick St John phoned RTS to say it had been awarded the contract.

RTS issued quotation J on 16 February. On 21 February Müller issued a Letter of Intent instructing RTS to start work to meet a deadline of 30 September. The Letter of Intent said the full contract terms should be based on Müller’s amended form MF/1, agreed and signed within four weeks. The MF/1 contract is recommended by the Association of Consulting Engineers for use in the supply and erection of electrical or mechanical plant.

RTS replied on 1 March confirming it was working under the Letter of Intent. On 15 March, Müller sent RTS a first draft of its amendments to the MF/1 conditions. Following RTS’s responses, Müller issued further drafts in April and May. The drafts included clause 48, which required the parties’ signatures to make the contract effective.

RTS and Müller had also agreed that the Letter of Intent would be extended to expire on 27 May or the date the contract was signed, if that was sooner. However, work schedules were still being negotiated, Müller was late in supplying certain equipment needed for the lines and the delivery period was varied. RTS delivered line one on 5 September and line two on 2 December.

The contract was never signed. When Müller only paid RTS 70% of the value, disputes arose.

In the lower court, both parties argued that a contract had come into place but differed as to its terms and whether MF/1 had been incorporated. The trial judge ruled that a contract between the parties was in place.

When RTS appealed, the trial judge’s decision was overturned. The appeal court judge ruled that it was not just a matter that the contract was never signed, he also noted the parties had agreed condition 48 of Müller’s amended MF/1 which prevented the full contract taking effect without the parties’ signatures.