RTS Flexible Systems Ltd v Molkerei Alois Muller GMBH [2010] UKSC 14

KEY POINTS

• When assessing the presence of an intention to establish legal obligations, the court considered three potential outcomes or conclusions in the case at hand.

• These possibilities were as follows:

  1. The absence of a contract between the parties, as determined by the Court of Appeal,

  2. The existence of a contract between the parties, albeit on a restricted set of terms as determined by the judge, and

  3. The presence of an agreement between the parties, encompassing broader terms than those identified by the judge.

• The existence of a legally binding contract and its terms are determined by the agreements made between the parties involved.

• The subjective intentions of the parties are not decisive; instead, it is crucial to examine the communication through words or conduct and objectively assess whether there is an intention to create legal obligations.

• It must be established whether all the necessary terms, as perceived by the parties or required by law, have been agreed upon for the formation of legally binding relations.

FACTS

• Respondent RTS Flexible Systems Ltd. (RTS) specialises in supplying automated machines for packaging and product handling in the food and consumer goods industry.

• Appellant Molkerei Alois Müller GMBH (Müller), a prominent European dairy product supplier, engaged in discussions with RTS regarding the automation of its product repackaging process.

• The parties decided to commence work based on a letter of intent, with the understanding that the final terms would be agreed upon later. However, no definitive contract was ever signed between RTS and Müller.

• A dispute subsequently emerged between the parties concerning the delivery of specific equipment by RTS to Müller.

COMMENTARY

• This case highlights the risks and potential pitfalls of relying solely on a letter of intent or informal agreement before a formal written contract is executed. By proceeding with work based on an incomplete agreement, the parties expose themselves to ambiguities, misunderstandings, and disputes.

• In the absence of a clear and comprehensive written contract, the court had to analyse the intentions and actions of the parties, which can lead to uncertainty and conflicting interpretations.