Despite stressing the importance of certainty in commercial contracts, the Court of Appeal in Reveille Independent LLC v Anotech International (UK) Limited [2016] EWCA Civ 443 found that the commercial conduct of the parties was sufficient to have waived the execution formalities
While this is an English case (and, as such, is only persuasive in Scotland rather than legally binding), it provides some helpful indication for the drafting and consideration of contractual clauses in both jurisdictions.
Facts
Reveille Independent LLC (“Reveille”), the producer of MasterChef USA (a cooking competition hosted by chef Gordon Ramsay) claimed that a merchandising deal memo sent to Anotech International (UK) Limited (“Anotech”), a manufacturer of cookware utensils, constituted a binding contract despite a failure to comply with the execution formalities set out in the memo.
The memo provided that Reveille would promote Anotech’s products in three episodes of MasterChef USA and Anotech would display the Masterchef USA brand on its products for sale in the USA and Canada. The terms of the memo stated that it would not be binding on the parties until executed by both parties. Reveille had returned the deal memo to Anotech with manuscript amendments, however negotiations broke down and Reville did not sign the contract.
Despite this, Anotech began performing its obligations under the deal memo by providing Reveille with cookware to be used on MasterChef USA. Reveille also approved a request by Anotech to use MasterChef USA’s intellectual property in an episode filmed in Chicago.
It was held in the first instance that a binding contract had been formed based on the conduct of the parties. Reveille appealed, arguing that Anotech’s performance of its obligations was not enough to conclude that a binding contract had come into existence.
Decision
The Court dismissed Reveille’s appeal on the grounds that there were clear and unequivocal acts by both parties to fulfil their respective obligations under the contract. The Court found that Reveille had been acting as if Anotech was a licensee of the MasterChef USA brand by using its cookware on its broadcasted episodes. This led to a binding contract from around the date on which Anotech began marketing its products with the MasterChef USA branding. However, the absence of a signature did create uncertainty as to the commencement date of the agreement.
The Court highlighted the importance of certainty in commercial contracts, as well as in commercial negotiations. Notably, the Court appeared to caveat commercial dealings, providing that ‘the reasonable expectations of honest, sensible business persons must be protected’. Acceptance by conduct, in a commercial context, can create binding contracts even if the contractual signing requirements are not adhered to.
Importantly, the waiver of the requirements by conduct had not prejudiced either party. However, the judgment may have been different had it produced a different outcome.
Comment
The judgment demonstrates the Court’s willingness to interpret commercial intention in contracts, but this should not be relied upon when drafting commercial contracts. Certainty in commercial contracts is the safest way to avoid dispute and having to rely on interpretations of commercial common sense.
In Marley v Rawlings [2014] UKSC 2, Lord Neuberger suggested that commercial common sense can be applied but should not be used to compromise the importance of the language used in the drafting. He also set out that commercial common sense should not be invoked retrospectively; the natural meaning of a contract will prevail, if clearly drafted, even if one party suffers commercially.
It is important to draft commercial contracts in clear, concise and understandable language. The intentions of the parties should be clearly set out and the formalities of the contract observed. Following these steps will go a long way to avoiding the necessity of judicial interpretation, which may lead to an unpredictable outcome.
