Blog authors: Marc Hanson and Helena Savva – BLP Law
JCT forms include comprehensive guidance on execution, in addition to standard provisions allowing the parties to execute the contract under hand or as a deed. However, what they do not include are terms providing that the contract will not be binding unless both parties execute it.
So, what if the parties amend their JCT form to include such a term and then one party doesn’t sign? Surely, the answer must be that the contract won’t take effect? Not necessarily, held the Court of Appeal in the recent case of Reveille Independent LLC v Anotech International (UK) Ltd . While this is a commercial case, the ruling is of relevance to construction contracts.
This case centred around whether a licensing agreement had been entered into between the claimant, Reveille, and the defendant, Anotech, relating to intellectual property rights in connection with products to be used on the US version of the television series MasterChef.
Following negotiations in January 2011, Anotech returned a signed, amended version of a deal memo which stated that it was not to be binding until signed by both parties. The deal memo was intended to be replaced by detailed long form agreements, but negotiations subsequently broke down.
In July 2012, after Anotech failed to pay Reveille’s invoices, Reveille wrote to Anotech treating the contract as repudiated on the basis that the deal memo constituted a binding contract. Anotech’s main argument was that the deal memo it had executed was not signed by Reveille and so there was no binding contract between the parties.
The High Court found in favour of Reveille stating that there was a binding contract based on the deal memo, since Reveille had communicated acceptance of the contract by conduct. Anotech appealed this decision.
The Court of Appeal dismissed Anotech’s appeal. Applying the classic contract law principles of offer and acceptance, the court held that the initial deal memo sent by Reveille was an offer. When Anotech signed and returned the amended form of deal memo, that was a counter-offer which required acceptance by Reveille. The court then considered whether Reveille had effectively accepted this counter-offer.
The court held that where a signature is the prescribed mode of acceptance, a party (in this case, Anotech) will still be bound by the contract if it waives that requirement and acquiesces to a different mode of acceptance, so long as that party is not prejudiced by the failure of the other party (in this case, Reveille) to sign. The only prejudice to Anotech of Reveille not signing was the commercial uncertainty as to whether it was bound by the deal memo. The court said that this paled into insignificance when Anotech was receiving all the benefit of Reveille’s performance of the memo’s terms. Objectively, Anotech could not have thought that it was prejudiced when from the outset it actively facilitated Reveille’s performance of the deal memo’s terms.
Therefore, the High Court was right to focus on whether there were clear and unequivocal acts on Reveille’s part, which Anotech knew about, to constitute acceptance by conduct of Reveille’s counter-offer. The court felt that there was clear evidence of such acceptance by conduct, in which Anotech was closely involved.
The conduct of the parties is of crucial importance in determining whether a contract is enforceable. Parties can still be contractually bound even if they do not comply with an express requirement that the contract must be signed to be binding.
This is particularly pertinent in a construction context because parties often start work before contracts are signed. As this case shows, just because you don’t sign a contract does not mean that should a dispute arise later on, you can argue that the mere fact of failure to sign means a contract is not in existence. If you complied with the contract’s terms then the likelihood is that the court will hold that you entered into the contract, regardless of whether you have signed it or not.
Note: Blog posts are the views of the author(s) and do not necessarily represent the views of JCT.