Case report: Reveille Independent LLC v Anotech International UK (Limited) - what ingredients make a binding "Masterchef" contract?

1 June 2016

Reveille Independent LLC v Anotech International UK (Limited) [2016] EWCA Civ 443

Background

This case concerned a dispute over whether there was a binding contract between Anotech, a manufacturer of cookware, and Reveille, a television production company. The contract in question was for Reveille to integrate and promote Anotech’s products in its television programme MasterChef US, as well as to license Anotech to use the MasterChef brand on its products for sale.

During initial negotiations, Reveille sent a brief document referred to as the ‘Deal Memo’ to Anotech, which contained relevant terms of the agreement, and which was meant to subsequently be replaced by detailed, long form agreements to be negotiated by the parties. The Deal Memo set out the licensed articles, the license territory, and the schedule of payments to be made.

An Additional/Special Provisions section stated: "Non-refundable Advance is due upon signature of this Merchandising Deal Memo." The Deal Memo also stated that it would not be binding on Reveille until executed by both the Licensee and Reveille.

There were three further iterations of the Deal Memo, the last version being one that was amended, signed and returned to Reveille by Anotech. In this version, Anotech had included the handwritten words: “Approved no marketing advance”, and as a result of a mistake, excluded the Additional/Special Provisions section.

Reveille never signed the Deal Memo, and over the following months there were further negotiations regarding the long form agreements but they were never completed.

Subsequently, Reveille sent an invoice to Anotech for the advance sum, and Anotech responded by requesting invoices for the ‘first payments’ to be appropriately addressed. However these were not paid and Reveille subsequently wrote to Anotech treating the contract as repudiated.

The judge at first instance considered that the important factor in deciding whether or not the Deal Memo was a legally binding agreement, was Reveille’s conduct in relation to the alleged contract. The judge found it to be extremely clear that both elements of the supposed contract – the integration of Anotech’s products into the MasterChef programme and the license to use Reveille’s MasterChef brand – had been carried out by Reveille. The judge therefore concluded that Reveille had accepted by conduct Anotech's offer contained in the Deal Memo as returned by Anotech. Accordingly, he ordered Anotech to pay approximately USD1m, in respect of integration fees and royalties, plus interest and costs.

Anotech’s argument in the appeal was that the actions taken by Reveille did not necessarily represent acceptance of the Deal Memo, and could be deemed as acts taken in anticipation of the long form agreements being reached.

Discussion

In the judgment of the appeal court, Cranston J stated a number of legal principles drawn from case law and authoritative commentary that he considered to be relevant to this case:

  • The parties' consent to a contract is found in the acceptance of an offer, which can be by the conduct of the offeree so long as it is objectively shown to have intended to constitute acceptance
  • Acceptance can be of an offer on terms set out in an unsigned draft agreement
  • If a party has a right to sign a contract before being bound, it is open to it by clear and unequivocal words or conduct to waive that right
  • Where signature is the prescribed mode of acceptance and is intended for the benefit of the offeree, its acceptance in a different way should be treated as effective unless it is shown that the failure to sign has prejudiced the offeror
  • A draft agreement can have contractual force, despite non-compliance with a signature requirement, if essentially all the terms have been agreed and the parties’ subsequent conduct indicates this, albeit a court will not reach this conclusion lightly
  • The subsequent conduct of the parties is admissible to prove the existence of a contract and its terms, although not as an aid to its interpretation

The court also highlighted important policy considerations that featured in the case law:

  • The need for certainty in commercial contracts, which extends to the question of whether a contract has come into existence
  • In commercial dealings, the reasonable expectations of honest, sensible business persons must be protected.

In light of this, the court of appeal dismissed Anotech’s appeal unanimously, finding that:

  • The Deal Memo sent by Reveille was an offer; the amended form returned by Anotech was its counter-offer, which required acceptance by Reveille (now the offeree). By not signing, the offeree was waiving the prescribed mode of acceptance set out for its benefit. Such waiver is effective so long as there was no prejudice to the offeror (which the court considered in this case was not sufficient to prevent the waiver from applying).
  • There is clear evidence of acceptance by conduct on Reveille's part, conduct in which Anotech was closely involved.
  • Anotech’s conduct itself – e.g. its acknowledgement in emails that it had to pay Reveille – was also consistent with the existence of a binding contract, and could be differentiated on the facts from conduct that might be carried out in anticipation of a future contract.
  • In conclusion, “The upshot of the legal analysis, that the Deal Memo was a binding contract between Reveille and Anotech, accords with what would be the reasonable expectations of Lord Steyn's honest, sensible business people.”

Implications

This case serves as a clear reminder that a prescribed mode of contract acceptance can be waived by conduct. It also demonstrates that just because a document is short, in the form of a ‘memo’, unsigned, and contains handwritten notes, does not prevent it from being a legally binding contract with significant cost implications.

It is therefore important that when negotiating a contract, the client is satisfied with the position reached on its terms, preferably recorded in a formal and unequivocal document, before proceeding with any conduct related to the content of the proposed contract. It could otherwise find itself legally bound by what it had perceived to be an incomplete and unsatisfactory document.

When considering if a contract has come into existence between commercial parties in negotiation, the court has shown that it is keen to preserve certainty and give due attention to what it considers to be the reasonable expectations of honest, sensible business people.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

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