"Subject to Contract" - A Definitive Decision
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An interesting recent decision of the Supreme Court of England found that, although parties to a supply arrangement had not signed a final written contract, a binding agreement had come into force.
In the RTS Flexible case the English Supreme Court found that an agreement had come into effect on the basis of a letter of intent, even though it was expressed to be "subject to contract".
Lord Clarke commented in the case:
"The different decisions in the courts and the arguments in this court demonstrate the perils of beginning work without agreeing the precise basis upon which it is to be done. The moral of the story is to agree first and to start work later."
The case highlights the need to reach agreement before work commences, put interim arrangements in very clear terms, setting out what work is to be done, for what price and for what period. The Irish courts are likely to follow the principles applied by the English court, but of course, cases of this kind often turn on their facts - the important point is to be as upfront and express as possible about the non-binding nature of any pre-contract engagement.
A link to the judgment can be found here.
