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Volumatic Ltd v Ideas for Life Ltd: English Court refuses to find binding contract, despite written document

11 November 2019

The English Intellectual Property Enterprise Court recently examined the objective test to be employed when determining the parties’ intention to create legal relations through a written document.

The decision is a rare instance where an express, written document was found to be non-binding based on the Court’s interpretation of the parties’ intentions.

Background to the dispute

In Volumatic Ltd v Ideas for Life Ltd [2019] EWHC 2273,the Claimant (Volumatic) sought specific performance of an agreement (the Agreement), the contents of which were subject to proceedings.

The Claimant claimed that it had entered into the Agreement with Ideas for Life Ltd (the Defendant) and that its contents were binding on both parties. The Court considered the status of the Agreement, which had been signed by the two parties.

The Claimant entered into discussions with another company (Designs for Life Limited (DFL) (for the purposes of this discussion, DFL and the Defendant are interchangeable), about the possibility of designing and manufacturing a product. The Defendant was incorporated by DFL for the purposes of designing a banknote pouch to fit cash counting machines (the Product).

In May 2005, the parties signed a document relating to the design and production of the Product. Both parties contemplated further, more formal documentation but there had been various steps and stages already undertaken in the process of producing the Product.

As the parties continued to design and manufacture the Product, they did so without any reference to the Agreement. Significant quantities of the product were eventually purchased by the Claimant.

In 2016, the Claimant sought to enforce the terms of the Agreement, seeking an order for specific performance, such that the intellectual property rights in the product would be transferred to the Claimant.

Issues for consideration before the Court

The key issues in consideration before the Court were:

Whether the Agreement had contractual force, which depended upon whether there was (a) an intention to create legal relations and (b) whether the terms are sufficiently certain.

Various equitable considerations, including:

  • whether the Claimant is estopped by convention from asserting that the Agreement is binding
  • whether the Claimant has come to the court with clean hands (i.e. ethically and in good faith) and
  • whether it would be inequitable for the court to order specific performance of the Agreement.

The decision

The Court was tasked with deciding whether the Agreement was intended to be legally binding. Since the document that formed the Agreement was an “express, written, commercial document,” it was a heavy burden to prove that there was no intention to create legal relations.

However, objectively and based on the facts, the Court found there had been no such intention. Rather, the document was designed to record the consensus reached at a meeting between the two parties. The document was thus found to lack contractual force.

Given that the Claimant had only asserted its rights 11 years after the Agreement was purportedly entered into, the Court held that, even if the Agreement could constitute a legally binding document, the Claimant would likely have been estopped from relying on its terms.

The Court’s decision was also based on the fact that neither party had raised the issue that the Agreement might constitute a binding agreement until 11 years after it was signed.

In fact, the Court went on to find that, even if the Claimant was entitled to enforce the Agreement, the Court would have denied specific performance because “a party cannot ignore an agreement for more than 10 years and then seek specific performance of the clause that benefits it.”

Key takeaways

The parties’ conduct played a significant part in the Court’s decision making; this case therefore acts as a helpful reminder as to how the Court may approach the issue of contract formation.

It also provides a cautionary tale as to the potential implications of delaying the exercise of legal rights, even where there exists a legal contract.