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A Tale of Two Companies:
When subject to contract really
means, subject to contract

A Tale of Two Companies: When subject to contract really means, subject to contract

Published: 3rd January 2019
Area: Corporate & Commercial
Author: Andrew Hartshorn

In Rotam Agrochemical v GAT Microencapsulation GmbH, once again, the courts have been called on to determine whether two parties, who had not signed a binding agreement, or even reached agreement on key terms, had entered into a binding contract.

The story is reasonably simple but a cautionary one. Back in 2009 Rotam wished to collaborate with GAT to commercialise a newly developed product of GAT’s. The parties looked to negotiate two documents:

  • A data transfer agreement (allowing Rotam to receive data from GAT to allow Rotam to obtain the necessary regulatory approvals for marketing the product); and
  • A collaboration agreement relating to the long term exploitation of the product.

Discussions started in January 2008. GAT’s minutes of various meetings made it clear that “only written and signed agreements [between the parties] shall become binding”. In July 2008 the parties entered into a confidentiality agreement relating to the supply of GAT’s know-how to Rotam which contained a no oral variations clause.

Negotiations continued and various drafts exchanged. The parties undertook some acts referable to the proposed agreements (including the payment by Rotam of £300,000 for use of GAT’s data). In August 2012, Rotam signed the data transfer agreement and supplied it to GAT for their signature. GAT didn’t sign it and told Rotam they were considering the position.

In December of 2012 GAT was subject to a buyout and discontinued the negotiations. Rotam commenced proceedings arguing that both agreements were binding: the Collaboration Agreement on the core terms agreed orally at a meeting in August 2010 and the Data Transfer Agreement in August 2012.

What was the outcome?

The court dismissed Rotam’s claims and reminded us that for a binding agreement to be formed it has to be objectively shown that the parties intended to create legal relations and that they had agreed all essential terms. Rotam simply could not show that GAT, at any time, had agreed to be party to a binding agreement. Nor were all significant terms agreed at that time. It didn’t help Rotam’s argument that additional drafts of the Collaboration Agreement were exchanged in the three months after Rotam claimed the parties had entered into a binding agreement!

The court did however award Rotam its £300,000 back for a complete failure of consideration.

And the moral of the story?

If you want to be certain that you have a binding contract, get it in writing and signed by both parties; if you start doing things in anticipation of this, you do so at your own risk!

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