Historically speaking, where parties to an agreement have started performing a “contract”, even if its terms are still being negotiated, the Courts have been keen to imply some form of contractual arrangement such as an interim contract so as to ensure that payments are made to the supplier. However, in the recent case of Whittle Movers Limited -v- Hollywood Express Limited, Whittle successfully appealed against a decision that the parties had entered into an interim contract. Hollywood Express was a subsidiary of a cinema group which had invited tenders for a sub-contract involving distribution and warehouse services. Whittle successfully tendered for the distribution contract. The tender process was “subject to contract” pending the completion of a formal long term contract. However, before the long term contract was executed, Whittle began performing the distribution services. It transpired that no formal contract was ever executed. After a period of 15 months of trading, Hollywood Express gave notice to terminate the agreement, which it alleged to be an interim contract. Whittle argued that given it had started to perform its obligations, a long term contract had been entered into.
On appeal, the Judge confirmed the decision of the lower Court in that no long term contract had been concluded. It was also determined that there was no interim contract governing the parties’ conduct. On the facts, there were still important terms of the contract which were under negotiation, and therefore the proper ruling was that there was no contract. The Judge commented that the Courts should not strain to find a contract in those circumstances. Instead, it was held that Whittle had an arguable claim in unjust enrichment if they had received from Hollywood Express less than a reasonable price for the services supplied.
In short, this case indicates that the Courts will not strain to find a contract where performance has commenced but important terms are still under negotiation; a restitutionary remedy such as a claim in unjust enrichment is a preferable alternative.
Rebecca Latus
This article is for general guidance only and action should not be taken without obtaining specific advice.
Please refer to our Terms of Use for further information.
