Müller dispute with supplier highlights contractual perils

By Rod Addy

- Last updated on GMT

Related tags: Müller, Contract

Müller Dairy UK has vowed to pursue automated solutions provider RTS Flexible Systems for "substantial damages" following the outcome of a UK Supreme Court verdict on a costly legal dispute.

Summing up, the Supreme Court said: "The instant case demonstrated the perils of beginning work without agreeing the precise basis upon which it was to be done, and the moral was to reach agreement before work began."

Müller sent a letter of intent to RTS in February 2005 outlining the 'build, delivery, complete installation and commissioning by RTS' of automated kit at its Market Drayton site in Shropshire. Müller agreed to the work for a fee of £1.7m.

Despite the fact that no written contract was ever formally agreed beyond this, work went ahead, as the project deadline was tight. A dispute subsequently arose between the two parties regarding the delivery of items of equipment to Müller and the status of the agreement between both parties, particularly regarding liabilities and payment terms. Müller only partially paid RTS for its services.

RTS took Müller to court for 'money due under a contract, alternatively damages'. Müller argued it had no commercial obligations to RTS for any of the work it carried out after the letter of intent had expired.

A Technology and Construction Court judge ruled that a contract had effectively been in place after the letter of intent's expiry, but it didn't include terms that favoured RTS. RTS then appealed against the decision.

The Court of Appeal then ruled that no contract had been in place beyond the letter of intent. However, its verdict was in turn reversed by the London-based UK Supreme Court on March 10 this year.

This final verdict ruled that because both parties concerned had acted as if a contract had been in place, a binding agreement was deemed to be in effect beyond the letter of intent. The judge deemed Müller and RTS to have treated the letter as expiring on May 27 2005.

"The judgment ... has restored Müller's ability to sue RTS for breach of contract when previously its only remedy was in restitution for recovery of sums already paid to RTS,"​ said a spokesman for Müller.

"Müller will continue to defend RTS's claim and to pursue its own counterclaim for substantial damages."

A spokeswoman for Addleshaw Goddard, the law firm that instructed barristers representing RTS in the Supreme Court, said: "We were very pleased with the decision of the Supreme Court, which acknowledged that RTS was entitled to the contractual safeguards and liability caps that had been agreed with Müller, contrary to Müller's submissions.​" RTS itself declined to comment.

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