No binding contract where fundamental terms had not been agreed

Zoe O’Sullivan QC and Abra Bompas represented McLaren Automotive Ltd in its successful defence of a claim for £22 million: CRS GT Limited v McLaren Automotive Ltd and others [2018] EWHC 3209 (Comm), Phillips J.  CRS was a supplier to McLaren which had designed the successful GT4 road car.  However, the parties had never concluded a formal written contract.  CRS claimed that Heads of Agreement reached between the parties in February 2016 constituted a binding contract, or alternatively that the parties had entered into a binding contract by their subsequent conduct.  CRS therefore claimed that it had the exclusive contractual right to provide parts and aftersales support for the GT4 car.  McLaren contended, in a defence which was accepted by Phillips J, that no binding agreement had been concluded and that CRS’ only remedy was a quantum meruit claim for the design and manufacturing work it had carried out.  Phillips J dismissed all CRS’ claims save for making a declaration that CRS was entitled to the quantum meruit payments admitted by McLaren.  

The case is an interesting example of those situations, not uncommon in the law reports, where the parties begin work on a project without waiting for the signature of formal agreements.  In determining whether the parties had proceeded on a “subject to contract” footing, the judge applied the principles set out by the Supreme Court in RTS Flexible Systems Ltd v Molkerei  Alois Muller GmbH [2010] 1 WLR 753.  He held that this was a case akin to British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, in which there was no binding contract because fundamental terms (in particular, as to which party would have the IP rights in the design) had not been agreed.

Zoe O'Sullivan QC and Abra Bompas acted for McLaren Automotive Ltd, instructed by Ashurst. A copy of the judgment is available here.