Contract Law Case Analysis. RTS Flexible Systems Ltd v MolkereiAlois Muller GmbH & Co KG

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Level 2  Contract Law                Anonymous Code: 11557

2. The High Court deals with this case as a “trial of preliminary issues”. What does this mean?

A trial of preliminary issues is a mechanism courts use in civil proceedings where an issue is ordered to be tried before the main trial of a case. It aims to resolve dispute between parties without the need for a full hearing and pre-trial processes associated with civil litigation, thus attempting to dispose of litigation in a more timely and cost effective manner than a substantive hearing.

The preliminary issue here was to determine the nature of the contractual relationship between the parties. Specifically, did the terms set out in the letter of intent form the contract, whether this had terminated and upon expiry what were the new terms.

3. Explain the relevant facts of this case in the context of the dispute between the parties. Consider in particular why RTS argued on occasions that the terms contained in “MF/1” should be included in any contract between the parties. Do not devote more than 800 words to this explanation.

RTS Flexible Systems LTD(RTS) specialises in packaging machinery and Molkerei Alois Müller GmbH & Co Kg(Müller) is a dairy product supplier.

Müller procured RTS to design, manufacture, assemble, works test, deliver, install and commission, at Müllers factory, yoghurt packaging machinery.

RTS produced a continuity of quotations which referred to RTS’ terms and conditions of sale. Müller indicated that it wished any contract to be on its own terms and conditions of sale rather than those of RTS. RTS suggested using form MF/1 as a base for the terms and conditions as they regarded this form as neutral between employing and contracting interests. Müller took on board this suggestion and produced a first draft of the special conditions it sought to incorporate into the form MF/1, which RTS roundly rejected. RTS and Müller discussed and agreed to a number of matters including the payment profile, technical details, and liquidated damages.

The above negotiations took place before the contract was awarded to RTS and upon allocation RTS provided Müller with Quotation J(QJ). This stated various terms and conditions of sale, the paramount being the payment schedule and price, the parent company guarantee, and the plan for the delivery of the free issue equipment(FOI-equipment which Müller had to provide).

Müller responded to the quote with a Letter of Intent(LOI) which was a confirmation of their wish to proceed with the project subject to three terms; the agreed price is 1,682,000 GBP, RTS to commence work immediately so it meets the deadline of September 30th for full production and only Müller has the right to terminate the project and if it does, RTS will be reimbursed for out of pocket expenses but not for loss of contracts. Müller also stated that the full terms of the contract will be based upon Müllers amended form of MF/1 contract and this will be finalized and signed within four weeks of the date of the LOI.

RTS responded with written confirmation that they had begun work on the project subject to Müller accepting two points; the equipment will be commissioned by September 30th but not expected to be working at full production quantities, the second point was that Müller shall be liable for not only the reasonable demonstrable out of pocket expenses if they cancel the contract, but also for cancellation of contract costs and long lead item costs.

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The four week period expired and both parties agreed to an extension of the letter of intent terms, while negotiations continued. RTS formed the URS by incorporating section 4 onwards of QK(difference from QJ insignificant). Final negotiations ensued and Müller planned, but didn’t, on forwarding the final contract to RTS for signing within that week. RTS then sent Müller their understanding of the contract schedules which weren’t responded to, however Müller approved plans sent a month later.

The FEI arrived late, an issue for Müller as they’d secured a contract to provide Tesco with 150,000 packs of the new product ...

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