Negotiating is One Thing, But Completing a Binding Contract is Quite Another

Commercial negotiations may proceed for many months and involve any number of meetings, messages and phone calls. However, as a High Court ruling showed, the question of whether a binding contract has been completed very often hinges on whether a signature appears on a dotted line.

Over an extended period, a pharmaceutical company negotiated with a supplier, with a view to being supplied with a muscle relaxant drug used in the treatment of multiple sclerosis. The company asserted that those negotiations resulted in a legally binding agreement and launched proceedings after the supplier entered into a distribution deal in respect of the drug with one of its competitors.

Dismissing the claim, however, the Court found that the negotiations had proceeded throughout on a 'subject to contract' basis. Offers had been made and accepted, but it was understood that no binding contract would come into existence until a formal addendum had been agreed and signed by both parties. Such an addendum had been reduced to writing, but the supplier never signed it.