Smith v Artsanna Spa

A contract is formed only where the parties’ communications, assessed objectively at the time, show a clear and unequivocal acceptance of the proposed terms. The court must disregard uncommunicated intentions and later-discovered concerns. A response which leaves material matters equivocal, including the allocation of responsibility for uncertain future events, does not conclude the bargain. The parties remain in negotiation until those matters are resolved.

The claimant appealed from the Luton County Court, where His Honour Judge Viljoen rejected his claim for the price of rotational moulding tools. The alleged sale involved 21 moulds, a price of £120,000, a deposit, and payment and delivery arrangements. After a telephone conversation, the parties exchanged faxes addressing outstanding matters, including intellectual property rights and the possible existence of duplicate tooling. The claimant argued that those communications constituted a binding contract. The central issue was whether the exchange objectively amounted to an offer and clear acceptance, or whether negotiations remained incomplete.

Appeal dismissed with costs. Lord Justice Longmore gave the first judgment, and Lord Justice Parker agreed.

1. The alleged telephone agreement did not establish a binding contract. The finding below was inevitable on the evidence.
2. The exchange of faxes had to be assessed as it would appear to an informed but objective observer at the time of the alleged formation. The claimant’s uncommunicated understanding and the purchaser’s later wish for documentary proof of ownership were irrelevant to that question.
3. The first fax was capable of acceptance, but the response did not amount to a clear acceptance. The purchaser had sought confirmation of worldwide exclusive rights and an assurance concerning the possible existence of similar tools in the United States. The response did not unequivocally accept the word “exclusive” or assume contractual responsibility if duplicate tooling later emerged. It was deliberately equivocal on material matters.
4. The fact that the claimant had apparently given a false answer about his ownership and intellectual property rights was also irrelevant to whether a binding contract had been formed.

The judge below had therefore been entitled to conclude that the parties remained in negotiation. The later withdrawal was permissible because no binding contract had been concluded. The appeal was dismissed, and the public funding assessment was adjourned to the Costs Judge.

• Court of Appeal (Civil Division): dismissed the appeal from the Luton County Court with costs.
• Luton County Court: His Honour Judge Viljoen held that no concluded transaction had been made.