RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG (UK Production)

An appellate court settling the form of its order should confine its declarations to issues which were fully argued and determined. Unresolved questions of contractual construction may be left to the trial judge.

Where each party has succeeded in part, costs should reflect their overall success and the time attributable to unsuccessful arguments at each appellate stage. Relevant Part 36 offers may justify reserving first-instance costs. Separate issue-based costs orders may nevertheless remain effective.

The dispute concerned work performed under commercial arrangements which followed an expired letter of intent. The trial judge found that the parties had made a new contract on limited terms. The Court of Appeal, [2009] EWCA Civ 26, instead held that no contract existed.

The Supreme Court had allowed the appeal and concluded that the parties made a binding agreement, essentially on MF/1 terms, which was later varied. This supplementary judgment determined the declarations and costs orders required by that conclusion. It also considered which contractual questions should remain for the trial judge and how the parties’ divided success should affect costs at each stage.

1. Disposition and declarations. The appeal was allowed and the Court of Appeal’s order was set aside. The parties had reached a binding agreement on or about 25 August 2005 on terms agreed on or before 5 July and subsequently varied on 25 August. That agreement was not subject to contract or to clause 48.

2. Limits of the appellate determination. The court had determined the fully argued questions of contractual formation. It had not determined questions concerning the construction of the resulting agreement. The judgment sufficiently identified the documents forming the contractual terms, and nothing would be gained by attempting to summarise them in further declarations. Any unresolved matters of construction were to be decided by the trial judge.

3. Variation. It was common ground that the contract was varied by agreement on 25 August 2005. Neither party had previously challenged the trial judge’s answer concerning that variation. The court therefore refused to reopen those findings, leaving any detailed consequences for the trial judge.

4. Overall costs assessment. Neither party had succeeded on its primary case. RTS had nevertheless achieved significantly greater overall success because its alternative case—that a contract existed essentially on MF/1 terms—had prevailed. Müller had succeeded in overturning the Court of Appeal’s no-contract conclusion, while RTS had consumed substantial appellate time by advancing and maintaining that unsuccessful point. Müller was therefore ordered to pay 40 per cent of RTS’s costs in the Court of Appeal and Supreme Court.

5. First-instance and ancillary costs. Relevant Part 36 offers meant that the general first-instance costs should remain reserved to the trial judge. Absent those offers, Müller would in principle have paid 60 per cent of RTS’s first-instance costs. The existing orders requiring RTS to pay the costs concerning the contractual variation, the issue involving the Unfair Contract Terms Act, and inadmissible witness-statement evidence remained undisturbed. RTS was not entitled to repayment of £65,000 already paid on account. Müller was ordered to make an interim payment of £80,000 towards the appellate costs.

1. United Kingdom Supreme Court: Allowed Müller’s appeal, set aside the Court of Appeal’s order and held that a binding contract existed essentially on MF/1 terms. This supplementary judgment settled the declarations and costs consequences.

2. Court of Appeal: [2009] EWCA Civ 26. Allowed RTS’s primary argument and held that no contract existed.

3. Trial judge: Held that the letter-of-intent contract had been replaced by a new contract, but identified terms more limited than the MF/1 terms ultimately accepted by the Supreme Court.