Commercial negotiations, draft contracts and the formation of a contract (Rotam Agrochemical Co Ltd v GAT Microencapsulation GmbH)

Article summary

Commercial analysis: In Rotam Agrochemical, the High Court considered the familiar problem: at what point in commercial negotiations will a binding contract be concluded? Ultimately, that will depend on whether and when the parties’ communications, by words or conduct, led objectively to the conclusion that they intended to be bound and had agreed the terms that they regarded as essential. This case demonstrates that, in principle, the parties may intend to enter into an earlier, preliminary contract while negotiating a complex, commercial contract, and when one party sends a draft contract which provides for signature, that signature may not be vital, and the offer may be capable of acceptance by other means. For contract draftsmen, clearly expressing when a contract is intended to be binding provides the surest protection against the possibility of a contract being formed before the intended time. Written by Seb Oram, barrister at 3PB Barristers.