Stabilad Ltd v Stephens & Carter Ltd (No 2) [1999] 2 All ER (Comm) 651
Contract formation; conditional payments; communication of a decision to proceed.
Facts
Stabilad owned a patent for a device which stabilised ladders. It negotiated with Stephens & Carter about granting a licence to exploit the invention. The parties signed heads of agreement on 31 March 1989.
The document provided for two initial payments on account of royalties: £150,000 after a feasibility study and preparation of a production and marketing plan, followed by £100,000 after evaluation of a proposed regional advertising test market. The intended completion date for the exercise was 30 September 1989.
The relationship broke down. On 21 September 1989, Stabilad purported to accept Stephens & Carter’s repudiation and treat the agreement as ended. It nevertheless claimed that the two payments, totalling £250,000, had already become due.
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Issue
The trial judge found that the relevant stages had been completed, relying in particular on Stephens & Carter’s internal documents, and awarded Stabilad £250,000. Stephens & Carter appealed.
The central question was whether the conditions for payment could be satisfied by the company’s internal assessment alone, or whether its decision to proceed had to be communicated to Stabilad.
Decision and reasoning
The Court of Appeal allowed Stephens & Carter’s appeal. On the terms of this arrangement, the conditions required a decision to proceed which was communicated to Stabilad. An uncommunicated internal decision was insufficient. Payment of the lump sum or entry into a further agreement could have conveyed the necessary decision.
The reasoning reflected a practical difficulty with making contractual rights depend on one party’s undisclosed thoughts: the other party might never know that its rights or obligations had arisen.
Significance
The case illustrates the importance of identifying what a contractual condition actually requires. A condition depending on a party’s decision to proceed is different from one satisfied by an objectively ascertainable event. Here, evidence of an internal assessment did not replace the required communication to the other party.
