Summary

Viewed objectively, a letter, as counter-signed and marked, sent in the course of negotiations had not been intended to introduce a non-competition clause into the formal licence agreement by which the claimant joined a chain of hotels and became entitled, in return for fees, to the benefit of sales, marketing and reservation services of the defendant.

Facts

The trial on liability in a claim by the claimant company (H) for breach by the defendant company (G) of an alleged non-competition clause in a licence agreement. H was the owner and operator of a hotel. The agreement had been made between H and another company (X), but the rights and obligations of X were transferred subsequently to G. By the agreement H joined a chain of hotels and became entitled, in return for fees, to the benefit of sales, marketing and reservation services. H alleged that a term had been incorporated into the contract to the effect that G would not admit into its hotel chain, without H's consent, any competing establishment located within one kilometre of H's hotel. It was accepted that if that term was established, there had been a breach. H's contentions centred on negotiations between its managing director (R) and an employee of X's parent company (L), who was a director in respect of franchising. H submitted that a concluded agreement was reached on November 3, 1999 when L signed two copies of the licence agreement and, by virtue of R's manuscript addition, it incorporated a non-competition clause in the terms alleged. Alternatively, H submitted that such a clause had been incorporated when L signed a letter from R on December 24 and wrote "OK" in the margin alongside a paragraph referring to an agreed non-competition clause. G denied both contentions and submitted that L had no actual or apparent authority either to conclude a licence agreement on his own signature or to include a non-competition clause in the licence agreement.

Held

(1) A contract was made between H and G on October 12, whereby it was agreed that H would join the hotel chain. However, it was clearly understood that the document was only a draft or provisional contract that was to be superseded by a formal written contract. There was no concluded agreement on November 3. Viewed objectively, the December 24 letter, as counter-signed and marked by L, was not intended to introduce a non-competition clause into the formal contract. Rather, L's signature and his addition of the word "OK" was an acknowledgement that he had been content at the time for such a clause to be added. The presence of the entire agreement clause supported the conclusion as to intention. Further, L had no actual or ostensible authority to include a non-competition clause in the formal agreement on December 24. R knew that L did not have authority to agree to the inclusion of the non-competition clause in the formal contract. The contract between H and G did not include the alleged non-competition clause. (2) (Obiter) Even if a concluded agreement was made on November 3, it did not incorporate the alleged non-competition clause. The letter of December 24 could not take effect as a subsequent variation of the formal contract, even if it had been intended to have contractual effect, because it had been countersigned by L before or at the same time as a concluded formal contract was made.

Judgment for defendant.