February 20, 2017

Commercial contracts: what if they are clear as mud?

commercial contract

When is an agreement binding?

MacInnes, an investment banker, brought a claim against Gross for a share in the sale proceeds of Gross’ business. MacInnes alleged a verbal contract was agreed between the parties, based on a discussion which had taken place at a restaurant. His position was that in return for his services, which were aimed at maximising Gross’ return on the sale of his business, he would receive a percentage of the difference between the target price and the actual sale price.

Instead of instructing solicitors to formalise the agreement they had reached, MacInnes sent an email to Gross the following day, which he considered set out the agreement “on headline terms”.

Still, no agreement was formalised. Months later, upon the imminent sale of the business, MacInnes emailed Gross stating it was important that both parties were “completely aligned”. Gross replied that they needed to make a proper contract.

The sale of the business completed and MacInnes demanded payment of the sum claimed. Gross maintained the position that no binding contract had been agreed and, instead, discussions during the dinner centred on MacInnes purchasing shares in his business.

The court held that an intention to create legal relations should be scrutinised and that the email “on headline terms” demonstrated that a binding agreement had not been reached. The following emails between the parties confirmed this.

Of course in an ideal world, both parties would have sought legal advice after their dinner and a contract would have been drawn up. However, from our experience in dispute resolution, I can vouch that this is not always the case.

What happens if I find myself embroiled in a commercial dispute?

Here are some pointers to help parties where a verbal agreement is in dispute and a written contract is just too late:

  • Any agreement which cannot be formalised in a deed or contract should be recorded in some way. Make notes of telephone discussions, face-to-face talks and agreements made during negotiations.
  • Make sure you are accurate with dates and details when you advise your legal team of your account of the circumstances. Maintaining a consistent version of events is key.
  • Use your calendar. Diary entries showing the order of meetings have proved to be fundamental for our clients and, in turn, fatal to the opponent’s version of events.
  • Obtain legal advice as soon as possible about the ways in which you can reach agreement with the other party. As in any case where a verbal contract is in dispute, there is a risk that a court will not find in your favour. It is therefore, paramount to explore avenues of both parties limiting their risk and reaching a resolution that they can live with.

Most importantly, parties at stalemate must seek advice on the merits of their position and the options available to them. Unfortunately, in MacInnes’ case, his account of the circumstances was not strong enough to achieve a successful outcome for him.

Share on:

Your Comments

Leave a comment

Thank you for choosing to leave a comment. Please keep in mind that comments are moderated. Please do not use a spammy keyword or a domain as your name or it will be deleted.