Watch Your Mouth - Oral Agreements and Variations

In a recent case (JAS Financial Products LLP v ICAP Plc [2016] EWHC 591) the High Court held that no legally binding agreement was entered into in the course of oral discussions relating to the supply of services.

Facts

JAS claimed that it had entered into a binding agreement to provide "middle office support" to ICAP for a period of 24 months. ICAP denied that a binding agreement had been reached.

In late 2007 / early 2008 the parties discussed a possible engagement to provide middle office support.

On 3 March 2008 JAS set out a proposal in an email which it sent to ICAP.  A meeting followed on 13 May, at which representatives from both parties went through the email point by point. No changes were made apart from the date on which the engagement was to commence and the parties shook hands on the deal.

Further to the meeting, a JAS representative sent an email which stated, "I have set out below the terms … agreed in the meeting … on Tuesday [1]3[th]. … I am happy to sign whatever additional documents ICAP requires to record this agreement."

Had a binding agreement been reached?

Decision

The High Court held that no binding agreement had been reached.  In reaching its decision whether or not a binding agreement had been reached the Court said that it depended on an examination of the parties' words and conduct to determine whether objectively they intended to create legal relations and agreed all of the essential terms.

According to 3 of the 4 people present at the meeting on 13 May, Mr Bray of JAS said that the parties were "done" or words to that effect. However, the Court accepted the evidence given by Mr Smith of ICAP.  His evidence was that he had challenged the statement and said things had still to go to the lawyers. The qualification by Mr Smith made it clear, and would have made it clear to an objective observer, that although all points had been agreed, creation of a legally binding agreement had not been reached.  At no point had the parties entered into an agreement in writing and neither had they contemplated that a legally binding agreement would or had been agreed orally.

The Court found that even if the emails were capable of acceptance by an email in response, they were not so accepted. Elaborate documentation may not have been envisaged but a reply confirming agreement would be the minimum standard expected.

Conclusion

Although the decision is fact-specific, it gives illustrates how the court looks at whether a binding agreement, oral or written, has been reached. Further, it underlines the importance of making it clear when negotiating a contract or any possible changes to a contract already in existence, whether the parties intend to create a binding agreement or whether the negotiations are subject to contract and are, in effect, heads of term to be formalised.