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Court overturns decision about £250m ‘phone call’ contract

Posted: 21st March 2017   In: Corporate Commercial

The Court of Appeal has overturned a decision that a £250m contract was binding based just on what was agreed in a phone call.

The case involved negotiations that took place between property investors and a group of financiers.

On 23 April 2015, the investors sent the financiers a letter marked "without prejudice - subject to contract" outlining an agreement that they would jointly pay £250m for a package of rights and other debt interests.

During a phone conversation on 6 May, one of the investors claimed that a contract was concluded subject to two conditions, namely that he resend the offer letter in 'open and binding form' and "provide satisfactory evidence of an ability to fund the transaction".

On 9 May, the investor emailed the financiers stating that he looked forward to receiving confirmation of their acceptance of the offer and attaching two letters setting out key commercial terms of the offer letter and providing evidence of their ability to fund the transaction.

On 10 May, the financiers stated that the offer had not been accepted. There were no further negotiations between the parties.

The investor sought enforcement of the alleged contract.

The judge dismissed the financiers’ application for summary judgment. He held that the parties' communications immediately following the 6 May phone call should be ignored when considering whether the alleged contract had been made on that date, and that the investors had real prospects of establishing that the contract was concluded on 6 May.

The Court of Appeal has overturned that decision. It held that focusing on one part of the communications in isolation, without regard to the whole course of the dealing, could give a misleading impression that the parties had reached an agreement when in fact they had not.

The 9 May letter was put forward on the basis that the financiers needed to accept and agree to its terms for there to be a contract. That was plainly inconsistent with the parties having already concluded a contract on 6 May.

Please contact Simon Porter if you would like more information about the issues covered in this article or any aspect of contract law.