Oral ‘agreement’ over multi-million pound deal was not binding
The risk involved in making major business decisions based on oral agreements was highlighted in a recent case involving a claim for a £13.5m commission payment.
It involved a bank employee who agreed to help a company director sell his business. They met in a restaurant on 11 March, 2011 to discuss the deal.
The banker claimed they reached an agreement whereby he would give up his job so that he could concentrate on helping the director grow his business prior to sale.
On 24 March, the banker emailed the director setting out what he alleged was an agreement "on headline terms" between the parties. He gave notice to the bank but continued to work for his employer in connection with the director's business until July.
On 7 December, when a possible sale to a buyer introduced by the banker was beginning to crystallise, he emailed the director stating that it was important that the parties were "completely aligned".
In reply, the director stated that they needed to make a "proper contract". However, there were no further discussions and no formal agreement was signed. After the business had been sold, the banker demanded payment of £13.5m.
The High Court found in favour of the director. The wording of the banker’s email about “headline terms” of 24 March refuted any suggestion that a binding contract had been reached, since it suggested the existence of the bare bones of an agreement which was subject to finalisation.
Nor was there any agreement on the critical issue of the banker's remuneration. Accordingly, no binding contract came into existence and so the banker’s claim had to be dismissed.
Please contact Simon Porter if you would like more information about the issues raised in this article or any aspect of contract law.