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Brief Chats and Contracts

Polly Taylor

12th November 2019

So, picture this: you’re hosting an event at an art gallery, chatting to someone in a suit who tells you about their consultancy service.  There is a charge for the consultancy work and a £1,000,000 success fee.  You nod along and finish the 15 minute chat off by saying “sounds great, I’d love to use your service”.

In Moorgate Capital v H.I.G. European Capital Partners LLP [2019] EWHC 1421 (Comm), Moorgate (the “someone in the suit”), then provided their consultancy service and assisted H.I.G (the art gallery host) in the successful acquisition of a target company by H.I.G.

Moorgate then presented H.I.G with a hefty invoice which included the success fee.  H.I.G refused to acknowledge the existence of any contract or the alleged oral agreement between the parties that took place at the art gallery, and refused to pay for Moorgate’s services.   Moorgate sued H.I.G for the work it had done.

Is there an agreement?

When considering if a contract existed, the High Court considered the circumstances surrounding the alleged agreement, including:

  • The lack of contemporary documents: there was no written agreement, or signed documents.
  • The unlikely conversation: the likelihood of an agreement concerning such a large amount of money, taking place in an informal place and being agreed in under 30 minutes was low.
  • The lack of negotiation: it is usual for terms of an agreement to be negotiated.

The High Court confirmed that no contract existed and that Moorgate’s claim for payment for the work it had done was refused.

A practical note

This is a cautionary tale for parties who believe they are in an agreement with another without any written contracts in place.  It is especially risky to start working under the terms of the oral agreement without having the agreement formalised onto paper.   Any business undertaking work assuming they will be paid for what they have done based on an oral agreement, are running a huge risk without any formal contract in place.

No written contract, no agreement, right? 

Wrong.

The above case might seem like an obvious decision as there were no documents, no signatures and no negotiation between Moorgate and H.I.G.  However, a finding that no contract exists is not always the case where the agreement was made orally and the Court will look at the circumstances surrounding contracts on a case-by-case basis.

In Dacy Building Services v IDM [2018] EWHC 178, Dacy was contracted by another party (HOC) and IDM were the agent for the build, acting on behalf of the customer.  HOC was in financial difficulty and so Dacy had a chat with IDM directly.  The chat took place on 3 December 2015 in a bus shelter for approximately 10 minutes where it was agreed that Dacy would provide business services for the customer.

Dacy started work without any further formal agreement.  It issued invoices to HOC but the invoices were paid by IDM on time.  After the first 3 invoices, IDM stopped paying and said there was no contract and they were not obliged to pay.  In this case, the conversation creating an oral agreement was brief and in an informal setting.  However, during that conversation IDM handed over a business card, it was aware that HOC was in financial difficulty and paid Dacy’s invoices.  The High Court also said that the parties “each understood the outcome of the meeting on 3 December 2015 to be that a contract had been agreed”.

Author: Polly Taylor, Chartered Legal Executive, Commercial Team


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