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Contracting Matters

Two recent cases remind us of the importance of clear and precise written contracts

As any law school student knows, there are a number of basic requirements for the creation of any binding contract, whether verbal or in writing:

  • Offer
  • Acceptance
  • Consideration
  • Intention to create legal relations
  • Certainty of terms

If any of these elements are missing or uncertain, the court will be unable to enforce the alleged contract as a couple of recent cases illustrate.

In Fenchurch Advisory Partners LLP v AA Limited (2023) the High Court recently considered whether a binding contract had been formed in a situation where the fees of the adviser (Fenchurch) had been confirmed but the engagement letter had not been signed because the negotiation of the legal terms (in particular, the payment of a success fee) had not been finalised.

Fenchurch argued that because the fees had been confirmed, a binding contract had been created. The judge disagreed, finding that the negotiation of the legal terms had been split from the commercial aspects (the fees). Although the judge recognised that agreement of the fees was a very important aspect it was very far from being the whole deal and it was not a case where, once the fees were agreed, everything else would just fall into place.

The judge also considered whether there was an implied contract based on the agreed element the fees but decided there was not. However, he did accept Fenchurch’s claim for unjust enrichment: he found the parties had not expected Fenchurch to take all of the risk of working without having a signed engagement letter while at the same time the client (AA) derived a benefit from the work. He held that it would be unjust to allow AA to retain that benefit without compensating Fenchurch.

In Barton and others v Morris and another in place of Gwyn-Jones (2023) the courts considered whether terms not explicitly agreed by the parties should be implied into a contract. In this case the first respondent believed that an introduction fee of £1.2 million was due to him on the sale of a property. The judge at first instance found that whilst there was no written agreement between the parties, there was a binding oral agreement that the first respondent would receive a fee if it introduced a buyer purchasing the property for £6.5 million. However, the property was sold at a reduced price of £6 million but the contract made no provision as to what fee (if any) would be payable if the property was sold for a lower price. The Court of Appeal concluded that it was an implied term of the contract that a reasonable fee would be paid if the property was bought for less and found a fee of £435,000 was payable.

Not satisfied with this, the first respondent appealed to the Supreme Court which found that no express term was agreed by the parties that a fee would be payable if the property was sold for less than £6.5 million. The Supreme Court rejected the implied term approach taken by the Court of Appeal, finding that the agreement to pay a £1.2 million fee if the property was sold for £6.5 million was a complete statement of the circumstances in which a fee was payable. Unfortunately for the respondent the Supreme Court concluded that as the property had been sold for less than £6.5 million the respondent wasn’t entitled to a reduced fee. The Supreme Court also rejected the respondent’s unjust enrichment argument.

Although all such cases turn on their facts, they are a salutary reminder of the importance of concluding clear and precise contracts which cover as many possible scenarios as possible to reduce the risk of having to rely on arguments of implied terms or unjust enrichment where the outcome of such claims is much less predictable.

If you have any questions arising from this article or about the drafting and negotiation of contracts more generally, please contact [email protected]