Why contracts and agreements should always be in writing

Never underestimate the power of pen to paper.

The Supreme Court recently handed down judgment on Barton & Ors v Morris & Anor [2023] UKSC 3. This case has several interesting aspects and much to consider for lawyers. There is, however, a fundamental point that is well worth revisiting. Warner Goodman's Andrew Cullyer, Litigation Executive specialising in construction disputes, reviews the recent case and the Supreme Court's final judgment in more detail. 

The Background

The background of this case is admirably summarised by the court themselves as per the notes from the court clerk in paragraph two:

"The First Respondent, Mr Barton, performed a service for the Fourth Respondent, Foxpace Limited, by introducing to Foxpace a buyer who ultimately bought a property that Foxpace owned and was keen to sell. The buyer, Western UK (Acton) Limited ("Western"), paid Foxpace £6 million for that property. The judge at first instance, HHJ Pearce sitting as a High Court Judge, held that Mr Barton was not entitled to any payment: [2018] EWHC 2426 (Ch). There was no written agreement on which Mr Barton or Foxpace could rely, but the judge found that they had arrived at a binding oral agreement. According to that agreement, Mr Barton would be paid £1.2 million for making the introduction if Western bought the property for £6.5 million. Since the contract made no provision as to what would happen if the property was sold to Western for anything less than £6.5 million, there was no contractual obligation on Foxpace to pay anything to Mr Barton." [emphasis added]

So, in other words, Mr Barton (The First Respondent) felt he should be paid 1.2 million for introducing a buyer to Foxpace for the sale of their property. Although there was no physical contract, there was a 'binding' verbal agreement. The oral agreement stipulated that Mr Barton would receive 1.2 million if he found a buyer that bought the property for 6.5 million. Unfortunately for Mr Barton, the property sold for 6 million, and there were no other terms or obligations in place for Foxpace to pay Mr Barton his fee. 

The decision

The High Court agreed with Foxpace that Mr Barton should get nothing. However, the Court of Appeal found in favour of Mr Barton and found he was owed £435,000 for his services.

No written agreement?

It was somewhat surprising a contract involving such a large sum was not subject to a written agreement. Paragraphs 13 and 16 in the transcripts highlight this issue:

"…The first factual issue for the judge to resolve was whether there was any concluded agreement at all or whether, as Mr Gwyn Jones strongly contended, any discussions were regarded as "subject to contract" and therefore not binding because they were never reduced to writing. …

16. The judge then set out his findings as to the terms of the contract. He rejected Foxpace's case that all discussions had been 'subject to contract' and found that Mr Barton and Mr Rooke had concluded a binding agreement as to the payment of £1.2 million commission to Mr Barton. As to the circumstances in which that sum would become payable, he said: "161 For these reasons, I am satisfied that, following discussions between Mr Barton and Mr Rooke during the period 29 to 31 July 2013, the Appellant and Respondent entered into a contract pursuant to which Foxpace was liable to pay Mr Barton the sum of £1.2 million in the event that Nash House was sold to a purchaser introduced by Mr Barton for the sum of £6.5 million." [emphasis added]

So there were negotiations in writing, but these were subject to a special reservation, also known as "subject to contract". Something that is "subject to contract" is not legally binding in itself and is only a foundation block to creating a legally binding contract. 

We also learned verbal discussions took place. These happened at the end of July 2013, and these discussions became what the case referred to as the official "contract."

Remarkably, attempts to record these discussions in writing were never made by either party, especially when such high sums of money were involved.

Effect of no written agreement

One of the two dissenting judges, Lord Leggatt, relevantly notes in paragraphs 170-172:

"it is relevant that the agreement was made orally and was never reduced to writing. The judge was not in a position to make any finding about the precise words used, but he found the substance of what was agreed to be…"

"...speakers often use a sentence to convey something other than what that sentence literally means. To take a simple example: if a speaker says "Jill walked to the edge of the cliff and jumped", a hearer would naturally understand the speaker to mean that Jill jumped off the cliff, even though in their literal meaning the words used are consistent with Jill simply jumping in the air."

"… It is a basic assumption underpinning communication that words used by a speaker are relevant to what the speaker wishes to convey. This assumption also explains my simple example. The hearer assumes that the reference to Jill walking to the edge of the cliff must be relevant to the statement that she jumped and infers that the speaker intended to convey the most obvious connection between the two pieces of information." [emphasis added]"

The above transcripts demonstrate the severity and difficulty you encounter when relying on oral agreements. Lord Leggatt demonstrates the inherent informality and ambiguity in oral statements, which is usually absent from written contracts or at least less prevalent.

The judge continues this point in paragraph 184:

"The matter does not end there, however, as the agreement made in this case was an oral agreement, the terms of which were never put in writing. When interpreting a written contract, English law adopts an objective approach … that … does not apply to an oral agreement of which no definitive record was made. … In these circumstances, the parties' subjective understanding of what they agreed is admissible as evidence of what as a matter of fact they did agree..."

The above illustrates how the view of contracts is flipped entirely on its head when they are made verbally. An oral agreement is nothing more than subjective evidence of what the parties thought was agreed upon, but it became admissible evidence in this case. This indicates verbal contracts are very high risk. If a contract dispute did go to court and the only evidence was verbal, it effectively comes down to whose interpretation of the contract the court agrees with. 

What should you do?

Get your contract in writing. We find it astonishing and incredible that a contract with a potential value of £1,200,000 was not adequately recorded in writing. It should have been. It is far too risky to allow such a large sum to be agreed orally for the reasons Lord Leggatt demonstrates in his dissenting judgment.

Even if a formal document cannot be agreed upon, an email recording or a summarisation of those conversations from July 2013 could have been sent on an "open" basis. 

If you don't do this, you could risk the fate of Mr Barton. The Supreme Court found by a majority of 3:2 that the High Court made the right decision, and Mr Barton was entitled to nothing.

We're here to help

Are you going through a similar experience, or do you need assistance creating a contract for a legally binding agreement? Call Andrew Cullyer for help and advice on 02380 717482 or email andrewcullyer@warnergoodman.co.uk. Andrew will be able to advise on the best practices for setting up a commercial contract and ensure you have everything in place to protect you should a dispute arise in the future. 

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Disclaimer:

This is not legal advice. It is intended to provide information of general interest about current legal issues.