Perils of performance without a written contract

20th January 2012

A recent Court of Appeal decision has highlighted the high level of risk associated with relying on an oral contract.

In the case, BVM Management v Roger Yeomans t/a The Great Hall at Main, the fact that an oral contract existed was not in dispute, but the parties disagreed as to whether or not it had been agreed that the contract could be terminated on three month’s notice.

BVM Management (“BVM”) provided catering and events management services to Roger Yeomans (“Yeomans”). In early 2007, Yeomans approached BVM with a view to a new agreement whereby BVM would take over the management of events at one of their venues called the Great Hall. The parties had a meeting during which BVM requested for some security of tenure and it was agreed that the contract should be for a period of two years. Draft agreements were passed between parties, all containing a provision for termination on three months notice. However, at the meetings between parties no mention of any such provision was ever made. Ultimately no formal written contract was ever signed by the parties, but performance of the service agreed upon started anyway. BVM provided services for 12 months, when Yeoman terminated the contract by giving three months notice. Neither party disputed that an oral contract existed and had been entered into; the case turned on whether or not it could be held that the provision was contained in the oral contract. The County Court Judge found in favour of Yeoman, and right to appeal to the Court of Appeal was granted. 

The Court of Appeal agreed that the County Court had been entitled to conclude that the three-month notice termination provision was incorporated into the oral contract. A factor that was key to the decision was the inclusion of the provision in the draft agreements passed between parties. All the drafts contained the provision and the judge found that BVM had not objected to that particular provision. Further, the Court saw no problem in having a fixed term contract capable of being terminated early on notice.  It was held that it was not inconsistent, with the request of BVM for security of tenure, to include a provision for the early termination of the arrangement. The two-year period set out the maximum term of the contract, but both parties would have the right to bring it to an end upon giving proper notice.

The case demonstrates the dangers of proceedings on the basis of conversations and unsigned documents. Oral contracts are as binding as formal written contracts, but such agreements are open to wide interpretation by the courts and can lead to significant legal uncertainty. Ensuring that all essential contractual provisions are clearly documented is the most effective way of avoiding such problems.  

For additional information please contact Justin Emerson of Gepp & Sons on 01245 228113 or emersonj@gepp.co.uk

The above is not legal advice; it is intended to provide information of general interest about current legal issues.