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When Does an Agreement Become Legally Binding?

on Friday, 01 April 2016.

The court decided in Jas Financial Products LLP v ICAP Plc that an oral agreement between parties was not sufficiently established to constitute a legally binding agreement.

Background

In 2008 Jas Financial Products LLP (Jas) and ICAP Plc (ICAP) engaged in discussions regarding a joint venture agreement, which would essentially be a profit sharing arrangement which included the provision of middle office support by Jas to ICAP. Terms were discussed at a meeting between the parties, at the conclusion of which a representative of Jas characterised the deal as 'done'. This was followed up by an email to ICAP setting out the terms agreed, however shortly afterwards ICAP decided not to proceed.

The issue arose in relation to a piece of work which had been done by Jas for ICAP while negotiations were ongoing. Jas invoiced ICAP for this work in accordance with the terms of the proposed agreement, which amounted to three monthly payments of £50,000 each. ICAP made the payments but successfully recalled the third, disputing that it was legally obligated to pay any of the money to Jas. ICAP claimed that while the first payment had been made as a good will payment, the second and third payments had been made in error.

Jas took legal action, contending that at the meeting ICAP's representative had not disputed the characterisation of the deal as 'done' and on this basis a contract had been agreed, the terms of which were laid out in the subsequent email.


The Commercial Court's Decision

Counsel for ICAP challenged Jas' position on a number of bases, claiming:

  1. that its representative had challenged the term 'done' following the meeting and had stated that the proposal needed to be approved by ICAP's legal advisers;
  2. that its representative didn't have authority to conclude a legally binding agreement; and
  3. that an agreement with the limited detail of the email would not be sufficiently certain for a legally binding agreement.

The court found for the defendant on the basis of the first of ICAP's arguments. It found ICAP's evidence more reliable regarding the response to the word 'done' following the meeting, and was certain that the word did not go unchallenged. Also taken into consideration was the fact that at no stage did parties contemplate or appear to contemplate that a legally binding agreement would be entered into orally.

However the judge stated that he did not agree with either of the other arguments advanced on behalf of ICAP. He considered that ICAP's representative did have authority to conclude the agreement, although he did not do so, and that the terms was sufficiently certain to be legally binding, had they been agreed.

As Jas could not rely on any contract in order to demand the money from ICAP, it was determined that the money was not owed to Jas. Furthermore, the court was convinced by ICAP's argument that the second payment had been made in error and determined that this money was repayable to ICAP.


Best Practice

The judge conceded that Jas' time and good will were 'consumed and ultimately wasted' by ICAP but stated that this was the chance Jas' representative had taken and, as Jas had performed the work without a clear agreement for payment in place, no payment was owed. The case is a warning of the risks of acting in reliance on an agreement not yet contractually concluded.


For all enquiries please contact Richard Phillips in our Commercial Property Law Team on 0207 842 3335.

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