Getting an oral contract over the line – Moorgate Capital v Sun European

In these times of remote working, parties may find that it is more practical to agree contractual terms orally, especially over the telephone. However, it is important to be clear about whether you intend to settle the contract orally, or whether you intend to finalise the terms with an exchange of emails or a full written agreement. A recent court ruling sheds light on how you assess whether a discussion amounts to a legally binding contract.

A ten-minute phone call

The dispute involved London-based advisory firm, Moorgate Capital Partners, and private equity company, Sun European Partners. There were a series of conversations and emails between individuals at these businesses, with one area of focus being a possible M&A transaction involving the acquisition of an Austrian manufacturing company, Unterland.

Moorgate claimed that an oral contract had been made in a particular ten-minute telephone conversation between these individuals in May 2011. Moorgate said that Sun European had agreed to pay a £1m fee for M&A advisory services in relation to the Unterland deal. Sun European said that no engagement had been agreed.

Points the court highlighted in determining whether there was an oral contract included the following:

  • It was up to Moorgate to prove the existence of the contract.
  • The court had to make an objective assessment of what had been said or communicated between the parties, and could take account of the parties’ relationship and their other communications.
  • The court then had to “determine on an objective appraisal of such evidence whether the parties have manifested a consensus, which is sufficiently certain and compete as to its terms, and intended to create legal relations such that they are both bound by a resulting contract.”

Sorry – no contract here

The court concluded that there was no oral contract here. The following factors were important:

  • It is unlikely that a contract of this complexity and value would have been agreed in a short telephone conversation. Where very substantial obligations are undertaken, it is unlikely that the parties would have reached a final consensus orally.
  • Contrary to usual market practice, no formal engagement letter or exchange of emails had followed the call.
  • The fee was unusually large for this kind of transaction.
  • A follow up email did not refer to a contract having been concluded. Later emails referred to “a proposal”.
  • The evidence suggested that the call had been in broad terms rather than specific details.
  • Later internal emails within Sun European indicated no contract had been agreed. In fact, Sun European were shocked by Moorgate Capital’s later claim for the advisory fee.
  • Other advisers had been appointed, at lower fees, and unlike Moorgate Capital, they were listed in Sun European’s deal tracker.
  • Moorgate Capital’s subsequent activity was not commensurate with the services described in the follow up email.
  • No invoice was sent or accounting entry made by Moorgate Capital for the £1m fee.

Take away points

Is this the kind of contract that would normally be in written form? At the trial, the parties submitted expert evidence about what was usual in this kind of transaction. This highlighted how unusual it was not to have a written agreement in situations like this. The court thought it very unlikely that the discussion would have been the end of it – you would expect to see the terms that had been discussed and agreed in outline reduced to a written form that the parties could review and finally approve.

How complex are the terms and how substantial are the parties’ commitments? If the terms are complex, it is more likely that the parties would want to see them written down for review. The same applies if the parties are committing themselves to large payments or substantial obligations.

Keeping a record. One problem in this case was the conflicting evidence, particularly relating to distant memories of who said what to whom. If you do intend an oral discussion to amount to a legally binding contract, settle all of the terms during the conversation and keep detailed records of the call (in writing or using an audio recording). Follow up with a written communication that says you have made a contract and summarising what you have agreed.

Beware of clauses in earlier agreements that forbid making changes orally. The Supreme Court looked at No Oral Modifications clauses in 2018. Overall, the message was that you cannot normally make oral changes to an earlier agreement that sets out a specific procedure for making changes. So if you are trying to alter an existing agreement check what the modification procedures are and follow them.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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