Will you get paid without a contract?

23 Oct 2019

Oral agreements for work are a common occurrence. It is natural, quick, and the basis of many sound business relationships. However, if an issue arises, will you get paid what you anticipated on the basis of an oral agreement?

In the right circumstances, oral agreements are just as enforceable as a written contract. Businesses must beware, however, that the terms of the agreement, in particular the terms for payment, must have been clearly agreed. Otherwise, there is a risk that no payment will be due.

A recent High Court decision confirmed that without a certain term for payment, there is no automatic right to be paid at all for services, even if they were provided on request.

In this particular case, discussions took place at a drinks event. A member of a finance advisory firm spoke to a member of a private equity firm about how their respective businesses could work together and how the finance advisory firm could make introductions for acquisitions. No written contract was made and the exact details for payment were not confirmed. Some time later, the finance advisory firm made a successful introduction and subsequently claimed their £1m success fee.

The private equity firm denied there had been a binding oral agreement. The discussions took place at a drinks event and were informal. The court agreed that the discussion was not enough to create a certain oral contract, and there was no contractual right to payment.

Nonetheless, the finance advisory firm has provided services which the private equity firm had accepted and benefited from. Therefore, they argued they were entitled to still be paid.

The court was not convinced. There was no certain agreement about how fees would be charged, and the finance advisory firm was aware of this lack of agreement when it provided the services. Therefore, they had accepted the risk that they would not be paid at all and the court refused to award any payment.

This highlights the importance of having clear, agreed and recorded terms before any work is completed. A comprehensive written contract is not always possible, but oral agreements should at least be followed up with an email to confirm the terms which have been agreed. If in doubt, confirm the terms again before providing services.

Trethowans have a wealth of experience in contract disputes and can advise on pursuing and defending claims, or even just provide re-assurance on your position under a contract.

Sources :(Moorgate Capital (Corporate Finance) Ltd v H.I.G Capital Partners LLP [2019] EWHC 1421 (Comm)).


Maxine Nutting