Recent case law has reconfirmed that under English law it is possible (save where formalities are required by statute) to conclude a contract without any formalities or reducing it to writing.

For the contract to come into existence there must be an agreement, which is intended to be legally binding, supported by consideration and sufficiently certain and complete to be enforceable.

Once in existence a contract may be varied. The legal requirements for variation are the same as those for initial contract formation. And if a contract expires, and the parties continue to perform it, its effect can continue beyond the original term.

In the beginning there was a contract?

Two cases this year have reviewed whether there was an intention to form a contract when the contracts alleged by the claimants were oral: MacInnes v Gross [2017] EWHC 46 and Blue v Ashley [2017] EWHC 1928. For our report of Blue v Ashley click here.

Both claimants alleged contracts for substantial sums. In MacInnes the sum claimed was EUR 13.5 million, in Blue v Ashley the sum was £ 15 million. The contract in Blue v Ashley was alleged to have been made on an evening out at the Horse & Groom pub with "five guys and a barman". In MacInnes the discussions took place at the Sanctum Soho Hotel and the Zuma restaurant in Mayfair.

In both cases the court held that there was no contract. However, these cases are salutary reminders that two people at the same meeting may have a different perspective on discussions and in retrospect may take a differing view as to the nature of those discussions.

The court confirmed that if all the requirements for contract formation exist, the informal location of the discussions and lack of written confirmation will not necessarily preclude finding an enforceable agreement.

In Blue v. Ashley the Judge noted the inherent difficulties for the court where the evidence presented is subject to the "unreliability of human memory". In MacInnes there were some emails that it was alleged followed up and documented the agreement. However, the Judge considered that they supported a finding that there was no contract. Crucially they included wording such as "headline terms" and "Next time we see each other let's make a proper contract".

Does a lack of documentation and uncertainty favour the party alleging that there was no contract? For example, if Mr Blue had sought to document the alleged terms immediately, would he have been in a different position?

Either making a contemporaneous note recording what has been said, or seeking soon after to document what it is alleged has/has not been agreed, is likely to bring matters more quickly to a head, but in these recent cases doing so might not have changed the outcome. Nevertheless both cases show the need for care in approaching and documenting discussions which take place at informal meetings, particularly where potential future deals, ventures and/or collaborations are discussed.

What are the terms?

The court confirmed in Blue v. Ashley that if there had been an intention to make a contract then it would have done its "utmost" to give meaning to what had been agreed.

In such situations, the court will determine whether the parties have reached agreement on all "essential terms". If there are gaps then it will assess if it is able to fill that "gap" by reference to standards of reasonableness. Past dealings between the parties or accepted commercial practices in that sector may play a part here.

In Blue v. Ashley, the missing element (even had an intention to create legal relations been established) was the particular period within which the share price of Sports Direct had to reach £8. The Judge concluded that there was no reasonable yardstick which could have been applied to set this period and, therefore, the terms would have been insufficiently certain.

Each case will be decided on its own facts. In other less bespoke circumstances, the court might have been able to bridge the gap. For example where there have been consistent commercial dealings between parties who are familiar with the trade in question, the courts may imply terms into a contract.

Variation

Contracts may change over time due to changing relationships between the parties or advances in a particular sector.

It is not necessary for a variation to a written contract to be documented. Provided that the requirements for a contract to be formed are present (when assessing a potential variation consideration for that revision may prove difficult to show with each case being dependent on its own facts) there are unlikely to be additional required formalities. The Court of Appeal confirmed in the case of Globe Motors Inc. v TRW Lucas [2016] EWCA Civ 396 that a "no oral variation clause" will not preclude a variation by conduct.

If parties are changing the way they work, or undertaking significant new investments, then a formal review of the contractual relationship is usually sensible. Otherwise, they could find the certainty and security of the original documented agreement undermined by evidence that the terms have subsequently changed.

Continuation of fixed term

It is not unusual for parties to contracts to commence performance before a contract has been concluded. While practicalities may dictate starting work to do so is risky; it is better to delay starting work or to bring forward executing the contract.

If a contract is for a fixed period, it may be left to continue past the end of the fixed term. If that happens what are the applicable terms? While they will depend on the circumstances, there is a good chance that the same terms will continue to apply. But that will mean that the duration and means of terminating the new extended contract will be uncertain, because a fixed term contract by its nature is unlikely to include a notice period.

Continuation past the contractual end date will often introduce uncertainty into a previously certain term. Where termination for breach doesn't arise the contract may only be terminated on reasonable notice. What is reasonable notice will be decided on the facts of each case.

It is also worth noting that in particular contractual relationships a continuation on equivalent terms may have a more significant impact. For example, a commercial agency for an initial fixed period will be converted into an agency contract for an indefinite period (Article 14 Commercial Agents Regulations). This is likely to impact on any compensation or indemnity payment an agent may be able to claim on termination.