More Haste Less Speed: Providing Services Before A Final Contract

At what point may a binding contract arise in the course of business negotiations over the terms of engagement – if at all?  The award-winning commercial lawyers at ParrisWhittaker are experienced in advising and representing businesses in Jamaica on all their contractual issues.

This is a question most businesses are likely to have considered at some point; and caution is needed to avoid inadvertently starting work and later discovering you may not get paid for it. The High Court in the UK recently handed down a ruling¹  that business organisations ought to be aware of.

The dispute related to emailed communications between the parties concerning details around fees – but where other important terms were yet to be decided. The ruling has important persuasive authority on the courts in The Bahamas.

What’s the background?

The claimant brought proceedings to recover substantial fees for advisory work carried out before a formal contract reached. It related to the potential sale of an insurance business (the sale never actually took place as negotiations broke down).  After terms of engagement had been presented, extensive negotiations ensued but the defendant never actually signed the engagement letter.

Nevertheless, while negotiations around fee levels were ongoing, the claimant carried out a significant volume of advisory work. Once the decision was made to retain the business and not sell it – a dispute arose as to whether there was a binding contract that the defendant would pay the claimant’s fees for work already done over a prolonged period.

If there was no express contract, was there an implied contract in existence?

The claimant argued that it was possible for the parties to conclude a contract, even where they anticipate a formal contract will be executed. It also said it was highly relevant that work had already been done (ie a transaction executed); and it would often be “unrealistic to argue that there was no intention to create legal relations”. 

The court’s decision

The court did not agree that a legally binding contract existed. It was obvious both parties intended and expected a binding legal agreement sooner or later. The judges did not find that either of them had the intention to be bound immediately on the work done by the claimant.

In addition, there was no implied contract to pay a reasonable fee for the work already completed. The parties clearly envisaged agreeing the amount of fees payable.

Essentially, in undertaking the advisory work before negotiations around the fees were concluded, the claimant had taken on the risk of starting work in anticipation of an agreed contract. 

All was not lost, however: the claimant succeeded in its claim in restitution for unjust enrichment.  The court concluded that the defendant had received a benefit – a financial gain or saving of expense – as a result of the claimant’s services, knowing those services were not intended to be free. Further, both parties fully expected to agree terms around the fees.

The judge said: “No-one in their right mind would imagine that [the claimant] would devote hundreds of hours [of work] free of charge, or just in the hope of securing the engagement.”

The claimant was entitled to payment for its work – which the court valued at £350,000 plus expenses.

What does this mean?

Businesses need to exercise caution when negotiating key contract terms, particularly if negotiations are prolonged. In some circumstances, it may seem sensible and expedient to begin work pending a final agreement – but this case illustrates the risk of carrying out work without payment terms being agreed.

In such cases, a simple binding contract ought to be considered, setting out the parties’ rights and obligations around work done in anticipation of the final terms of engagement. If in any doubt, speak to the experienced commercial solicitors at ParrisWhittaker. Contact us at +1.242.352.6112 or info@parriswhittaker.com

¹Fenchurch Advisory Partners LLP v AA Limited [2023] EWHC 108 (Comm))