Why A Handshake Isn’t Always Enough: When Can You Rely On An Oral Contract?

Under contract law it’s perfectly possible for a contract to come into existence orally – that’s to say without any of the terms being recorded in writing. But as the recent English case of Christie v Canaccord demonstrates, proving the existence of such an oral contract is not straightforward.  Christie, as a decision of the English High Court is useful to lawyers like us here in the Bahamas when advising clients on contractual matters. Although our judges aren’t required to follow UK decisions, rulings from British courts certainly inform the way judges here apply the law to the disputes they deal with.

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CHRISTIE V CANACCORD: THE BACKGROUND

The case was taken by an investment banker Mr Christie against his former employer Canaccord. There were several limbs to the claim. The one we are interested in concerned what Mr Christie claimed was a binding contract made between him and Canaccord’s CEO. Mr Christie said they had agreed he would receive a £1million payment if he stayed with the firm and did not resign (a so-called ‘retention award’). The problem for Mr Christie was that the final terms of this alleged agreement were never formally recorded in writing. It was up to him to demonstrate to the court – from the dealings between him and Canaccord’s officers, including the CEO – that a legally enforceable oral contract had come into existence.

WAS THERE AN ORAL CONTRACT?

Mr Christie’s case relied heavily on a single conversation that took place in July 2015 (‘the July meeting’) between him and Canaccord’s CEO. Each side’s version of that conversation differed significantly. It was up to the court to decide what had occurred.

Crucially the court was able to use available documentary evidence and communications that took place after the July meeting to build up a fuller picture of what the two men had – or had not agreed orally. In doing so the court found that:

• The documentary evidence created before and after the meeting showed that what the CEO actually offered was simply the possibility that there might be a ‘tap on the shoulder’ later in the year regarding an award.
• From a transcript of a conversation between the CEO and another Canaccord employee just six days after the July meeting it was clear while the CEO may have floated the possibility of a seven-figure sum as a retention award, he was cautious enough to realise that he could not offer any form of certainty as to that figure and did not do so.
• What was said at the meeting was not certain enough to create a contract.
• The July meeting could not be viewed as an instance of the parties wishing to create legal relations between themselves. The judge highlighted the fact that both Mr Christie and the CEO left the meeting on the basis that there was work still to be done as regards formalising any prospective award or bonus.
• Following the meeting there was no action taken by either side to confirm in writing what had supposedly been agreed. In a document heavy industry like investment banking this could have been expected.

COMMENT

The case is a useful guide to the considerations a court will take into account when deciding if a conversation can create a contract. The most important point to take from the case is that, while the test for the existence of a contract is objective, evidence of the subjective understanding of the parties is admissible to help the court decide if, objectively, an agreement was reached.

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