A recent case highlighted the dangers of inadvertently entering into a binding contract during a telephone conversation. The contract in question was a settlement agreement in relation to an ongoing dispute, but the principle applies to any contract. The case was the recent Technology and Construction Court decision in Thameside Construction Co Ltd v Arthenella Ltd.
Arthenella, the employer, appointed Thameside, the contractor, to carry out works to a listed manor house.Disputes arose as to the amount payable to the contractor, and whether the employer was entitled to liquidated damages for delay.
After a number of adjudications between the parties, the matter came before the court. During that litigation, there was a mediation between the parties followed by a number of telephone conversations between the managing directors of each party in an attempt to settle the dispute.
Unfortunately there was then a further dispute over what was said during those telephone conversations. The contractor contended that the parties had reached a binding settlement agreement during the telephone conversation between their respective managing directors. This was denied by the employer, who presumably did not want to settle on the alleged terms.
The matter then came before the court for a declaration on whether or not the parties had agreed a binding settlement during their telephone conversations.
After hearing evidence from each of the managing directors, the judge found that a binding settlement agreement had been reached between the parties during the telephone conversation between the MDs. The employer therefore had to comply with the terms of that agreement, as well as paying the costs of the court action to determine whether or not an agreement had been reached. It was no doubt a very costly experience for the employer.
To avoid the risk of inadvertently entering into a binding agreement during communications (whether verbally or in writing), any offer or proposed terms should be made expressly subject to contract (as well as without prejudice), and that it will take binding effect only on entering into a written agreement. That then gives the opportunity to take legal advice and, if necessary in light of that advice, to change your position. Unfortunately in the Thameside and Arthenella case, the employer did not protect his position - with expensive consequences.
For more information, please contact
Stuart Thwaites.
