The recent case of Mansion Place Limited and Fox Industrial Services Limited illustrates that an oral conversation can be classed as a binding verbal agreement.
Mansion Place Limited (MPL) was a property developer and it contracted Fox Industrial Services Limited (FISL) to build student accommodation in Nottingham. There were delays with the construction which FISL stated was due to the pandemic and MPL's failure to give vacant possession of the site on time. MPL, on the other hand, claimed that the delay was due to FISL's failure to progress the works and to commit sufficient labour and resources to the project.
MPL subsequently served FISL with a Pay Less Notice (under the terms of the JCT Design and Build Contract on which the construction works were being undertaken) notifying FISL of its intention to deduct liquidated damages from the payment of £367,103.44 due to FISL under the contract.
A Director of MPL and the Managing Director of FISL spoke on the phone to discuss the dispute. The discussion took place at the time when both men were driving and were using hands-free mobile phones to conduct the conversation. FISL claimed that this conversation resulted in a binding agreement whereby MPL would waive its claim for liquidated damages in return for FISL agreeing not to pursue a claim for loss and expense because of the delay in the works. MPL asserted, on the other hand, that no such agreement had been made during the telephone call and it pursued its claim for liquidated damages.
The matter was referred to adjudication (in accordance with the terms of the JCT Contract) where it was held that the phone conversation did result in a binding agreement and, therefore, MPL could not pursue its liquidated damages claim. MPL sought a declaration from the Court that the Adjudicator's decision was incorrect.
The Hight Court had to decide which of the two accounts was a true reflection of the phone conversation which had taken place based on contemporaneous documents, internal correspondence and the follow-up exchanges between the parties. The Court found that the account by FISL's director to be more convincing as he had honestly believed that a binding agreement had been made during the telephone call and he had then relayed this agreement onto his colleagues. The Judge held that this was not as a result of misinterpretation or wishful thinking on the part of the Director of FISL but instead the telephone conversation had included an offer, acceptance and an intention to create legal relations and therefore it constituted a binding agreement.
This case is an important reminder that witness evidence is important, particularly in the context of oral conversations. The Court will consider the contemporaneous actions of the parties following any oral conversation and how that compares to evidence produced at trial. What the Director at MPL thought was a loose conversation has resulted in his company having to forego hundreds of thousands of pounds in damages.
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