In determining an intention to create legal relations "context is all"

8 March 2023

Is it possible for a professional to seek recovery of their fees if their client has not signed their contract?  This was the issue that the court considered I the recent case of Fenchurch Advisory Partners LLP v AA Limited [2023] EWHC 108 (Comm).

Introduction

It is trite law that when deciding whether a contract has been concluded, there must be an intention to create legal relations. Indeed, in Fenchurch Advisory Partners LLP v AA Limited [2023] EWHC 108 (Comm) the High Court ruled that an agreement reached between the parties over email as to fee amounts was not sufficient, of itself, to create a binding contract. Still, when determining the question of whether there was an intention to create legal relations, context was said to be all.

The facts of the case in Fenchurch

On the facts of Fenchurch, a claim for in excess of £4million was brought in respect of work done by a firm of corporate finance advisers (Fenchurch) in connection with the potential sale of the insurance division of the well-known breakdown recovery service, AA Ltd (the AA).


However, as highlighted by Mr Sean O’Sullivan KC, sitting as a Deputy High Court Judge, there were two complicating factors for the Claimant: the first being that, while the terms for the engagement of Fenchurch by the AA were extensively negotiated, no engagement letter was ever signed; the second being that the sale of the AA's insurance division did not ultimately materialise.


Still, as significant work had been completed by the Claimant firm, there were three key areas of dispute for the court to rule upon, namely: (i) whether a binding contract had been agreed (ii) if so, whether the AA's obligation to pay what was described as a success fee had been triggered; and (iii) if there was no binding contract on those terms, was there instead an implied contract or did Fenchurch have a restitutionary claim (because the AA had been unjustly enriched) in any event and, if so, to what sums was it entitled?

The arguments put forward in Fenchurch

On behalf of Fenchurch it was emphasised that it was possible for the parties to conclude a binding contract, even though it was understood between them that a formal document recording, or even adding to, the terms agreed would still need to be executed. It was also argued for Fenchurch that the fact that work had been done was highly relevant, where the combination of email exchanges, with the carrying out of the work agreed in those exchanges, gave rise to an enforceable agreement.


In contrast, the barrister for the AA pointed to caselaw in which the context suggested that the intention was that a binding contract should only come into being when contractual documents were signed by the parties. As such, any performance did not demonstrate an intention to contract on the terms of the draft and the parties would not be bound unless and until both of them signed the agreement.

The findings of the judge in Fenchurch

In the absence of a signed engagement letter, together with any agreement as to other key terms, such as triggers for payment of the success fee and an uncapped indemnity, it was found that the parties did not objectively intend to be bound until a contract with all agreed terms had been signed.


However, in awarding the Claimant £350,000 (plus expenses) on the basis of unjust enrichment, the Deputy HC Judge accepted that the substantial quantity of work undertaken by Fenchurch had still provided the AA with a valuable benefit for which Fenchurch was entitled to recover in restitution.

 This is because where one party does work at the request of another in anticipation of a contract, but no contract is created, the first party may be entitled to payment of a reasonable sum for work done.


In the circumstances, even though the proposed sale did not go ahead, it would be unjust for the AA to take the benefit of Fenchurch’s work without paying for it. Fenchurch had taken a risk as to whether it would earn a success fee on completion of a sale, but not as to whether any fee would be paid at all. As such, the restitutionary payment awarded was equal to the price a reasonable person would have had to pay for such services, but with consideration of the fact that the fee was going to involve a contingent element, as was typical for financial advisers such as Fenchurch.

The key takeaways from Fenchurch

When it comes to determining whether two parties intended to create legal relations, the absence of a signed agreement is not necessarily fatal. It is a question, in every case where a written agreement is contemplated, whether the parties intend not to be bound until the relevant document is actually signed, or merely intend that this document is to be the record of an agreement made orally and intended to be binding when made. In approaching the respective arguments advanced by counsel for both parties in Fenchurch, it was said by the Deputy HC Judge that "context is all".


Still, where work has been undertaken by one party, at the express request of the other, a claim for unjust enrichment may arise instead. On the facts of the case before the High Court, the AA received a benefit, at Fenchurch's expense, where it would have been unjust to allow the AA to retain that benefit without compensating Fenchurch for the value of the work done.

Legal disclaimer


The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its' accuracy, and no liability is accepted for any errors or omissions. Before acting on any of the information contained herein, expert legal advice should always be sought.

© Melissa Worth, February 2023

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