Oral Contract Claim Fails

July 23, 2013

Oral Contract Claim Fails

There are not many people who would recommend doing the lottery as a certain path to success, but we regularly see instances of disputes going to court where the outcome is so uncertain as to make the proceedings tantamount to a lottery.

Nowhere is this more obvious than when the dispute involves an oral contract. A recent case illustrates this well.

It involved a company that provided catering services and events management. It agreed to provide its services to the owners of a venue and a draft contract was produced but never signed. When the events management company had an internal reorganisation, the contract was switched to a new company under the control of one of the directors of the former company. A draft contract was discussed again and the two businesses carried on as before. However, the events management company’s director thought they had agreed a two-year minimum term, whereas the owners of the venue believed they had agreed a two-year contract terminable on giving three months’ notice.

The draft contract contained a clause requiring that three months’ written notice should be given to terminate it. When the venue owners decided to terminate the arrangement, they did so without notice and a dispute arose. They argued that the events management company had breached the contract to such an extent that it was repudiated and that, in any event, it could be terminated with three months’ notice.

The events management company argued that the contract was for a fixed term of two years without any option for early termination.

The court ruled that there had been no breach of contract by the events management company and that, whilst there had been a contract made for the provision of events management for two years, the contract could be terminated earlier if three months’ notice was given. Accordingly, the events management company was entitled to damages, but only for three months’ worth of lost profits.

The case ended up in the Court of Appeal, which upheld the original decision.