We often hear business men and women proudly declare that “my handshake is my word” and it was all they needed to seal the deal.

However, we urge caution. When it comes to a dispute between parties, a handshake is only a handshake. The deal might come unstuck, especially if both parties cannot agree on who said what as they shook hands.

EXAMPLE:

Cast your mind back to Opes Prime Group Limited – it was an Australian securities lending and stockbroking firm, based in Melbourne, which suffered a dramatic collapse in 2008.

Opes Prime's secured debt was believed to be more than A$1 billion, and its major secured creditors included the ANZ Banking Group (owed around $650 million), and Merrill Lynch.

A reported handshake deal between former Opes Prime CEO, Laurie Emini, and investor Nick Mitris and his company, came unstuck in a recent case in the Supreme Court of Victoria.

RESULT:

The court found that no binding settlement had been reached between Mr Emini and Mr Mitris.

HERE ARE THE FACTS:

In Re Opes Prime Group Ltd (in Liquidation), Mr Emini, a director of Opes Prime, met with Mr Mitris to discuss settlement of a cross-claim by Mr Mitris and his company. They were clients of Opes Prime. No lawyers were present. Mr Mitris claimed that he and Mr Emini settled the cross-claim on the basis that it would be discontinued and Mr Mitris and his company would pay Mr Emini $20,000. Mr Emini denied that any agreement had been reached, claiming that matters did not go beyond negotiations.

There was no dispute that, at the meeting, Mr Mitris offered to pay $20,000 to settle the cross-claim and that Mr Emini immediately rose from his chair and shook hands with Mr Mitris.

What was said next, is where the parties differed. Mr Mitris claimed that he said to Mr Emini that the final step was to get “this documented” and that Mr Emini said that he would immediately advise his legal representative of the settlement. Mr Emini claimed that, upon shaking hands with Mr Mitris, he said, that he would have to speak to his solicitor, to “see if something could be worked out”.

THE ISSUE:

The question was whether a binding contract had been formed. The legal principles are clear. This is determined not by the subjective beliefs and understandings of the parties. Rather, it is determined objectively by considering what a reasonable person would be led to believe, if they were in the position of one party and looking at the words and conduct of the other.

THE DETERMINATION:

The court was not satisfied that a reasonable person in the position of Mr Mitris would have believed that Mr Emini had accepted the offer, given that at no stage did Mr Emini say to Mr Mitris that he accepted his offer.

Mr Mitris claimed that shaking hands after the offer was made, indicated that a deal was done and that his offer was accepted. However, the court found that, even if what Mr Emini claimed was said immediately after the handshake was in fact said, a reasonable person in the position of Mr Mitris would form the view that the handshake did not indicate an agreement having been reached. Rather, the handshake was only an indication of goodwill in trying to reach agreement and resolve the matter.

TIP:

To avoid disputes of this nature, always have a signed, written agreement rather than relying on a handshake deal.

If that’s not possible, at least, clearly state the offer made and that it has been accepted. Follow that up with written confirmation – evidence - such as an email.