High Court decides that oral discussions resulted in non-binding heads of terms, not a legally binding agreement.

This High Court decision is an interesting example of how the court decides whether or not a binding agreement has been reached. It found that no binding agreement had been concluded and illustrates the importance of parties making absolutely clear, in writing or orally, whether they intend to create a binding agreement or whether their negotiations are subject to contract.

The claimant, JAS Financial Products LLP (a business supplying specialist services to the financial services industry), alleged that it had entered into a binding agreement to provide "middle office support" to the structured products desk of the defendant (ICAP Plc (a broker)) for 24 months. ICAP denied that a binding agreement had been reached. In late 2007 / early 2008 the parties discussed a possible engagement to provide middle office support. On 3 March 2008, JAS set out a proposal in an email to ICAP. There was a meeting on 13 May 2008 between two representatives of JAS and two representatives of ICAP at which they went through the 3 March email point by point. No changes were made, apart from the date on which the engagement was to commence. Handshakes followed. JAS sent ICAP an email on 16 May 2008 stating: "I have set out below the terms…agreed in the meeting…on Tuesday [1]3[th]… I am happy to sign whatever additional documents ICAP requires to record this agreement."

The question for the High Court was whether a binding agreement had been reached at or immediately after the 13 May meeting. The High Court stated that the legal principles were not in doubt; whether or not a binding agreement had been reached depended on an examination of the parties' words and conduct to determine whether, looked at objectively, they intended to create legal relations and agreed all the essential terms.

Three of those present at the meeting on 13 May recalled Mr Bray for JAS saying at that meeting that the parties were "done" or words along those lines. However, the High Court accepted the evidence given by Mr Smith for ICAP that he had challenged the statement and said things had next to go to the lawyers. The High Court said it was quite sure Mr Smith's challenge made it clear to all, and would have made it clear to an objective observer, that although all points had been agreed in the sense that no issues remained outstanding, the stage of a legally binding agreement had not been reached. In other words, non-binding heads of terms had been agreed, but the parties had not yet entered into a binding legal agreement.

The High Court took the view that the parties had not at any stage contemplated that a legally binding agreement would be entered into orally. Although reference had been made at trial to trades in ICAP's area of business being concluded orally, this was not such a trade. It was a proposed 24 month hiring of services to enhance oversight and control risk. At no point had the parties entered into an agreement in writing. Even if the emails of 3 March and 16 May were capable of acceptance by, for example, an email in response, they were not so accepted. The parties might not have contemplated elaborate documentation, but a confirmatory reply was the minimum contemplated.