In Barnsley v Noble (2014), the Court held that an oral agreement was not contractually binding. Despite evidence that such agreement had been documented in a document described as 'final', the Court held that a binding agreement had not been concluded. Instead, the oral agreement was only an outline of an agreement in which both parties were free to withdraw or continue negotiations at any time.
The Claimants and the Defendant agreed to the demerger of a successful entertainments and restaurant group as well as a property empire (the "Noble Organisation"). Essentially, the Second Claimant ("G") acquired the property interests and the Defendant acquired the trading businesses of the Noble Organisation as a result of the demerger. It was known at the time of the demerger negotiations that some of the trading companies had possible claims for repayment of large sums of VAT from HMRC on the grounds that the legislative regime for charging VAT on bingo games and gaming machines infringed the EU principle of fiscal neutrality. These potential repayment claims were, therefore, contingent assets held by the trading companies.
The issue of the VAT repayment was discussed as part of the discussions for the demerger. In the proceedings, the Claimants argued that it was agreed that the Defendant would pay G the equivalent of 25% of the net amount, if any, received, and that when the demerger was implemented this agreement became contractually binding. Crucially, this was not formally documented despite a 75/25 split being recorded in an unsigned agreement described as a "final agreement". The Defendant responded by arguing that there was never any binding contractual agreement dealing with the VAT repayment issue.
The Claimants also made a number of other claims, namely that: (i) the Defendant had made a deliberate and deceitful misrepresentation in the course of negotiations as to the value of the repayment claims; (ii) in his capacity as Executor of the estate, he was in breach of the self-dealing rule and hence in breach of trust; and (iii) he was in breach of fiduciary duty, or in breach of a common law duty of care, in failing to disclose the true value of the VAT repayment claims.
Nugee J dismissed the Claimants' arguments on each point.
In respect of the contract claim, Nugee J confirmed that it was "not enough to show that the parties were in fact agreed on some matter. It must be shown that the parties intended their agreement to have the status of a legally binding and enforceable contract". On the facts, neither party at the time of the demerger or at any stage intended or believed that anything regarding the VAT repayment would be contractually binding. There was no express agreement and no basis on which one might be implied. The "final agreement" document was not binding and was no more than an outline of an agreement from which the parties were at liberty to withdraw at any stage and who were expecting to continue negotiating the issue. Furthermore, as there was no mechanism for the repayment split, it rendered the agreement too uncertain to be enforceable. Therefore, the contractual claim failed.
With regard to the other claims, Nugee J found that:
- The claims for deceit under the Misrepresentation Act 1967 failed because the Defendant did not make any misrepresentation. The Defendant's statement regarding the strength of the repayment claims was an opinion rather than a statement of how strong the claims, objectively speaking, actually were. Nugee J noted more generally that a statement as to the future outcome of an inherently uncertain event is unlikely to ever be regarded as a statement of fact in the requisite sense as opposed to the speaker's opinion as to what the outcome is likely to be. The Claimants were, therefore, not entitled to rely on the Defendant's statement and, in any event, Nugee J found that the Claimants were not induced by what the Defendant said.
- The Defendant was found to have acted in good faith and had not sought to take advantage of his position as Executor of the estate. He was, therefore, entitled to the protection against self-dealing conferred by the express terms of the will that made him an Executor.
- The Defendant did not owe the Claimants a duty of care as the general nature of the relationship between the parties was not such as to impose on the Defendant a specific duty to disclose information in relation to the VAT repayment to the Claimants. Therefore, the claim for negligence failed.
The Court's decision serves as a useful reminder of the risks of agreeing a matter without a contractual, binding agreement or, at the very least, an intention to make it contractually binding. It is not sufficient to rely on an agreement without adequate evidence that a contractual relationship was implied or intended. It is important to ensure that an appropriate, legally binding, contract is concluded regarding any aspect of the negotiations.
The case also serves as a useful reminder that an expression of opinion regarding a certain future event should not, and cannot, be seen as a statement of fact on which to found a misrepresentation claim. It is, therefore, important to clarify any such statement made by a counterparty in order to understand the reasons and basis for the opinion before seeking to rely on it.