I have said it before and I shall say it again, it is a source of constant wonder to me that fantastic business people do not know if they have a contract or not. Basically, where there is agreement that entity A gives something and gets something and entity B also gives something and gets something in exchange there is a contract. When I am asked about trading arrangements between a client and a third party I am often told, “We have not got a contract”. A contract does not have to be written down to exist but if it is it is so much easier to tell what the terms are. Remember, “If you have not written it down, it has not happened”.
Sometimes arrangements are so loose it is hard to tell if a contract exists. The Court of Appeal recently gave guidance on identifying if there is an implied contract. The whole thing came up in the context of sister companies (same parent company) that had both gone into administration. One company (A) employed the staff who were seconded to B. A had contracted with the parent to provide the staff to B. There was no contract between B and anyone else. B paid all the staff expenses and that income was A’s only source of revenue.
Matter went to court because there was a £35m hole in the pension fund. The question was; was B obliged to pay into the fund?
To imply a contract you look at:
- Is there agreement on essentials that is sufficiently certain to be enforceable?
- Is there an intention to create legal relations?
- Is anything given in exchange for what is provided?
- Is it necessary to imply a contract?
- Would the parties have acted as they did if there had not been a contract?
In our case, the Court said there was so much money at stake that there must have been a contract and was prepared to imply one.
If you want to keep away from a court, put your arrangements in a written agreement, either a contract document or at least an exchange of letters or emails.
The decision was significant because the arrangements were between companies within a group where the exchange of staff and assets may be quite informal. Even group companies should keep their arrangements clear and documented.