Is a gentleman’s agreement still valid in business?
The commercial courts can find that a binding contract has been created even when discussions are not recorded in writing. In the case of Corporate Oil and Gas Ltd v Marshall Aviation Services the High Court upheld an informal agreement between two parties:
What was this case about?
The claimant owned a business jet (‘the jet’). The defendant company provided maintenance and repair services. The claimant delivered their aircraft to the defendant so that repair works could be carried out.
The parties met and discussed a discount on the defendant’s charges. The defendant contended that a “‘gentleman’s agreement”’ was reached for a discount and settlement sum for the work carried out to that date. The claimant disputed this and contended that the agreement was subject to confirmation by the Chief Executive.
After the meeting the defendant sent an email to the claimant confirming the discount agreed, which would be “‘deducted from the current statement balance”’. The claimant also confirmed that work continue on the post-flight defects, and the final invoice for this and fuelling will be payable by the claimant.
What was the verdict?
The court held that the “‘gentleman’s agreement”’ made between the parties was binding and the entire amount outstanding was payable by the claimant.
The court noted that the discount agreed at the meeting in question was not simply a credit item to address a particular issue. It was to decide the overall amount of money that was due to the defendant (i.e. the account claimed, less the reduction).
The court found that the claimant had not objected to the defendant’s summary set out in the email following the meeting, nor was there any request for clarification or further negotiation in the weeks and months that followed. The Judge found that the reference during the meeting to a “‘gentleman’s agreement”’ was not an indication of any lack of intention to create an agreement that was legally binding, but rather a reflection of the matter having been agreed between gentlemen.
The court was satisfied that the work charged for by the defendant was completed and carried out with reasonable care and skill. The defendant was therefore correct in asserting a lien until its charges were agreed and paid. The claim in damages for conversion was rejected.
So, depending on the circumstances, courts are willing to uphold informal agreements that have not been recorded in a formal written contract. However, where possible, particularly in business, it is a better approach to have a formal written agreement in place to avoid dispute and uncertainty further down the line.
