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Sues you, sir: a cautionary tale of the contract without paper

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legal matters

The construction industry is so hemmed in with standard forms of contract, specifications and bills that take up large expanses of shelf space, it is easy to forget that making a contract can be surprisingly simple under English law. In the recent case of McNicholas v Endemol (13 October 2003) the claimant relied on a handshake as having formed a contract.The judge decided against them, but the case serves as a useful reminder that a contract does not necessarily need reams of paper, and caution should be exercised during any pre-contract negotiations so as to be quite clear when, if at all, a contract is entered into.

Endemol produces Fame Academy.To make the first series it had to find a house with grounds. Something large was wanted, as Endemol needed to accommodate about 150 people on site while the programme was made. It was anticipated that works would have to be carried out to whatever property was chosen before filming could start.

Endemol needed to sort out any planning consents that were required, not least to permit a planned weekly live broadcast from a marquee in the grounds.

There were significant time constraints. Endemol was looking for premises in July 2002 to start filming in October.

Endemol became interested in Essendon, a house in Hatfield.

McNicholas, the claimant in the action, and a Mr Curson, had interests in Essendon.When Endemol did not use Essendon, McNicholas sued, alleging breach of contract. Endemol argued there had been no contract.

Negotiations had begun in July 2002, Endemol being represented by a Mr Jones.Towards the end of that month there was an agreed price, and Endemol had sent Curson a draft contract.

On 26 July the parties met to discuss the draft. Unbeknown to Curson, by this date Endemol was looking at alternative properties, including one in Highgate, north London, that was eventually used to make the programme.

The judge found that by 26 July, Jones was in an unenviable position. He had a production timetable 'breathing down his neck', and had to get a property that the BBC was satisfied with.

He needed to keep as many options open for as long as possible while concluding a deal as quickly as possible.

After the meeting, and as part of a discussion, Jones and Curson shook hands. Curson said that although at that stage the written agreement had not been finalised, the parties became bound at the time of the handshake. Jones disagreed.

He said that by the handshake he had sought only to obtain an assurance from Curson that he would not go back on things thus far agreed.

The judge carefully weighed the evidence of both sides as to the circumstances of the handshake. He also took into account that the terms of the draft written contract had not been agreed at the meeting.There were important matters left open, such that there was a lack of certainty as to the precise bargain.

The judge concluded that while the handshake was more than a mere courtesy, and indeed may have been symbolic, it did not connote a binding deal.

The judge went on to reject the claimant's alternative cases, namely that there was a binding agreement reached during later exchanges of the draft contract, and that Endemol was prevented from reneging on the putative deal because Curson had taken steps to accommodate Endemol's anticipated occupation of Essendon.

It appears that Endemol hung on to all its options until the 11th hour. By the end of July the Highgate house had become Endemol's favoured option.

However, as late as Friday 9 August, Endemol told Curson that the agreement for Essendon might be finalised and signed by the following Monday or Tuesday.

On Monday 12 August Endemol's lighting crew arrived at Essendon, but left, saying they would return the next day. Later on that same day, Jones signed an agreement to use the house in Highgate. Only then did he tell Curson that Essendon would not be needed after all.While the judge remarked that Endemol's conduct had been 'somewhat disingenuous', and that Jones appeared to feel some embarrassment about the matter, there had been no agreement and the claimant failed.

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