Not every commercial ‘agreement’ is binding

Posted: 7th October 2019

Signing ContractJust because a document is headed ‘agreement’, or with some other word implying that an accord has been reached, does not necessarily mean that those who sign it intend to create a binding contract.

The High Court made that point in consigning one such document to the legal waste paper bin.

A supplier of cash handling devices entered into negotiations with a company with a view to the latter designing and manufacturing pouches used to securely hold banknotes.

A document, which was stated on its face to be an agreement, was created - but not professionally drafted - following a meeting in a hotel.

After a dispute arose, the supplier sought an order of specific performance, requiring the company’s compliance with the strict terms of the purported agreement, or damages in lieu. In particular, the supplier argued that the company was contractually obliged to transfer to it all intellectual property rights in the pouch.

In dismissing the supplier’s claim, however, the Court found that the document had been intended, not to create legal relations, but merely to record the consensus that had been reached at the hotel meeting. The document was intended as a minute of what the parties hoped to achieve and was not legally binding.

Both sides had contemplated that more formal documentation would in due course be created, after taking legal advice, but that had never been done. Neither of them had subsequently treated the document as binding and the Court found that it would be unfair, unjust and unconscionable to go back on that common assumption.