Directors’ phone conversation amounted to binding agreement

The High Court has ruled that a telephone conversation between the managing directors of two companies amounted to a binding agreement and had to honoured.

Sam Lyon Head of Corporate & Commercial reports on this recent case.

The case involved Mansion Place Ltd v Fox Industrial Services Ltd.

Mansion had engaged Fox to refurbish and extend student accommodation. There were delays in the performance of the works.

Fox said they were due to the Covid-19 pandemic and, to a greater extent, Mansion’s failure to give timely possession of the site and to clear it of students. Mansion said that Fox had failed to progress the works and to commit sufficient labour and resources.

The situation was discussed by the managing directors of each company in a telephone call to resolve the situation while each was driving.

Fox said the conversation resulted in a binding agreement that Mansion agreed to forego any entitlement to liquidated damages and in return Fox agreed to forego any right to claim payment for loss and expense resulting from the delay.

Mansion insisted there was no such binding agreement, but an adjudicator found that there was.

The High Court upheld the adjudicator’s decision.

It held that the court was able to make a finding as to the gist of the conversation on the balance of probabilities. The two parties had reached a binding agreement that Mansion agreed to forego its right to liquidated damages under the contract.

It was a final abandonment of those rights by Mansion. The dealings between the parties were against the background of the Covid-19 pandemic and the impact that had on construction work generally.

More significantly, Mansion’s internal documents showed that it was concerned that Fox would either leave the site or deliberately delay the works and was very anxious to avoid that consequence.

In those circumstances, the dropping of the liquidated damages claim was not necessarily as surprising an act as it might otherwise appear and could be seen as having been regarded by Mansion as a price worth paying to ensure the project continued to move to completion. 

The Fox version of the conversation was more reliable than the Mansion’s.

If you would like more information about the issues raised in this article or any aspect of contract law please contact Sam on 01228 516634 or click here to send him an email.