Claims that binding contracts have been reached orally or on a shake of hands are commonly made, but are very hard to prove. A Court of Appeal ruling in the context of the drinks industry underlined the critical importance of engaging professionals to submit agreements to writing.
A manufacturer of alcoholic drinks supplied its wares through a wholesaler. A dispute developed after the wholesaler learned that the manufacturer was making direct supplies to one of its major clients. The wholesaler alleged that the commercial relationship was governed by an overarching contract by which the manufacturer agreed only to supply its products through the wholesaler. Although no such contract had been committed to writing, the wholesaler asserted that a binding, oral exclusivity agreement had been reached at a meeting.
Following a hearing, however, a judge ruled that there was no overarching contract. He found instead that there were individual contracts in respect of five customers. By making direct supplies to the client, the manufacturer had acted in repudiatory breach of one of those contracts and renounced the others. On the basis that three months was a reasonable notice period, the manufacturer was ruled liable to pay damages for breach of the five contracts for that period.
In dismissing the wholesaler's appeal, and the manufacturer's cross-appeal, against various aspects of the judge's ruling, the Court detected no error in his approach. In relation to the alleged overarching contract, the absence of a written agreement meant that the judge was inevitably reliant on witness evidence as to what had and had not been orally agreed at the meeting.
The judge was entitled to find that little more had been achieved at the meeting than an agreement to take matters forward. The wholesaler gave no definite commitment to place orders of any particular amount with the manufacturer, nor had the manufacturer committed itself to accept and fulfil any such orders. In those circumstances it was difficult to see that either of them had entered into the kind of legally enforceable obligations needed to form a contract.