Lawyers always go on about the importance of getting the formalities right at the outset. While it is tedious and frustrating to have to document properly what is agreed before work starts, it is worth taking that extra time and trouble to agree and finalise the contract documents before commencing the project.

That was the clear message from a recent case of the Supreme Court (now the final court of appeal in place of the House of Lords). The case, in the judge’s own words, demonstrates:

“… the perils of beginning work without agreeing the precise basis upon which it is to be done. The moral of the story is to agree first and to start work later.”

A clause in the draft contract stated that the contract was not effective until both parties had signed and exchanged it. Due to commercial pressures the work started. The fact that the contract had not been finally agreed at that stage did not matter. The parties decided to use the sticking plaster of a letter of intent to plug the gap before the contract was agreed and signed. Soon after the works started, so did the problems. The parties went to see their lawyers. The lawyers asked to see a copy of the signed contract. There wasn’t one, so the parties turned to the courts for them to decide.

The High Court said one thing, the Court of Appeal said another and then the Supreme Court said something altogether different.

So a couple of years after the parties originally went to see their lawyers, they finally had an answer (but only after three different, but all well respected, courts reached different conclusions).

Ultimately, the Supreme Court held that, even though there was a clause which stated that the contract was not effective until signed and exchanged, the conduct of the parties, in starting the work, had waived the right to rely on the clause. Therefore the contract had come into existence, despite the fact that it was not signed and the details had not been finally agreed.

If there is one salutary lesson to be learnt from this sorry saga, it really is worth spending a little bit more time (and yes money) with your lawyer at the outset to get the terms properly documented and agreed, so that both sides know where they stand. It really will save you lots of time, money, stress and inconvenience later.

Click here to read our previous article on the Court of Appeal decision

For more information on these issues please contact

James Levy

or your usual Lewis Silkin contact