Is agreement on fees enough to create a binding contract?

In the recent case of Fenchurch Advisory Partners LLP (Fenchurch) v AA Limited (AA) [2023] EWHC 108 (Comm), the High Court has held that an agreement reached, by email, as to the amount of fees to be paid for Fenchurch’s services was not enough to create a binding contract between the parties.

The facts of the case are:

• Fenchurch was advising the AA on the potential sale of its insurance business and pursuant to this, Fenchurch had undertaken significant work on the AA’s behalf. However and although the terms for the engagement of Fenchurch by the AA were heavily negotiated, no engagement letter (EL) between the parties was ever signed; and
• The CFO of the AA had emailed Fenchurch asking for confirmation of final fee details so that the final EL could be prepared for signature. Fenchurch confirmed its agreement to the fees.

Fenchurch argued before the High Court that this created a binding agreement or at least a binding agreement on fees. The High Court therefore had to decide whether this agreement on fees was sufficient to create a binding contract between Fenchurch and the AA.

The Court had to consider whether the parties objectively intended to create legal relations and had they agreed all the terms which are required, by law, for the creation of a legally valid and binding contract. The fact that certain work had been undertaken & completed was held by the Court to suggest that a contract had been created. However, this fact alone was not conclusive as to whether a contract had been created and in order to decide this question, the Court needed to analyse all the circumstances of the dispute.

The High Court held that no binding contract had been created. On the facts it was clear that the negotiation of the EL’s “legal” terms had been split from the commercial aspects. The AA’s email was only dealing with fees and was not concerned with the other outstanding points in the EL. These other outstanding points eg: triggers for payment of a success fee and an uncapped indemnity were crucial in understanding whether a contract had been created and it could therefore not be said that, on facts of this case, a binding contract had been created.

Interestingly enough, the judge did accept that it was possible for the parties to have agreed binding fees before other terms were agreed. However, this dispute was not one where the parties were urgently seeking to agree a binding price and deal with the rest of the terms later. The judge held that on the facts, Fenchurch and the AA had both intended that the legal and commercial workstreams would be completed and subsequent to this, an EL would then be signed. At no point, did either party intend that once the commercial negotiation was completed, there would be a legally binding contract! This lack of intention also destroyed Fenchurch’s argument that there was an implied contract between the parties.

However, Fenchurch did have success with its argument that the AA had been unjustly enriched. This was despite the AA claiming that Fenchurch had assumed the risk of no contract being signed. Again, on the facts the judge found that neither party expected the EL to never be agreed. They understood Fenchurch to be taking a risk as to whether it would earn a success fee, but not as to whether any fee would be paid. Even though the AA’s insurance business did not go ahead, Fenchurch’s work still helped the AA reach this decision and therefore provided the AA with a valuable benefit. It was therefore unjust for the AA to take that benefit without payment to Fenchurch.

if You have any concerns over a potential binding contract that you are involved in or indeed any other contractual issues please contact a member of the Banking & Finance team.