ALWAYS GET IT IN WRITING

When doing business, it is a very human inclination to trust others and to rely on a handshake. However, when that trust proves to have been misplaced the result can often be lengthy and costly litigation. A recent decision of the House of Lords provides a vivid example of how things can go wrong, with a claimant ending up with rather less than he thought he had bargained for.

Contracts – The Need for Writing

Strictly speaking, many kinds of contracts can be made orally although in the case of a deal of any complexity, it is always preferable to have a written record of what has been agreed. Certain contracts, however, such as guarantees and contracts for the sale of land, must be in writing. If the formalities are not observed, various legal principles may provide a lifeline, but these can lead to unpredictable results.

Yeoman's Row Management Ltd and v. Cobbe
Mr and Mrs L owned all the shares in YRML which, in turn, owned a property that was ripe for development. Mrs L and C, an experienced property developer, reached the following oral agreement: - C would, at his own expense, apply for planning permission for the erection of six terrace houses on the property. Once planning permission was granted, YRML would sell the property to C for an initial sum of £12m. C would build and sell the houses. He would then pay to YRML overage of 50% of the amount, if any, by which the gross proceeds of sale exceeded £24m. C obtained planning permission. At that point, Mrs L sought to renegotiate the deal. She suggested an initial payment of £20m and overage of 40% of the amount, if any, by which the gross proceeds of sale exceeded £40m.

C sued YRML. He won in the High Court on the basis of estoppel, or detrimental reliance. C had incurred the expense of obtaining planning permission on the strength of Mrs L’s promises. The Court ruled that C was entitled to an interest in the property equal to 50% of the increase in value of the property attributable to the planning permission being granted. The Court of Appeal dismissed YRML’s appeal. However, YRML successfully appealed to the House of Lords, which ruled that the agreement between Mrs L and C had been too uncertain to create an estoppel. The Lords did not send C away empty-handed. He was entitled to recover a reasonable rate of remuneration for his services in obtaining the planning permission. However, that was obviously something very different from the profit which C must have anticipated making from the deal.

To find out more about the implications of this case, please contact Caroline Wilton.

Filed: 16/11/2008 13:27:31