In the recent case of BVM Management Ltd v Roger Yeomans t/a The Great Hall at Mains and another, the Court of Appeal decided that an oral contract for a fixed two-year term contained an express term that it could be terminated on three months’ notice.
The parties to a contract often engage in negotiations before the contract itself is actually formed. It can be difficult to identify exactly when the parties made the contract and the terms that were agreed.
In the case, BVM provided catering and events management services. Roger Yeomans owned a venue called the Great Hall and operated an events management business. In early 2007, the parties discussed the possibility of one of the directors of BVM taking over the management of events at the Great Hall.
During those discussions, a draft agreement was produced, which included a two-year fixed term and a clause allowing termination on three months’ notice. The parties had a meeting on 4 July during which the director of BVM stated that he wanted “some security because of his personal circumstances” and so wanted a contract for a period of two years. At the meeting, the three-month notice provision was not mentioned. After the meeting, various drafts of the agreement containing the three-month provision passed between the parties, but nothing was signed.
BVM provided events management services until 8 February 2008, when Roger Yeomans terminated the contract. Roger Yeomans relied on a right to terminate the contract on three months’ written notice. BVM argued that the contract was for a fixed term of two years, with no provision for early termination.
In the County Court, the judge held that the parties had concluded an oral contract for a two-year period that contained a three-month notice provision. BVM appealed, arguing that the judge was wrong to have concluded that the three-month termination provision was incorporated into the contract.
The Court of Appeal upheld the first instance decision and dismissed the appeal. There was no dispute that the parties had concluded an oral agreement for events management services for a period of two years. Neither was it disputed that, apart from the termination-on-notice provision, all the other terms of the draft agreement before the parties at the 4 July meeting were incorporated into the oral agreement. The only term in dispute was the three-month termination provision. To decide that issue the judge had to determine whether the parties agreed, either expressly or tacitly, that the three-month notice provision was an express term of the contract.
Lord Justice Aikens said that, in his view, the judge in the County Court was entitled, on the evidence before him, to reach a finding of fact that the parties did agree that the three-month termination provision was a part of the contract concluded orally on 4 July 2007. This was consistent with the director’s desire for some security, because he had the agreement to a two year term for the contract.
The decision demonstrates the dangers of relying on conversations and unsigned draft agreements when entering into a contract. It is essential to ensure that key provisions are always documented, especially those as fundamental as a termination right.
If you would like advice on this or a related topic, please contact Catherine Mathews. Catherine specialises in commercial and contract litigation. Catherine is a member of the Dispute Resolution Team in Exeter. The Team is described as “exceptional” in the Legal 500 2010 independent directory and “extremely effective” in the Legal 500 2011 independent directory.