No contract no liability?

If someone does work for you, but you have yet to sign a written contract (or even orally agree to a contract), can you still be held liable to pay for the work?

In AMP Advisory & Management Partners AG v Force India Formula One Team Limited, the High Court said yes.

What happened?

The facts of this case are relatively simple: Force India entered into a sponsorship agreement with an Austrian water company, which AMP brokered.

AMP argued that it had reached an oral agreement with Force India or alternatively that an unsigned brokerage agreement was binding on Force India.  The High Court  disagreed, as the evidence did not indicate that either an oral agreement was reached or that the unsigned agreement was agreed.

All was not lost though, as AMP also advanced a non-contractual claim called ‘unjust enrichment’.  Instead of focusing on whether a contract has been agreed between the parties, this claim centres around whether a defendant has been unjustly enriched at the claimant’s expense and whether this was unjust. The High Court found that Force India had indeed been unjustly enriched on the basis that the brokerage services provided by AMP were not usually provided free of charge and that both parties knew this.

The next step for the court was to consider how much Force India had to pay AWP for the brokerage services.  It assessed this amount on the usual basis in unjust enrichment claims, which is ‘what would a reasonable person in the defendant’s position have had to pay for the services’.  The court assessed this sum at £150,000.

Comment

This case serves as a reminder that even if no contract is found to exist, it does not mean that legal rights between the parties have not been created.  Put simply, if a contract is not yet agreed between parties but one party proceeds with the work, the other party may still have to pay for the work.

Another important take-home point from the decision is that it is crucial to ensure that a written agreement is in place before doing any work.  Although AWP received £150,000 for its unjust enrichment claim, if it had succeeded with its contract claim it could have recovered €9 million.

Written by Ramsay Monime, Solicitor