Why an agreement on fees by email exchange may not create a binding contract

In the recent High Court case of Fenchurch Advisory Partners LLP v AA Limited [2023] EWHC 108 (Comm), an agreement reached over email on fee amounts was insufficient to create a binding contract, because certain key contractual terms were still undecided.

Fenchurch were asked to advise the AA on the sale of its insurance business. The AA’s interim CFO emailed Fenchurch asking for confirmation of final fee details so that their final engagement letter could be prepared for signature. Fenchurch confirmed fee details and Fenchurch argued that this email exchange created a binding agreement, or at least a binding agreement on fees.

The question for the judge was: (a) had the parties objectively intended to create legal relations and (b) had they agreed all the terms which they regarded, or the law requires, as essential for a binding contract?

The negotiation of the engagement letter’s “legal” terms had been split from its commercial aspects. The AA’s email to Fenchurch dealt solely with fees but not with other outstanding important contractual points including payment triggers and capped or uncapped indemnities.

The judge accepted that it was possible for parties to have agreed binding fees before other terms. However, this was not a situation in which the parties were urgently seeking to agree a binding price and would then deal with the rest of the terms. The intention here was that both legal and commercial elements would be agreed and only then an engagement letter signed. The intention, from the facts, was not that there would immediately be a binding deal once the fee negotiation was completed.

Even though there was no binding contract, the judge went on to decide that Fenchurch were still entitled (under the principle of unjust enrichment) to be fairly rewarded for the extensive and helpful work they’d done for the AA in advising it on the (abortive) sale of its insurance business.

The AA had argued that Fenchurch assumed the risk of “no contract, no payment”. The judge said no: the parties expected to sign an engagement letter at some point and it would be unjust for the AA to take the benefit of Fenchurch’s work without some payment.

Analysis

Fenchurch got something, but probably not nearly as much as a full success fee.

This case confirms that contracts can be concluded by exchange of emails, but those emails need to be clear and to contain full agreement on all main contractual terms and to show an intention from both parties to be bound by them. Even better is to have a clear, properly-prepared and signed agreement which covers all points.

Each case will turn on its facts, but just agreeing a price for goods or services does not necessarily mean a contract has been concluded. And even though Fenchurch was rewarded for its extensive and helpful work to the AA, provided non-contractually, this won’t apply in all cases.

We can help you ensure your rights (including your right to payment) are protected in commercial agreements. It is better to seek legal input at an early stage, to avoid having to litigate in the way Fenchurch did against the AA, a costly and lengthy exercise with an uncertain outcome.