In the following case the Court of Appeal had to consider whether the trial judge was right to decide that the oral contract concluded between the parties for a fixed term of two years included a right to terminate upon three months’ written notice. This case focuses on the risk of commencing performance on the basis of partially completed contract terms.
BVM Management Ltd v Yeomans (t/a the Great Hall At Mains) & Anor  EWCA Civ 1254
The respondents, Mr and Mrs Yeomans (the Yeomans) entered into a written agreement with a company (GBRF) for the provision of catering services (Catering Contract). It was a term of the Catering Contract that either party be entitled to terminate the Catering Contract upon three months' written notice.
The Yeomans and GBRF subsequently commenced negotiating the terms of a second agreement for the provision of event management services (Events Contract). The proposed terms of the Events Contract contained the same right of termination and notice period that was included in the Catering Contract.
Although draft terms of the Events Contract were circulated, the Events Contract was never signed because GBRF fell into financial difficulties. A meeting was held in July 2007 between the parties to discuss a proposed solution whereby one of the directors of GBRF (Mr Middleton) would take over GBRF’s position. It was agreed that Mr Middleton would form a separate company (BVM) to provide the event services.
BVM and the Yeomans did not conclude a written contract. However, there was no dispute that whatever the terms of the contract might be between BVM and the Yeomans, the parties were agreed that their contract was based on the partially negotiated terms of the Events Contract.
BVM continued to provide the event services until February 2008 when the Yeomans terminated the contract on the basis that it was entitled to do so on three months’ written notice.
BVM argued that the contract between BVM and the Yeomans did not entitle either party to terminate the contract early, let alone upon three months written notice - the contract was for a fixed term of two years, with no option for early termination at all.
Findings of the Trial Judge
The trial judge made several findings of fact:
- The Events Contract (which was based on the Catering Contract) contained the right to terminate upon notice and the Events Contract was before all those who attended the July meeting.
- At the July meeting Mr Middleton had stated that he wanted some security of contract and required that the contract be for a fixed term of two years.
- The right to terminate on three months’ notice provision (contained in the Events Contract) was not discussed or mentioned by either party at the July meeting.
- Mr Middleton believed it was agreed that the Events Contract would run for two years without any right of termination regardless of any notice.
- Equally, the Yeomans believed that the two year fixed period could be terminated by either party upon three months’ notice.
The trial judge held that:
- Mr Middleton and the Yeomans had concluded an oral contract at the July meeting;
- It was term of the oral contract that it would be for a two year period.
- The right to terminate on three months’ notice in the Events Contract was incorporated into the oral contract.
- The termination provision was not incompatible with the oral contract being for a fixed term.
Did the parties agree either expressly or tacitly to incorporate the right to terminate on notice in the oral contract?
On appeal BVM sought to argue that the trial judge was wrong to conclude that the parties had incorporated a right to terminate on notice particularly given that:
- BVM sought the security of a fixed term two year contract;
- neither party at the July meeting discussed any right of termination; and
- that an “objective bystander” would have understood that the parties were agreeing a contract for a two year term with no possibility of an earlier termination on notice.
The findings of the Court of Appeal
The Court of Appeal noted that case law required an appeal court to be slow to reverse a trial judge’s evaluation of the facts, particularly where the finding depended on oral evidence, unless the findings:
- were obviously wrong;
- unreasonable; or
- produced a result unsustainable in law.
The Court of Appeal considered the key material which was before the trial judge and the subjective understandings of what each party thought they were agreeing. However, these subjective understandings were of no help as they cancelled each other out and the Court of Appeal dismissed the appeal. The trial judge was entitled on the evidence he had before him to reach a finding of fact that the parties did agree that the three month termination provision was part of the contract concluded orally at the July meeting.
There was no legal difficulty in having a contract for a period of two years with a provision that permitted an earlier termination of the fixed term.
This case is another example of the danger of commencing performance in the absence of a signed contract. Although it does not introduce any new law, it does highlight the effect that oral negotiations have on the drafting process. Terms of agreements - particularly such terms as a right of termination - should be agreed in writing. Here, the fact that a termination clause was included in the draft agreement which was before the parties at their meeting (even though it was not discussed) was sufficient to incorporate it into the oral agreement between the parties.
View: BVM Management Ltd v Yeomans (t/a the Great Hall At Mains) & Anor  EWCA Civ 1254