The problem with oral agreements - the ongoing battle between PCP and Barclays

The problem with oral agreements - the ongoing battle between PCP and Barclays

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Amanda Staveley – who runs the private equity firm PCP Capital Partners – is currently embroiled in a high-profile High Court battle with Barclays. Its roots date back to just after the 2008 financial crisis, when Barclays sought to raise capital and PCP agreed to invest large sums; now, PCP is accusing Barclays of making false representations and unfairly favouring Qatari investors, resulting in substantial losses to PCP. Most national headlines have recently covered this dispute, but Ms Staveley may also have another fight on her hands.

It has been reported that Omar Hassanieh, a London-based entrepreneur, is claiming to have acted as Ms Staveley’s business partner on this deal and she may now face a demand from Mr Hassanieh for up to half of the £1.6bn sum she is pursuing from Barclays. This sounds straightforward but the complication is Mr Hassanieh’s reported claim against Ms Staveley is based on an alleged oral agreement that he says she has now reneged on.

Are oral agreements ever enforceable?

This raises the obvious question of whether Mr Hassanieh can attempt to pursue this claim. While Mr Hassanieh’s agreement with Ms Staveley was not, we understand, formally documented in writing, it may still be upheld. Save for a few exceptions, agreements can be formed orally, in whole or partly, provided the essential elements required to create a contract are present. In these circumstances, oral agreements are capable of being legally enforceable.

However, if there is no evidence in writing to prove the position, Mr Hassanieh will have to convince a court that a legally binding agreement exists. Specifically, he will need to demonstrate that there was an offer; a final and unqualified acceptance of that offer; consideration (usually in the form of a payment); an intention to create legal relations; and certainty of terms.

Usually, the advantage of a written agreement is that there will be no difficulty in demonstrating any of these requirements. If a later disagreement emerges, the parties will be able to refer back to the agreement, in most cases signed by the parties, to show exactly what was agreed. The main obstacle in seeking to rely on oral agreements is proving the terms, if they are disputed or a party reneges on the deal altogether. Inevitably, in disputes involving oral agreements, it will often be one person’s word against another and, in the absence of any clear evidence of its existence or terms, parties seeking to rely on undocumented arrangements can face an uphill battle.  

On the face of it, Mr Hassanieh’s position is relatively simple. He says he offered to assist PCP with the Barclays investment, this offer was accepted by Ms Staveley and they agreed that all profits from the deal would be split equally between them. On his version of events, it appears possible that Mr Hassanieh could demonstrate the first three essential elements of contractual formation above. For Mr Hassanieh, however, the difficulty is likely to be establishing that the parties intended to create a legally binding agreement. He will need evidence to both support this and to identify the terms with sufficient certainty to be enforceable.

It remains to be seen what evidence Mr Hassanieh may offer or indeed whether he will pursue the reported claim at all but, without a written agreement or any other material to substantiate his account, he may face a difficult task.

How do parties avoid this situation?

Mr Hassanieh’s case, while not unique, is a reminder of the potential risks of relying on oral agreements. To avoid Mr Hassanieh’s plight, parties should try to document the terms of any arrangement in a written agreement. Where that does not occur for any reason, contemporaneous records of what is agreed should be created and retained.

A party seeking to rely on an oral agreement will be expected to account for the existence of the agreement and its terms, for which strong evidence will be required. Each case will ultimately be assessed on its facts but the more supporting material you can produce the more likely it is a judge will accept your version of events. Whilst true of most litigation, this is particularly vital where the court is scrutinising accounts of informal arrangements reached orally. Providing detail, such as who was involved in the discussions and when they took place, will be crucial.    

Relevant communications traded between the parties are therefore likely to be important. Parties should keep any exchanges that may demonstrate an agreement such as emails, text messages, records of conversations and other types of messages. Personal notes or memoranda that may demonstrate an enforceable agreement should also be preserved.

Additionally, the conduct of the parties following the agreement will be important in convincing a court that an enforceable agreement exists. Any evidence demonstrating the parties behaved in a way consistent with the terms of the alleged agreement, or that shows an agreement should be implied, will be material. Where parties are taking any steps, such as making payments or, as we understand Mr Hassanieh to be claiming, providing services, in relation to an oral agreement they would be well-advised to keep a record of this.

Writing is binding

Further details of Mr Hassanieh’s position, and exactly what evidence he may be able to put forward in support of his case, are awaited. His chances of successfully pursuing his reported claim against Ms Staveley, should he choose to do so, may ultimately become clearer. The message nonetheless remains the same. Parties should be wary at all times of relying on informal agreements or an “understanding” regardless of how clear they consider the arrangements. Unless there is a written agreement, parties risk finding they have to prove the position later or that the arrangements may simply not be binding. 

This article was first published in The World Financial Review, see here.

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