When someone shakes your hand and says they intend to do business with you, you might reasonably believe you have an oral contract. Think again
I think architect BBF Consulting Group is a tad miffed with the well-known housebuilder Barratt Homes. Miffed enough to go to the High Court. Mind you, I guess it didn't help much when Barratt, writing to explain why the architect had lost a commission, finished the letter with the phrase: "Put the misunderstanding down to life's colourful tapestry." It's one of those throwaway lines that are used by folk with a sense of humour. Snag is, it has to have someone at the receiving end who hasn't suffered a sense of humour failure. Like this architect had.

This is the story of ordinary building people doing in private what folk do in private everywhere: get into oral contracts. Well, no – that's not quite accurate; in this case, only one party thought it had agreed an oral contract. The other said no contract was agreed at all.

It happens time and again, not just between contractors and subbies, but between folk like architects and clients. It's tempting to accuse them of being half-baked, but hell, that's wrong. People negotiate oral deals in good faith all the time. Then they go home satisfied that they have pulled off the contract.

BBF sat down with Barratt to discuss the old hospital site in Woking. The architect had been successful in winning planning for 89 dwellings on the land. Then its client sold the site on. It went to Barratt. BBF said it would be very happy to continue the architectural commission for the new owner. BBF gave a presentation to Barratt about its work on similar projects, and eventually, the housebuilder's top man said: "I've heard enough. We will run with you." Cock-a-hoop, BBF went home believing it had won the professional services commission. And, many moons later, a High Court judge agreed with it. He said an oral contract was formed to carry out work to further a detailed planning application.

The court got involved because Barratt didn't see the words "we will run with you" as an intention to get into contract. Dear me, no. It was a misunderstanding that was all down to life's colourful tapestry. Ah well, said the judge, pay BBF £36,000 in fees, since that is what it was entitled to – presumably for damages for breach of contract. BBF then regained its sense of humour.

Surely, though, when Barratt said ‘we will run with you’, that was convincing? It was ambiguous, said the Court of Appeal. How far would it run?

Now it was Barratt's turn to be miffed. It took the decision to the Court of Appeal, saying that since no price or fees had been agreed, no contract arose. Tosh, said the court. The absence of such an agreement is not fatal to the formation of contract. But Barratt had put a lot of store on obtaining a competitive fee rate from BBF, so it caused the Court of Appeal concern that the first judge had given little weight to the absence of a fee agreement. Barratt – in its mind, at least – never intended to contract until the fee rate was nailed down.

The law, however, asks if an agreement arose from objectively examining what happened in the negotiations. It matters not what passes through the heart of the negotiator. Surely, though, when Barratt said, "we will run with you", that was convincing? It was ambiguous, said the Court of Appeal. The question it posed was: "How far was Barratt willing to run with the architect?" Not far, it concluded. Barratt was only running to a sketch proposal while awaiting the deal on fees.

By the way, Barratt thought the RIBA fee scale too high. Also, the circumstances of the negotiations were misleading BBF into a false sense of success. The reason is that simply because it had done a lot of work for the previous owner of the site, it was well placed to press on. Next, BBF misled itself because the period for obtaining detailed planning was very short and this, together with its prior knowledge of the site, made the practice a good candidate for the appointment. But that doesn't make a contract.

Then the Court of Appeal looked at the letters flowing between the parties. It didn't look like the sort of correspondence that would flow between people who had agreed a contract. It said nothing about an existing or already agreed contract. And when fees were proposed by the architect, it seemed to talk about a future contract, not one already agreed. In the end, it seems that the first judge put a lot of store by Barratt's "we will run with you". But there wasn't much else to go on. The Court of Appeal thought that those words were too thin to rely on to assist the creation of a contract. And so they overturned, with reluctance, the previous decision. There was no oral contract.