Don’t Rely on a Handshake – Get Your Contract in Writing!

RestaurantThe hazards involved in dispensing with legal formality and making oral contracts are well known – but it is surprising how often caution is thrown to the wind. In one case, the High Court rejected claims that a binding Euros 13.5 million business deal had been finalised by a simple handshake following dinner in an expensive restaurant.

The case focused on the meeting between a financier who worked for an investment company and an entrepreneur. The former claimed that he had agreed to assist the latter in marketing his business in return for a substantial commission if a sale was achieved above a certain target price. The financier asserted that the entrepreneur appeared trustworthy and that the deal was done on a handshake. A Euros 142 million sale of the business was subsequently negotiated – well above the target price – but the entrepreneur refused to pay the financier any commission.

In ruling on the dispute, the Court remarked that the restaurant was a highly informal and relaxed setting in which to discuss such a major deal. There had been no concluded agreement as to the detailed provisions of any such contract, including the level of the financier’s remuneration, and the Court found that there had been no intention to create legal relations. The two men had been representing their respective companies and were in any event not empowered to contract with each other personally. In the absence of any binding contract, the financier’s claim was dismissed.