In Gray v Smith [2022] EWHC 1153 (Ch) ('Gray') on 16.5.22, Richard Smith (sitting as a Deputy High Court Judge), under the heading 'Legal principles', set out the principles surrounding formation of a oral contract, at paragraphs 146 to 163:

'146. Although both parties referred me to extensive authority, it is fair to say that there was little difference between them as to the legal principles applicable to the conclusion (or otherwise) of the Alleged Oral Agreement. Perhaps the most useful starting point is the exposition of general principle by Leggatt J in Blue v Ashley [2017] EWHC 1928 (Comm) (at [49]-[64]). As to oral agreements:-

"Generally speaking, it is possible under English law to make a contract without any formality, simply by word of mouth. Of course, the absence of a written record may make the existence and terms of a contract harder to prove. Furthermore, because the value of a written record is understood by anyone with business experience, its absence may – depending on the circumstances – tend to suggest that no contract was in fact concluded. But those are matters of proof: they are not legal requirements. The basic requirements of a contract are that: (i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable: …." (Blue at [49])

147. As to whether the parties have reached agreement:-

"In general, the agreement necessary for a contract is reached either by the parties signing a document containing agreed terms or by one party making an offer which the other accepts. Acceptance may be by words or conduct." (Blue at [50])

"For the purpose of the law of contract, an offer is an expression, by words or conduct, of a willingness to be bound by specified terms as soon as there is acceptance by the person to whom the offer is made." (Blue at [52])

148. As to the parties' intention to create legal relations:-

"Even when a person makes a real offer which is accepted, it does not necessarily follow that a legally enforceable contract is created. It is a further requirement of such a contract that the offer, and the agreement resulting from its acceptance, must be intended to create legal rights and obligations which are enforceable in the courts, and not merely moral obligations. Not every agreement that people make with each other, even if there is consideration for it and the terms are certain, is reasonably intended to be enforceable in the courts." (Blue at [55])

"Factors which may tend to show that an agreement was not intended to be legally binding include the fact that it was made in a social context, the fact that it was expressed in vague language and the fact that the promissory statement was made in anger or jest. …" (Blue at [56])

149. Moreover, according to Coulson J in MacInnes v Gross [2017] EWHC 46 (QB) (at [89]):-

"The mere fact that the discussion took place over dinner in a smart restaurant does not, of itself, preclude the coming into existence of a binding contract. A contract can be made anywhere, in any circumstances. But I consider that the fact that this alleged agreement was made in a highly informal and relaxed setting means that the court should closely scrutinise the contention that, despite the setting, there was an intention to create legal relations. The Claimant himself agreed that, other than his case, he was unaware of any remuneration agreements with investment bankers that had been concluded over dinner in the way in which he now suggested."

150. As to completeness and certainty of terms:-

"Vagueness in what is said or omission of important terms may be a ground for concluding that no agreement has been reached at all or for concluding that, although an agreement has been reached, it is not intended to be legally binding. But certainty and completeness of terms is also an independent requirement of a contract. Thus, even where it is apparent that the parties have made an agreement which is intended to be legally binding, the court may conclude that the agreement is too uncertain or incomplete to be enforceable – for example, because it lacks an essential term which the court cannot supply for the parties. The courts are, however, reluctant to conclude that what the parties intended to be a legally binding agreement is too uncertain to be of contractual effect and such a conclusion is very much a last resort. As Toulson LJ observed in Durham Tees Valley Airport v bmibaby [2010] EWCA Civ 485, [2011] 1 Lloyd's Rep 68, at para 88:-

"Where parties intend to create a contractual obligation, the court will try to give it legal effect. The court will only hold that the contract, or some part of it, is void for uncertainty if it is legally or practically impossible to give to the agreement (or that part of it) any sensible content." (citing Scammell v Dicker [2005] EWCA Civ 405, para 30, Rix LJ)." (Blue at [61])

151. Given the debate around their application in this case, it is worth specifically noting here the Defendants' reliance on two authorities (in addition to Blue) for the proposition that agreements to negotiate or to agree or of uncertain duration are unenforceable as too inherently uncertain - Walford v Miles [1992] 2 AC 128 and Dhanani v Crasnianski [2011] 2 All ER (Comm) 799. [The First Defendant] submits that the contract alleged here to try to build a fund, with no agreement as to the Fund structure or any express termination provision, is so uncertain that it should suffer the same fate as the contracts in those cases. The Claimant says such reliance is inapposite: first, there was no agreement to agree or to negotiate here – [the Claimant] and [the First Defendant] reached a complete agreement on 15 June 2016; second, although, superficially, Dhanani may seem analogous on the facts, the parties in that case were in a very different position in relation to their proposed fund than [the Claimant] and [the First Defendant] who had 'bolted down' by 15 June everything that needed to be in place contractually. As Lord Clarke also observed in RTS Flexible Systems (at [45]):-

"…..Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement."

152. Lord Clarke also endorsed (at [49]) Lloyd LJ's summary of the key principles in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601, specifically holding that they apply in the context of contracts concluded "by oral communications and conduct". In particular, Lloyd LJ held (at [619]):-

"… the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be filled…. If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty ….[T]here is no legal obstacle which stands in the way of parties agreeing to be bound now while deferring important matters to be agreed later."

153. Finally, [the Claimant] says there is no uncertainty around the duration of the Alleged Oral Agreement given the Implied Term as to termination (noted at [61c]).

154. As to the nature of the test for determining whether an agreement has been reached:-

"In determining whether an agreement has been made, what its terms are and whether it is intended to be legally binding, English law applies an objective test. As stated by Lord Clarke inRTS Flexible Systems Ltd v Molkerei Alois Muller GmbH and Co KG [2010] UKSC 14; [2010] 1 WLR 753:-

"The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations."

As with all questions of meaning in the law of contract, the touchstone is how the words used, in their context, would be understood by a reasonable person. For this purpose the context includes all relevant matters of background fact known to both parties.

There is, at least arguably, a limitation on the objective nature of the test where one party's subjective intention is actually known to the other: see Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm); [2017] 1 BCLC 414, para 56. But no reliance has been placed on any such principle in this case. What is accepted by counsel on both sides is that where, as here, the court is concerned with an oral agreement, the test remains objective but evidence of the subjective understanding of the parties is admissible in so far as it tends to show whether, objectively, an agreement was reached and, if so, what its terms were and whether it was intended to be legally binding. Evidence of subsequent conduct is admissible on the same basis...." (Blue at [63]-[64])

155. Both parties led extensive evidence as to the parties' subjective understanding and subsequent conduct. To the extent it assists me in determining, objectively, what the parties agreed in relation to their Blackmoor collaboration, I have taken this into account. As noted (at [14]-[15]), I have also kept well in mind in my analysis the approach to evidence 'based on memory' indicated in Blue (at [67]).

156. As to implied terms, the applicable legal principles, as restated by the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 (at [14]), were not contentious. A term will only be implied where it is necessary to give the contract business efficacy or it would be so obvious that it "goes without saying".

157. In addition, for a term to be implied, it must (i) be capable of clear expression and (ii) not contradict the express terms of the contract (see, for example, Popplewell J in Europa Plus SCA SI v Anthracite Investments Ireland plc [2016] EWHC 437 (Comm) (at [33(3)])).

158. As Lord Hughes noted in the Privy Council in Ali v Petroleum Co of Trinidad and Tobago [2017] ICR 531 (at [7]), the purpose of implying terms is not for the Court to re-write the contract to find the fair or reasonable outcome:-

"…. the process of implying a term into the contract must not become the rewriting of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work. ….. The fairness or equity of a suggested implied term is an essential but not a sufficient precondition for inclusion."

159. To the extent it is necessary to imply a term to fill a lacuna in the contract, the approach of the Court is a 'minimalist' one – to imply only what is necessary and no more (see Lightman J in RobinRay v Classic FM [1998] FSR 622 (at [642]); Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239 (at [256]).

160. A term will not be implied unless it is obvious both (i) that a term should be implied and (ii) what term is to be implied. If, on the latter question, there are multiple candidates or the term is capable of expression in multiple different ways, the more likely such implication is neither obvious, necessary or sufficiently certain (see Rix J in Port of Tilbury (London) Ltd v Store Enso Transport & Distribution Ltd [2009] 1 CLC 35 (at [25]); Rix LJ in Socimer International Bank Ltd v Standard Bank London Ltd [2008] Bus LR 1304 (at [121]); Morgan J in Chantry Estates (South East) Ltd v Anderson [2008] EWHC 2457 (Ch) (at [23]); Sales J in Torre Asset Funding Ltd v The Royal Bank of Scotland Plc [2013] EWHC 2670 (Ch) (at [152(x)-(xi)]).

161. In the specific context of implied terms about contract duration, Buckley J explained in Re Spenborough Urban District Council's Agreement [1968] Ch 139 (at [147]) that:-

"An agreement which is silent about determination will not be determinable unless the facts of the case, such as the subject-matter of the agreement, the nature of the contract or the circumstances in which the agreement was made, support a finding that the parties intended that it should be determinable, but there is, in my judgment, no presumption one way or the other."'

The Deputy Judge in Gray then went on to consider, briefly, contracts implied by conduct. For completeness, the Deputy Judge in Gray said, at paragraphs 162 to 163:

'162. Finally, in relation to contracts implied by conduct, contracts may come into existence during, and as a result of, performance. Performance of a contract by both parties often makes it unrealistic to argue that there was no intention to enter into legal relations or that a contract is too vague or uncertain to be enforced (see G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25 (at [27])).

163. The test for when a contract will be implied by conduct was set out by the Court of Appeal in Baird Textile Holdings Ltd v Marks & Spencer [2001] CLC 999 (at [13-21]): a contract will only be implied from conduct if it is necessary to do so; it is fatal to the implication of a contract that the parties would act, or might have acted, as they did without any such contract.'

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