Wallis v Learonal (UK) Plc

A binding oral commercial contract requires objective proof that the parties reached agreement and intended to create legal relations. The presumption applicable to business agreements arises only after an agreement has been established. An understanding that contemplates further negotiation, unresolved material terms or a later formal contract remains inchoate. The court may consider missing detail, subsequent correspondence and the parties’ conduct. Payment of urgent patent expenses may evidence goodwill rather than contractual part performance, depending on the circumstances. An appellate court should not interfere with a trial judge’s evaluative conclusion based materially on witness evidence where no demonstrable error is shown.

Mr Wallis appealed from the dismissal of his claim by Judge Kershaw QC in the Manchester Mercantile Court. He alleged that, at a meeting with Learonal’s technology director, the parties concluded an oral agreement for the acquisition and exploitation of his patented invention, including an upfront payment, royalties and minimum annual payments. Learonal contended that the discussion was preliminary and contemplated further testing, approval and a formal written agreement. The central issue was whether the parties objectively intended to create legal relations and had agreed sufficiently complete terms.

Mr Justice Morland delivered the judgment, with which Lord Justice Buxton and Lord Justice Brooke agreed. The appeal was dismissed with costs.

1. The question was objective. Mr Wallis had to establish, on the balance of probabilities, that the parties intended to enter legal relations and had reached a concluded agreement. What occurred at the meeting was an accord or inchoate agreement expected to form the basis of a binding agreement to be drawn up later.
2. The presumption that a business agreement is intended to create legal relations did not assist Mr Wallis because, as explained by reference to the Esso Petroleum case [1976] 1 WLR 1, the presumption arises only after an agreement has first been established.
3. Every detail of a commercial agreement need not be expressly settled, since matters may be supplied by implication. Nevertheless, the judge was entitled to treat the absence of agreement about material matters as significant. These included the operation, duration and payment mechanics of the royalty and minimum-payment provisions, and what would happen if further testing showed that the invention was technically or commercially unviable.
4. The judge was entitled to consider post-meeting conduct and contemporary correspondence. The payment of urgent patent fees was a relevant factor, but could properly be treated as a gesture or earnest of goodwill because the application remained in Mr Wallis’s name and no patent rights had been assigned.
5. The trial judge had seen and heard the witnesses. The Court of Appeal found no proper basis for overturning his overall assessment by transcript analysis and argument alone. The human-rights and trial-fairness complaint also failed.

1. Court of Appeal (Civil Division): In [2003] EWCA Civ 98, dismissed the appeal unanimously with costs.
2. High Court of Justice, Queen’s Bench Division, Manchester District Registry Mercantile Court: Judge Kershaw QC dismissed Mr Wallis’s claim concerning the alleged oral agreement.