Corporate Oil and Gas Ltd v Marshall Aviation Services Ltd

An agreement resolving a commercial account may be legally binding even if made orally and described as a gentleman’s agreement. Its effect is determined objectively from the parties’ words, conduct and surrounding circumstances. An agent may bind a principal where the agent has actual authority for the particular transaction. A party claiming payment for services must establish that the work and materials were supplied and that the charges were reasonable. Contractual obligations are assessed by reference to the agreed scope of work and the requirement to exercise reasonable care and skill. Causation must be established on the evidence; a breach does not establish liability for loss without proof that it caused the claimed deterioration or expense. A possessory lien may be maintained where charges are properly due and unpaid.

The claimant owned an aircraft which it delivered to the defendant, an aircraft maintenance and repair business, in 2009. Work was interrupted by ownership proceedings, during which the defendant was required to provide hangarage, systems checks, engine runs and inspections. After the ownership dispute ended, the parties entered into a further work proposal and the defendant carried out extensive maintenance.

The claimant disputed liability for the defendant’s charges and alleged failures in the care of the aircraft, including storage outside a hangar and failures to perform checks and engine runs. The central issues included whether the parties reached a binding settlement of the account at a meeting on 17 February 2012, whether the defendant’s work and charges were justified, whether any breach caused the alleged corrosion or engine-related loss, and whether the defendant’s lien was lawful.

1. Settlement agreement. The parties reached a binding agreement on 17 February 2012. Objectively construed, the agreement fixed the amount due for work on the aircraft up to that date at the defendant’s account less a £130,000 reduction. It was not merely an agreement for a credit item, and it was not subject to further confirmation by the claimant’s chief executive.
2. Authority. The claimant’s representative had actual authority, for this meeting, to communicate the chief executive’s agreement. The agreement was therefore binding notwithstanding that it was reached orally and later described as a gentleman’s agreement. The subsequent correspondence and conduct supported that conclusion.
3. Charges and performance. Subject to identified adjustments, the defendant established that the work charged for was performed, the materials were supplied, and the charges were reasonable. The defendant had an implied obligation under the 2010 proposal to perform the work and related planning, estimating and reporting with reasonable care and skill. That obligation was satisfied.
4. Causation. Although the defendant failed to keep the aircraft in a hangar throughout the ownership proceedings and did not establish that all systems checks and monthly engine runs were performed, the claimant failed to prove that those matters caused the alleged deterioration. The galvanic corrosion was attributed to earlier damage and subsequent operational exposure. The engine difficulties were principally connected with the claimant’s failure to maintain the relevant insurance programme and not with the absence of engine runs.
5. Lien and disposition. On the facts, the defendant was entitled to assert a lien until its charges were agreed and paid. The claimant therefore had no claim in damages for conversion. The court found that £932,577.21 was due as at 17 February 2012, together with properly invoiced sums for later work. Further argument was required concerning the aircraft, final figures and the final order.

Not stated in the judgment. The decision was at first instance in the High Court (Commercial Court).