JAS Financial Products LLP v ICAP Plc & Anor

Whether a contract has been formed depends on what the parties communicated by words or conduct and whether, viewed objectively, they intended to create legal relations and agreed the essential terms. Agreed heads of terms or an agreement in principle do not necessarily amount to a binding contract. Where the parties contemplated that a proposed long-term services arrangement would be recorded in writing, and no such binding document was concluded, the court may find that no contract was formed even though the commercial terms had been agreed and the parties had shaken hands. Contractual certainty was not the obstacle where the parties had not made an enforceable bargain.

JAS supplied specialist services to the financial services industry. It claimed that ICAP had entered into a binding agreement on 13 May 2008 for JAS to provide middle office support for 24 months, on terms reflected in emails exchanged before and after the meeting.

ICAP denied that a contract had been concluded. The principal issue was whether the parties’ discussions and conduct objectively established a legally binding agreement, or merely agreed non-binding heads of terms. The court also considered ICAP’s alternative arguments concerning authority and certainty, and whether payments made against invoices were recoverable.

1. The claim that a binding contract was made was dismissed. Applying the objective approach in RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG (UK Production) [2010] UKSC 14; [2010] 1 WLR 753, the question was what the parties had communicated and whether they intended to create legal relations and had agreed the essential terms.
2. The meeting on 13 May 2008 resulted in agreement on the commercial points and no outstanding issues remained in that sense. The objective effect was, however, agreed non-binding heads of terms or an agreement in principle. ICAP’s representative had challenged the suggestion that the parties were “done” and made clear that the matter still had to proceed to legal documentation. The parties did not contemplate that this 24-month services arrangement would be concluded orally.
3. The emails of 3 March and 16 May 2008 did not create a contract. No written acceptance or signed agreement followed. The reference in the later email to recording the agreement did not establish that a binding agreement already existed. The events of the meeting had to be viewed as a whole rather than isolated at the point when handshakes followed the review of the earlier email.
4. The court was not persuaded that the Middle Office Support terms were too uncertain. Had an enforceable bargain been made, the detail would have been sufficient to hold the parties to it. ICAP’s representative would also have had authority to conclude such an agreement, had that issue been material.
5. ICAP’s payment of the June invoice was made as a goodwill gesture. The July payment was made by mistake and was repayable; a change-of-position defence was not established. The August payment was successfully recalled.