Endcape Limited v Musgrave Generators Limited

An oral profit-sharing agreement may be concluded and enforceable even where it has no fixed end date and the relevant customer introduction involves an intermediary. The court must determine the parties’ objective agreement from the evidence and commercial context. An agreement is not rendered uncertain merely because the customer’s order is placed directly with the manufacturer rather than through the introducer. Where the parties agree that profit is to be shared, the contractual calculation depends on the agreed deductions; office overheads are not deductible where the agreement provides only for materials, labour and specified shipping costs.

Endcape Limited claimed damages from Musgrave Generators Limited for alleged agreements concerning Interpower stock and profit-sharing on generator contracts introduced to Musgrave. A separate trespass to goods claim had been settled before trial.

The stock claim concerned an alleged agreement that Musgrave would share profits from stock purchased from Interpower’s liquidators. The principal dispute concerned a claimed 50:50 profit share on the Babcock contract, where the opportunity originated with Power Continuity but the tender was prepared and introduced by Roland Hudson on Endcape’s behalf. The issues were whether concluded agreements existed, their terms, whether any directors’ duties affected enforceability, whether Babcock had been introduced by Endcape, and the recoverable profit.

1. Interpower stock. The evidence did not establish a concluded agreement concerning the stock. Roland Hudson’s accounts of the alleged terms were inconsistent with the pleaded case, and Evelyn Hudson did not recall any discussion about the stock. The stock claim was dismissed. It was therefore unnecessary to determine whether any breach of directors’ duties affected enforceability.
2. Babcock profit-sharing agreement. There was a valid and enforceable oral agreement that, where Roland Hudson introduced a customer to Musgrave on Endcape’s behalf and the customer placed a profitable generator order, the resulting profit would be divided equally. The agreement was not merely an agreement in principle or an agreement to negotiate.
3. The agreement was not too uncertain because it had no end date. The obligation arose only if an introduced customer placed a profitable order, and Musgrave remained free not to accept future orders. Nor was the meaning of “introduction” uncertain. It included an introduction made by Roland Hudson even where an intermediary, such as a broker, was involved.
4. The profit was calculated by deducting the manufacturer’s materials and labour costs and Endcape’s shipping costs from the price paid by the customer. The balance was divided 50:50. The fact that Babcock contracted directly with Musgrave did not defeat the agreement, since the direct contracting arrangement reflected Babcock’s certification requirements and resulted from Hudson’s introduction and preparation of the tender.
5. The Babcock contract was introduced by Roland Hudson on Endcape’s behalf. The court rejected Musgrave’s evidence that Power Continuity’s John East introduced the contract directly to Musgrave. The recoverable profit share was £67,318.38 plus VAT of £13,463.68, with interest recoverable at the pleaded rate, including under the Late Payment of Commercial Debts (Interest) Act 1998.