High Court award summary judgment dismissing alleged oral variation of share option agreement

Oral Agreements: The trade-off between flexibility and certainty

One of the key features of the law of contract in England and Wales is that, subject to exceptions which impose a requirement of writing[1], a binding contract[2] can be formed by oral agreement of the parties. The benefit of oral contracts is that the flexibility and informality allow business people to enter into contracts quickly through conversation. However, the drawback with oral contracts is that, due to the lack of formality and certainty, which are features of a requirement of writing, disputes can arise.

In the event of dispute, there are generally evidential difficulties in proving:

1. whether or not a binding contracts was formed; and
2. if so, what the terms of the contract were.

A relatively recent and high profile example illustrating the typical issues which can arise from oral agreements can be found in Blue v Ashley[3]. Ashley considered the question of: “Whether, as a result of a conversation in the Horse & Groom public house in Great Portland Street, London W1, on the evening of 24 January 2013, a contract was made between the claimant, Mr Jeffrey Blue, and the defendant, Mr Michael Ashley, under which Mr Ashley owes Mr Blue £14 million.” Mr Justice Leggatt, sitting as a Judge of the High Court, found in favour of the defendant, Mr Ashley, that no oral contract was formed on the basis that: “No reasonable person present in the Horse & Groom on 24 January 2013 would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract…”[4]

In a scenario where nothing is committed to paper and multi-million pound contracts can theoretically be agreed in the pub, in determining a dispute the Court must scrutinise the evidence of the factual witnesses which generally requires a full (and often lengthy) trial, meaning the litigation is often expensive and difficult to dispose of quickly.

However, in the recent case of Parsadoust –v- Hanging Gardens Limited [2021], the High Court was able to determine a claim arising from an oral agreement by summary judgment.

Parsadoust -v- Hanging Gardens Limited [2021]

In Parsadoust, the defendant, Hanging Gardens Limited, had granted the claimant, Mr Parsadoust, by written option agreement over some of its shares in Babylon Holdings Limited, a digital healthcare provider company. Those share options were worth millions of pounds. The claimant’s case was that he exercised his share options, pursuant to the written option agreement, but the defendant had failed to transfer the shares.

The defendant had failed to transfer the shares on the basis of its case that, by an alleged oral agreement, the terms of the written option agreement were varied and that the claimant had failed to exercise the option agreement in accordance with the option agreement (as orally varied).

The claimant sought to obtain his remedy by using summary judgment, an abbreviated procedure of disposing of a claim, which required that the defendant’s case (that the written option agreement had been orally varied) be deemed to have “no reasonable prospect of success.”

The defendant’s case was that the oral variation to the option agreement was agreed over the course of three telephone calls between the defendant’s advisor, Mr Hallgarten and the claimant, Mr Parsadoust.

Unbeknownst to the claimant, Mr Hallgarten had recorded those three phone calls which the defendant relied upon to state that, amongst other terms, the oral variation to the option agreement introduced a term that the claimant would exercise his share options immediately or lose his right to the option shares.

Following the telephone conversations, Mr Hallgarten sent the claimant an email stating: “Please see attached proposed agreement reflecting what we discussed on Tuesday” attaching a five page written draft variation of the share option agreement. That written variation agreement was never signed, with the claimant denying that there had been an agreement from the telephone calls.

Mr Justice Calver granted the claimant summary judgment, finding that there was no oral variation to the written option agreement as a result of the three conversations. In coming to his decision, Justice Calver noted that: “Ordinarily, a dispute as to whether an oral agreement was reached, varying the terms of a written agreement, would likely require to be resolved at trial. However, this is an unusual case, in that Mr Hallgarten [the defendant’s representative] recorded the three telephone calls between himself and the claimant on 30 July 2019 upon which the defendant relies in support of its case that a binding oral agreement was reached on that day.”

A key question Justice Calver had to consider – in determining whether the telephone conversations formed a binding oral agreement – was whether the written variation agreement circulated by Mr Hallgarten following the three telephone calls was merely documenting the terms of the alleged binding oral contract made as a result of the telephone calls or whether the telephone conversations were merely pre-contractual discussions to the proposed written variation agreement. In order to come to his finding of the latter, Justice Calver intensely scrutinised the transcriptions and the surrounding circumstances of the phone calls between the claimant and Mr Hallgarten. Whilst the factors are too numerous to list, and reviewing the judgment is recommended, by way of example Justice Calver noted that Mr Hallgarten had used the words “proposed agreement” when sending the draft written variation agreement to the claimant. Further, the existence of terms in the draft variation agreement which were not discussed in the telephone calls assisted Justice Calver in finding that the phone calls were merely pre-contractual discussions.

Practical implications

As stated by Justice Calver, Parsadoust is an “unusual case” which was able to be disposed of by a summary judgment application as the telephone conversations central to the dispute were recorded. As such, this authority stands as an exception to the general rule that disputes over oral contracts will require a full trial to examine the full range of factual evidence. The result of that general rule is that litigation over alleged oral agreements is generally more time consuming and expensive than those which relate to agreements in writing.

[1] Such as a contract for the sale of land
[2] Requiring offer, acceptance, consideration, and intention to create legal relations
[3] [2017] EWHC 1928 (Comm)
[4] Paragraph 142 of Mr Justie Leggatt's judgment

This article has been co-written by William Rees and Joanne Thompson.