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Sign your engagement letter. It’s not up for negotiation

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The High Court has provided a stark reminder of the risks that arise if parties, despite extensive negotiations, fail to sign their agreements, in this case an engagement letter. 

Advisory work undertaken but engagement letter never signed

The investment banking and corporate finance advisory firm, Fenchurch, brought a claim in respect of advice and assistance it provided to the AA, the well-known breakdown recovery service. The advice and assistance was provided in relation to the potential sale of AA’s insurance division. 

The parties negotiated extensively the terms for the engagement of Fenchurch by the AA. Notably, the draft engagement letter contained a “success fee” if the sale of the insurance division went ahead. This success fee could also be claimed if the sale was aborted as a result of a public offer for the AA. No engagement letter was ever signed. 

Despite this, Fenchurch provided hundreds of hours’ worth of work. However, the sale of the insurance division did not occur. The AA subsequently announced that an agreement had been reached for the acquisition of the company. In response, Fenchurch sought to claim that there was a binding contract and that the AA was liable to pay the success fee due to the AA aborting the sale as a result of a public offer.  

Was there a binding agreement on the terms of the draft unsigned engagement letter?

The court dismissed the claim for the “success fee” on the basis that there was no contract between the parties. This is because there were material points which remained outstanding, such as whether an indemnity would be capped and the notice period for termination of the engagement. Although these points were not material to the dispute at hand, they were nevertheless considered material by the parties at the time. The court also held that the parties envisaged that a binding agreement would come into being once the engagement letter was signed. The fact that Fenchurch had already done a great deal of work was evidence only of an intention to enter into a binding contract; it did not assist in answering the question of when the parties intended to be bound. Therefore, there could be no binding agreement until all material terms had been agreed.

However Fenchurch was successful in its GBP350,000 claim for restitution on the basis that the AA had been unjustly enriched.

Signing is important

This case serves as a reminder of the importance of not side-lining the signing of your written contract.

Further, in the absence of a signed contract, consider whether all material terms have been agreed. If material terms have not been agreed, the parties won't have entered into a binding contract.

Judgment: Fenchurch Advisory Partners v AA