Certainty of Contract Terms

25 June 2012

Celia Worthington discusses the recent High Court decision in Oxigen Environmental Limited v Shaun Mullan and Brian Mullan and the importance of certainty of contract terms.

A recent High Court action in Belfast, Oxigen Environmental Ltd v Shaun Mullan and Brian Mullan, showed only too clearly the dangers in getting into business with a third party prior to completing detailed agreements.

Oxigen Environmental Limited approached B Mullan & Sons Contractors Limited, a Limavady based company, which owned a quarry and lands at Limavady considered suitable for landfill. The intention was that the parties would establish a new joint venture in relation to the landfill business and heads of terms were signed which were stated as being non-binding and subject to contract and conditional on the requisite planning and licences being in place and the joint venture being successful in a tender process for the operation.  Prior to execution of any further agreements a cash input was required to enable the venture to obtain planning permission and undertake the necessary works for the purpose of the joint venture.

To this end Oxigen agreed to provide funding but contended in the Court hearing that it was not content to lend the monies to B Mullan & Sons Contractors Limited on the basis that it required security for the cash and that payment of cash was to be a goodwill gesture and not a percentage of any agreed input into the joint operation. To this end, the monies were lent to two directors within B Mullan & Sons Contractors Limited who signed a promissory note to Oxigen.  Oxigen subsequently notified B Mullan & Sons Contractors that it no longer wished to proceed with the joint operation and demanded repayment of the monies on foot of the promissory note.

The Court held that, notwithstanding the background to the relationship between the parties, the promissory note was valid and payment fell due when demanded. Judgment was awarded in favour of Oxigen and the directors were ordered to pay the monies into Court with a stay of execution of the judgment pending the hearing of the claim by B Mullan & Sons Contractors Limited against Oxigen for damages for breach of contract.

Whilst litigation in this case seems set to continue the case highlights the downside for parties proceeding with complex business arrangements prior to completing the entire package of legal documents. On the other hand, it illustrates the effectiveness of the contractual document known as a promissory note.

Celia Worthington is senior partner of the Commercial Department of Worthingtons Solicitors Belfast Office.  Celia specialises in commercial property, banking, telecoms and corporate and commercial law. She advises a number of UK wide corporate clients and well known local charities and is currently Chairperson of Abbeyfield (NI) a local housing association.

 

 

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