The Pitfalls of Interim Services

Customer Beware! A reminder of the pitfalls of interim service arrangements
The recent Court of Appeal case of Whittle Movers Ltd v. Hollywood Express Ltd [2009] EWCA Civ 1189 has highlighted the need for negotiating parties to give more than passing thought to any arrangements for the provision of services by one party to the other before a full and final contract is entered into.

Facts

In this case, WM won a tender to provide goods and services to HE, the owner of a large cinema business. Whilst they were in negotiations for a long-term contract, HE required that WM to commence providing it with the services on an interim basis. An interim agreement was entered into. The negotiations took longer than expected, about a year longer, and as it happened was never finalised as HE's cinema business was sold-off. During that year, even though the interim services agreement expired WM continued to provide services to HE.

When HE determined that it would not be entering into the long-term contract it purported to terminate the interim agreement on 6 months notice. A dispute then arose as to whether the longer form agreement had by conduct been entered into, whether HE was entitled to terminate the interim or long-form agreement (and, if so, on what terms), or indeed whether in fact there was no contract. WM also contended that it had only charged HE the long-term contract price and, as such, HE had been unjustly enriched because it would never have been able to secure those prices on such a short-term deal.

Court of Appeal findings

At first instance in the High court, the trial judge was extremely keen to find that there was a contract of some description on foot between the parties. He was roundly criticised for this by the Court of Appeal. The Court of Appeal eventually held that in circumstances such as these the courts should be very reluctant to find that there was a contract on foot when a restitutionary was available. It therefore held that there was no contract on foot and that WM was entitled to an inquiry as to whether HE was unjustly enriched. In other words, the parties were sent back to the High Court to determine whether HE would have to pay WM the difference between the long-term contract price and the price WM would have charged on a shorter term deal.

Lessons to be learnt

The case highlights the dangers of leaving matters to chance. Here the customer had assumed that its potential service provider had assumed the risk that the deal might no go ahead, it remains to be seen the extent to which that assumption as incorrect.

In hindsight, the parties would have been better off spending more time thinking about the interim arrangements, whether by extending out the interim contract they did sign and/or by having a price adjustment mechanism to cater for the possibility that any potential deal does not go ahead.

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Winston Green
DentonWildeSapte London