Verbal contracts – a stark reminder that they can be binding and enforceable

There remains a common misconception that an agreement - particularly one of significant value or commercial importance - is not legally binding until it has been written down and signed. Under Scots law, however, a binding contract can often be formed through words and conduct alone. 

A recent Court of Session decision illustrates both the enforceability of oral agreements and the significant risks that arise when parties fail to document what they have agreed.

Recent case

In the recent case of BPL Contracts (Scotland) Limited ("BPL") v Beatties FRC Limited ("Beattie"), the Court of Session considered a dispute arising from two oral construction sub-contracts relating to the Aberdeen Harbour Expansion Project.

Beattie had been appointed as main contractor for various works at Aberdeen Harbour. It subsequently engaged BPL to carry out two packages of works, being the crown wall works and the pavement slab works. The parties were in dispute over the terms of each sub-contract and the amount remaining due in relation to each sub-contract. The parties accepted that oral agreements had been reached, but they disagreed about the commercial terms.

In relation to the crown wall works, both parties agreed that a "50/50 profit share" had been discussed. However, they disagreed on what that actually meant. BPL argued that it was entitled to 50% of the net profit generated by the project, whereas Beattie argued that the arrangement related only to the labour element of the works. Similar disagreements arose regarding the pavement slab works and the parties' respective entitlements. A further area of disagreement was over a payment of £200,000 made by Beattie to BPL in December 2022 and which package of works it should be attributed to. 

The dispute ultimately required the court to consider witness evidence, project documentation, payment records, correspondence, and the parties' conduct both during and after the agreements were entered into in order to determine what had actually been agreed. 

As part of its analysis, the court considered the extent to which the documentation produced/relied upon by the parties was consistent with their position. 

The court upheld BPL's position on the key contractual issues:

• Crown wall sub-contract: The judge held that the oral agreement reached at a meeting was binding and enforceable and found that BPL was entitled to a share of the net profits from the crown wall contract, rejecting Beattie's argument that the arrangements were limited to labour-only profit calculations.
• Pavement slab works: The judge held that an offer was made by Beattie and accepted by the performance of BPL and found that BPL was entitled to 90% of the net profit made by Beattie.
• £200,000 payment: The judge found that at the meeting around late 2022, Beattie agreed to make a payment to BPL of £200,000 in respect of the pavement slab sub-contract.

The court commented that Beattie had changed its position significantly on key issues throughout the litigation and considered that this 'significantly undermined' the evidence of the defender's witnesses.

Post-contract conduct

The court observed that there is a difference between interpreting a contract and establishing the terms of a contract. Significantly, the court confirmed that evidence of the parties' conduct after the contract had been formed could be relevant when determining the terms of an oral contract, while ordinarily such conduct cannot be used to interpret a contract. This evidence assisted the court in establishing what had actually been agreed between the parties.

Why this matters

This case demonstrates that the real issue is often not whether a contract exists but proving precisely what was agreed.

In many sectors, particularly construction, engineering and logistics, parties frequently reach agreements through meetings, telephone calls, Teams calls and WhatsApp messages, commencing work before formal contractual documentation is put in place.

Where parties disagree about the scope of works, payment arrangements, profit-sharing mechanisms or other key commercial terms, the court is often required to reconstruct the agreement from witness evidence, correspondence, project records and the parties' subsequent conduct. Such disputes are inherently fact-sensitive, costly and difficult to predict. 

The decision in BPL Contracts (Scotland) Limited v Beatties FRC Limited illustrates that the court will enforce an oral agreement where the evidence supports its existence and terms. However, it also highlights the considerable time, expense and management distraction that can result when parties fail to clearly record what has been agreed. 

Lessons learned

The simplest way to avoid uncertainty is to record agreements in writing.

That does not necessarily require a lengthy contract. A carefully drafted email recording the key commercial terms can often significantly reduce the scope for dispute later.

Businesses should also ensure that those negotiating on their behalf understand when they have authority to commit the business, and the circumstances in which approval or legal review is required.

Conclusion

The decision serves as a powerful reminder that under Scots law a contract does not require to be formally written or signed in order to be legally binding. Agreements reached through discussions, meetings or conduct may be just as enforceable as those contained in a signed document.

The greater risk, however, lies in establishing the terms of the agreement when memories differ and commercial relationships have broken down. As this case demonstrates, resolving such disputes can require extensive evidence, detailed examination of the parties' conduct and significant litigation expense.

The lesson for businesses is straightforward: if a commercial arrangement is important, record it. A formal contract is not always necessary. In many cases, a contemporaneous email confirming the key commercial terms may provide valuable certainty and help avoid the cost, uncertainty and disruption of a dispute further down the line.

As ever, the safest approach remains the simplest one: if the agreement matters, write it down.

If you would like to discuss the points discussed above, do not hesitate to contact our team.

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