An oral contract is as binding as a written contract. The problem though is proof of what was agreed. It is commercially naive to rely upon trust and any contract of significance should be in writing as evidence of what has been agreed between the parties.
No matter how deeply those on either end of a telephone line may trust each other, it is a hostage to fortune to reach commercial agreements over the phone without later confirming them formally in writing. One Court of Appeal case concerning the offshore drilling business illustrated the risks of not having formal written agreements.
A drilling company (company A) chartered a deepwater drilling vessel to a multinational oil company. Company B had a consultancy agreement with company A and claimed that it had been promised a 0.25 per cent commission on revenues generated by the charter. The commission was said to have been agreed during a 25-minute telephone conversation between two of the companies’ senior executives.
Given the lack of any written record of the high-value agreement, the case hinged on pure questions of fact and the reliability of the executives’ recollections as to what was said during the conversation. A judge ultimately preferred company B’s case and found that a binding agreement to pay the commission had been reached.
In rejecting company A’s challenge to that ruling, the Court found that the judge was entitled to accept company B’s explanation as to why the agreement had not been confirmed in writing. The judge had produced a careful and well reasoned decision which could not justifiably be set aside.