A word on the binding nature of oral contracts
In Scotland, ink isn’t needed for an agreement to be legal, says Julie Greig
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 position that was underlined by a recent court ruling.
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 – the crown wall works and the pavement slab works.
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 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.
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, 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.
In relation to the 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.
Regarding the pavement slab works, the judge held that an offer was made by Beattie and accepted by the performance of BPL, finding that BPL was entitled to 90% of the net profit made by Beattie.
The court found Beattie had changed its position significantly on key issues throughout the litigation and considered that this 'significantly undermined' the evidence of its witnesses.
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 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 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 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.
Julie Greig is a director in the disputes and regulatory team, Burness Paull
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