Contract law: Contract implied between group companies by Court of Appeal

Often group companies make intra-group arrangements, particularly where a service company may provide employees to another group company, as was the case in MF Global UK Ltd (In Special Administration), Re [2016] EWCA Civ 569. Here, the Court of Appeal held that the arrangements in this situation were contractually binding. The Court implied contracts as there were no express written contracts between the two parties, although there was a contract between the holding company and the service company which stated that payment of the employees’ costs should be met by whichever group company used the employees. It is a matter of case law that a contract can be inferred from conduct between parties if there is no other way to explain that conduct except by way of a contract. Given that on the facts the holding company took no part in what actually occurred (i.e. the explanation that the payments made were on the holding company’s instructions) and the sums involved were so high, the Court considered it to be highly unlikely that such an arrangement would not have involved some contract.

This is a reminder that group companies should always consider putting written contracts into place that reflect the reality of what actually occurs.

Published: 25 July 2016

Article Sections: Commercial Contracts | Company Formation and Governance | Contractual Documentation | Payments during Employment

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