Cenkos Securities, the corporate finance house, has instructed lawyers to chase what it claims is an unpaid bill resulting from a senior banker taking on a £20 million deal without asking the client to sign a contract.

In a dispute that will test the validity of oral contracts in the City, Cenkos, run by Andy Stewart, is suing Green Park Ventures (GPV), an investment firm, for £1.4 million in unpaid fees.

According to legal documents, Cenkos claims that together with an independent investment banker, it successfully secured £20 million in financing for GPV.

Cenkos and the banker are now entitled to a pre-agreed 7 per cent commission for their efforts, equal to £1.4 million, the claim says. Cenkos is owed £400,000 with the remainder due to the banker.

But in an unusual twist, the AIM-listed corporate financier and stockbroker accepts that Joe Nally, its head of natural resources and lead banker on the deal, did not ask GPV to sign a written contract.

The lawsuit, filed at the High Court in London, also states that “there was no discussion of the fees Cenkos would charge” at a preliminary meeting during which Mr Nally was appointed to raise the money.

To support its claim, Cenkos says that senior executives at GPV, which wanted the £20 million to invest in an energy business, agreed to a contract, including the fee terms, in a series of meetings and telephone calls where commission rates were discussed.

The vast majority of City advisory deals are the subject of long, written contracts detailing a myriad of terms of conditions including fee arrangements. However, English law allows for enforceable oral contracts and such deals, although increasingly unusual, still exist in the City.

If the case gets to court, lawyers for Cenkos, which held aborted merger talks with rival Close Brothers this year, will need to persuade a judge that the GPV executives made the relevant agreements and understood what they were doing.

If they fail, Cenkos’ lawyers can rely on a principle of English law that says there are circumstances whereby a binding contract is created automatically, without being expressly mentioned. For example, when one party instructs another to carry out a service and both sides know the service is never usually done for free.

Cenkos claims that although fees were not discussed at the initial meeting, “it was obvious that Cenkos was not to provide its services gratuitously and accordingly that GPV would pay”.

Tradesmen, mechanics and others that do not always use written contracts have long-relied on this legal concept when chasing customers that refuse to pay because there is nothing in writing.

GPV said it was defending the claim and that it was confident in that defence but declined to comment further.

Cenkos said it could not comment on an ongoing legal matter.

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