[2009] EWHC 74 (Ch)
G and B were partners in a company called Premier Resorts Ltd. B wanted to buy G’s shares. A contract was drafted but never signed. After some time B emailed G and offered to buy G’s shares as per the draft contract. G emailed back accepting B's offer. B then changed his mind and argued that no contract had been formed since he had not signed a contract.
The issue before the court was whether a contract had been formed by the exchange of emails.
Edward Bartley Jones QC
59 In my judgment, therefore, this e-mail constitutes an offer by Mr Bragg… to purchase Mr Grant's shares… an offer which was not withdrawn before its acceptance by Mr Grant by e-mail of 2 February 2007 sent to [Mr Bragg] … In that e-mail Mr Grant wrote:-
"I confirm that I am prepared to enter into that agreement [i.e. the [draft agreement]] in its original form, however inappropriate it might be.
On the above basis, there can be no further objections to completion [my underlining] and I look forward to hearing from either you or [Mr Bragg] accordingly, without further delay".
60 The parties were now at one. The terms of the sale and purchase were agreed (as set out in the [draft agreement]). There is no suggestion of the negotiations having, at any stage, been made expressly, or implicitly, "subject to contract". That said, however, the [draft agreement] was a document which, ex hypothesi, contemplated that it would be signed by both parties. Is a contract negated, therefore, because the parties' true intentions, objectively analysed, were that a contract would arise only when the document (the form of which had been agreed) was actually signed by both parties. That is Mr Bragg's submission and he says that he would not become contractually bound notwithstanding all that had occurred unless and until both he and Mr Grant formally signed the [draft agreement].
61 No authority was cited to me on this point by either Mrs Galley or Mr Bragg and there are, of course, always dangers in a Judge engaging in his own legal research. That said, certain principles are well established. Where parties are proceeding in anticipation of execution of a formal document then the normal inference will be that the parties will not be bound unless and until both of them sign that document. However, that inference will change if the facts change so that it can be objectively ascertained, on a balance of probabilities, that the continuing intention of the parties is, now, to be contractually bound immediately and not following formal execution of the document (see, for example, paragraph 2-116 of Chitty on Contracts 30th Edition and paragraph 46 of the judgment of the Chancellor in Whitehead Mann Limited –v- Cheverny Consulting Limited [2006] EWCA Civ 1303).
62 I am prepared to accept in Mr Bragg's favour that up to 30 January 2007 both Mr Bragg and Mr Grant (despite his protestations to the contrary) – objectively analysed – were contemplating execution of a formal document (the [draft agreement] or some variant thereof) and that the normal inference that the parties would not be bound unless and until that document were signed would apply. But whether, objectively analysed, that intention changed is, as I see the position, a matter of fact for me. The e-mail of 30 January 2007 has to be seen in its context. Matters with the company's bankers were, as Mr Jenkins records in that e-mail, critical and acute. Mr Bragg had taken control of the Company and, effectively, forced Mr Grant into resigning as a director (so taking all the benefit of Mr Grant's shares except the very shares themselves). The e-mail of 30 January 2007 was a clear attempt to resolve a difficult impasse. Nowhere does it require Mr Grant formally to execute the [draft agreement]. It merely requires him to accept the [draft agreement] wording. If he did, in my judgment a contract would be in place on the terms of the [draft agreement]. I reiterate that this is not a case where there was the additional requirement of overcoming a "subject to contract" stipulation earlier imposed. As Mr Jenkins so pertinently said, everything hung on Mr Grant's decision – and that decision was to accept the [draft agreement] wording – or not. It did not hang on Mr Grant's decision to execute the [draft agreement]. Hence the offer as contained in the e-mail of 30 January 2007 cannot be regarded as being conditional on not merely acceptance of the [draft agreement] wording but, also, execution of the [draft agreement] by each of Mr Grant and Mr Bragg.
63 I find some further assistance from the decision of the Court of Appeal in G. Percy Trentham Limited –v- Archital Luxfer Limited [1993] 1 Lloyd's Law Reports 25. I accept, of course, that that case was different on its facts from the present in that the alleged contract there had been fully executed. But, in the present case, Mr Bragg had unilaterally appropriated to himself by 30 January 2007 the rights and benefits which went with Mr Grant's shares – he simply had not obtained the shares themselves. I do, therefore, think that the comments of the Court of Appeal (the judgment being delivered by Steyn L.J.) are of some assistance in the present case. Steyn L.J. indicated:-
(1) English law generally adopts an objective theory of contract formation (ignoring the subjective expectations and the unexpressed mental reservations of the parties). The governing criterion is the reasonable expectation of honest men. In a case such as the present that means that the yardstick is the reasonable expectations of sensible businessman;
(2) the fact that the contract in question was executed, rather than executory, was a consideration of the first importance on a number of levels. In a case where the transaction was fully performed the argument that there was no evidence upon which the Judge could find that a contract was proved was implausible. Having referred to the decision of the House of Lords in Brogden –v- Metropolitan Railway (1877) 2 App. Cas. 666 Steyn L.J. said that, in 1992, the Courts ought not to yield to Victorian times in realism about the practical application of rules of contract formation. One must not lose sight of the commercial character of the transaction.
64 Following Steyn L.J.'s injunction, I do not lose sight of the commercial realities of the present matter. As I have emphasised, Mr Bragg (by protesting his intention to purchase Mr Grant's shares) had already obtained for himself all the practical benefits of the rights attributable to those shares. All that was outstanding were the shares themselves. Whilst there might have been scope for argument as to the terms (but not the price) on which those shares were to be acquired, that scope was put to rest when Mr Bragg and Mr Grant agreed to abide by the terms of the [draft agreement]. What was needed on 30 January 2007 was mere regulation of the de facto position as it existed on the ground. All obstacles to that regularisation were removed when Mr Grant accepted the undoubted offer contained in e-mail of 30 January 2007. Nothing at that point remained to be agreed. It seems to me to defy commercial reality and the intention of the parties objectively analysed (including an objective analysis of the offer as contained in the e-mail of 30 January 2007) to say that, in the circumstances of this case, the parties still intended that they should not be contractually bound unless and until a document in a form which was entirely agreed (the [draft agreement]) were executed. As execution could, on this analysis, be entirely dependant on the whim of Mr Bragg then such an analysis would take all force, and contractual seriousness, out of what was quite clearly intended to be a most serious offer as contained in the e-mail of 30 January 2007…
65 There is one further point which I need to consider. As indicated above Mr [Bragg] asked for a reply to his e-mail that morning. Having adverted to the difficulties which the Company was having with its bankers, he ended the e-mail "Decision time TODAY!" I do not, however, regard these matters as imposing a time limit on acceptance of the offer as contained in the e-mail of 30 January 2007. Rather they are encouragements for an early response, the first couched in terms of "please" and the second by way of demotic emphasis of the urgency of the situation. In my judgment, the offer as contained in the e-mail of 30 January 2007 remained open for acceptance by Mr Grant on 2 February 2007.
66 … I find that through the e-mail of 30 January 2007 and Mr Grant's e-mailed response of 2 February 2007 a contract arose for the sale of Mr Grant's shares to Mr Bragg on the terms and at the price set out in the [draft agreement]…