The Court of Appeal has overturned a decision by the lower court that a share purchase agreement had been concluded by email. Although decided on its facts, the case illustrates the perils of negotiating contracts by email without making clear at what point you intend there to be a legally binding contract.
The case concerned a company with two 50/50 shareholders. A buy out clause in the shareholders' agreement was triggered entitling one of the shareholders, a Mr Bragg, to buy the shares of the other, a Mr Grant. Various email correspondence ensued about the terms of the share sale agreement. Finally, an email was sent on Mr Bragg's behalf to Mr Grant informing him that, if he would accept the solicitor's original draft of the agreement, Mr Bragg was still willing to proceed with the purchase. Mr Grant e-mailed Mr Bragg stating that he was now prepared to accept the original draft of the agreement and that the sale of the shares could be completed. The agreement, however, was not signed by the parties.
Last year, the High Court found that, as a result of the email correspondence, Mr Bragg had undertaken a contractual commitment to purchase Mr Grant's shares even though Mr Bragg was expecting that this would only happen when a formal agreement was signed by both parties. (See our previous bulletin for our report on the High Court's decision.)
The Court of Appeal reversed the High Court's decision. It found that, although Mr Grant's last e-mail to Mr Bragg had purported to accept Mr Bragg's offer to buy the shares, earlier e-mails in the exchange showed that Mr Grant had in fact rejected Mr Bragg's offer. The legal position is that, once rejected, an offer cannot be accepted subsequently.
Further, Mr Bragg's offer had been subject to a time limit and this had expired by the time Mr Grant sent the last e-mail. It is not possible to accept an offer which has lapsed.
Finally, the court found that negotiations had been impliedly conducted on a "subject to contract" basis. In other words, the parties did not intend a binding agreement to come into effect unless and until the solicitor's original draft of the share sale agreement was signed.
The Court of Appeal's decision was based on conventional legal principles and the outcome was very specific to the facts of the case. The case illustrates the difficulties of establishing parties' intentions about becoming legally bound where a draft agreement has been drawn up but not signed, and where it has not been said specifically "there is no agreement unless and until the document is signed by both parties". It goes without saying that it is preferable to make this point clear during negotiations rather than having to resort to court action to resolve a dispute.
It should be remembered that contracts can be concluded orally. Further, even if terms are reduced to writing, a lack of signature is not necessarily fatal to proving a contract. If parties do not want to be bound by an agreement unless and until a formal legal document is executed, they should say so expressly in their communications (both written and verbal). In England, the phrase "subject to contract" is often used. In Scotland, it is better to state the position in each communication e.g. by making clear that nothing in the communication constitutes a legal offer that is open for acceptance to create a legally binding contract.
Case: Grant v Bragg and another [2009] EWCA Civ 1228
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