Editor's note, 22nd July 2010: Please note that this ruling has been overturned on appeal. See: Factual disputes can be the basis of appeals too, says expert, OUT-LAW News, 26/10/2010
Graeme Grant and Russell Bragg had formed a company together but decided they could not work together after Grant's absence for some months while ill. When forming the company they had created a share agreement which allowed one to buy the other out for a price related to revenue, should they wish to separate.
Bragg invoked the share agreement and offered to buy Grant's shares, and a law firm produced a contract which Grant at first objected to and proposed amendments to. After negotiation, though, Bragg's agent emailed Grant urging him to accept the contract as it stood. Grant replied by email accepting that.
The High Court has said that that email exchange of 30th January and 2nd February formed a contract that bound the parties even though neither of the men had signed the document itself, and even though the contract was designed to be signed.
Edward Bartley Jones QC said in his judgment that by the time the email exchange occurred Bragg had effectively seized control of the company anyway.
"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 Dixon Ward Draft," said the ruling. "What was needed on 30 January 2007 was mere regulation of the de facto position as it existed on the ground."
The price for the shares was set by the share agreement, and was £346,760. That was calculated according to a formula in the share agreement which based the price on the company's earnings.
Grant took the case asserting that an earlier exchange of letters and a taxi conversation were also the basis of a contractual relationship. The judge rejected those claims, saying that they did not represent the offer and acceptance on a specific deal that a contract requires.
Bartley Jones said that even when a contract is designed to take effect once signed, it can sometimes do so without signatures.
"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," he said. "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."
By the time Bragg's offer to Grant to accept the previously-discussed contract without changes came after he had changed the locks on the company's premises and shut Grant out of access to his company telephone and email.
"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)," said the ruling.
"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 Dixon Ward Draft [the unchanged contract]. It merely requires him to accept the Dixon Ward wording. If he did, in my judgment a contract would be in place on the terms of the Dixon Ward Draft," it said.
