Forming contracts by email

29 July 2010

Forming contracts by email; because I have not signed the contract I am not bound?

By Paul Bicknell

Graeme Grant v. Russell Bragg [2009] a case comment.

The case of Grant v. Bragg [2009] is a good example that shows the broader problems in forming contracts, this is particularly the case in relation to IT contracts. This article will illustrate the issues surrounding IT contracts, with a particular focus on when, and at what point such contracts are formed.

It is advised that the parties should not act as if the contract has been concluded, unless and until, those parties are absolutely certain as to the terms and their respective obligations to the same; this would prevent a party to a contract from being unexpectedly bound to an agreement.

The issues, facts and decision at first instance

The issue before Mr. Edward Bartley Jones Q.C was whether or not the contract had been formed, and whether the parties are bound to an agreement made by various email correspondence between the parties.

The parties to the dispute in Grant v. Bragg were partners of equal share in a company called Premier Resorts Ltd. Grant wished to purchase Bragg's shares in the said company, so heads of terms were drafted, but negotiations were ongoing. Eventually Bragg emailed Grant offering to buy his shares under a proposed contract, Grant replied conditionally accepting Bragg's offer.

The issue in this case arose when Bragg changed his mind and no longer wanted to buy Grant's shares as Grant would not agree to conditions protecting the value of the company. He argued that no contract had been formed as he had not signed anything. However, the court did not find favour with this argument, in that, the contract was concluded by the email correspondence, Bragg therefore had an obligation to sell his shares to Grant or appeal the case, which he did and which was allowed.

The issues, facts and decision at first instance in the Court of Appeal

At issue in the Court of Appeal was whether:

(1) the judge at first instance was correct in finding that a contract existed in the email exchange.

(2) the offer in the email exchange lapsed.

(3) the negotiations where subject to an implied subject to contract proviso.

Lord Neuberger stated that "all three criticisms of the judge's conclusion are justified".

The emails

In order to understand the decision of this case it is important to outline the various emails passing between the parties.

Email 1 On 30 January at Mr Grant received an email from Mr Jenkins copied to Mr Bragg.

"I therefore asked you whether you were prepared to proceed with the sale to Russell in accordance with the wording prepared by Dixon Ward (you will recall that it was the amendments to that wording suggested by your lawyers which were regarded by Russell as a rejection of his offer) -- and you said that you would come back to me on that point I therefore sought to make certain that Russell is still willing to proceed subject to your agreement to that wording -- and he has so confirmed. Thus, everything hangs on your decision -- to accept the Dixon Ward wording -- or not. Please could you advise this morning, as promised? You both need to recognise that the future of the Company and the share sale transaction is dependent on the continuing support of the Company's bankers -- Coutts and Co. When I asked Ian [that is another person who I do not need to describe further] how long the Bank could live with the present level of facility, given the revealed circumstances, he replied “well, I can delay any action for today":

I have persuaded him to hold back from anything until Wednesday lunchtime [that was the following day 31 January] IF I AM UNABLE to report back to Coutts on Wednesday with a satisfactory resolution to the ownership and control issue, I believe the Company is going to have a very difficult time trying to survive - and it will certainly be of negligible value.

Decision time TODAY!"

Email 2 - Jenkins to Grant

"I think it was helpful to have our conversation this afternoon -- your position is much more clear, and I believe I ought to set out my understanding for the record:-

1. You are not ready to transfer your shares based upon the Dixon Ward wording unless Russell can show you his plans for the business and so give you comfort that 'the instalment will be safe."

As we discussed, I think it unlikely that Russell will be willing to show you plans...Before I take any further action, or publish these notes to anyone else, could you please confirm, deny, or correct this email memo? Please do bear in mind that time is running out!"

Email 3 - Grant's reply to Jenkins

"The reality is that you and Russell have created a position where Russell is contractually bound to purchase my shares for £346K, albeit for a company which might not have that worth...

1. The essence of the matter is that Russell is committed to purchase my shares and once he completes that purchase, he will be able to do with the company as he wishes

Russell has agreed to purchase my shares for £346k and all that now remains is for him to complete, and pay up!"

Email 4 Jenkins' reply to Grant

"If I continue to try to negotiate the sale of your shares (I understand that Russell will definitely require your signature to the Dixon Ward wording), but I am now going to require your positive instruction so to do. I think, in view of what you have written me, I will put a time limit on this. If you wish me to continue to negotiate as your Agent on this matter, please let me have a positive instruction by four o' clock today, failing which I am going to tell both Russell and you that 'I have done my very best to fulfil the wishes set out in the Shareholders' Agreement -- but I have failed to achieve the required outcome."

Email 5 Jenkins to Grant and Bragg

"I have done my best to fulfil the obligations placed upon me by the Shareholders' Agreement... However, the continuing failures to reach agreement between you lead me to the conclusion of such agreement is not possible. For me to act as 'Agent' on behalf of Graeme (and yet in conflict with what I understand to be his wishes) seems wholly incompatible with Graeme's stated objections to those terms of sale which I have been able to negotiate. I therefore conclude that my 'best endeavours' have been exhausted, and advise you both that I am no longer willing to act for either shareholder in the matter for the sale of his shares under the terms of the Shareholders Agreement."

Email 6 Grant to Jenkins

"I refer to your message of Tuesday last [email 1] in the third paragraph of which you stated on Russell's behalf that he would be prepared to proceed, subject only to my agreement to the original Dixon Ward wording. As I have advised throughout, Russell simply isn't in a position to impose such a condition as a prerequisite to the completion of an existing obligation (to purchase my shares £346k) albeit, in the interests only of clearing any impediments apart, I confirm that I am prepared to enter into that agreement in its original form, however inappropriate it might be."

Decision of the Court of Appeal

Neuberger found that the effect of emails 1 & 2 indicated that the offer had been rejected. "In the second email, Mr Jenkins records the fact that, in the conversation following the first email, which, it can be remembered, contains the offer, Mr Grant indicated that he was "not ready to transfer [his] shares based upon the Dixon Ward wording unless he could be shown plans, and that was unlikely to happen...there is a distinction between a counter-offer or a refusal, which does put an end to an offer, and a request for further information which does not amount to a new offer but is to an investigation of the offering party's position. It seems to me, in the context of the time-pressure under which it was clear Mr Jenkins was acting and was telling the parties they were both acting, that an indication by Mr Grant that he was "not ready to transfer" was a refusal of the offer, even if, as I am inclined to accept, time was technically not made of the essence on 30 January by the first email: nonetheless, it was clear that a very quick response was required."

Yet further, Neuberger found that "quite apart from this, it seems to me that in the fourth email Mr Jenkins was putting a clear time limit on acceptance -- effectively saying to Mr Grant "you have until 4.00 on 31 January to accept".

Conclusion

In other words, the judge at first instance was wrong to decide that the email exchange amounted to acceptance. Emails 1 & 2 when read together indicated that the offer had been rejected; therefore no binding agreement had been reached. In any event, by the time of email 6 the offer had in any event lapsed.

By Paul Bicknell. Paul is a trainee solicitor at Lawdit specialising in commercial and intellectual property litigation and can be contacted at paul.bicknell@lawdit.co.uk