Factual and Procedural Background
The Appellants ("Company A") appealed against a decision dated 18 February 2016 by Judge Walker, who dismissed their applications for summary judgment and/or strike out of claims made by the Respondents ("Company B"). Company B claimed that on 6 May 2015 Company A agreed to sell a package of rights and debt interests for 250 million ("the Alleged Contract"). Company A contended that Company B had no real prospects of proving a legally binding and enforceable contract was concluded.
The judge had previously set out the factual and procedural background in detail, which was not disputed by the parties. In summary, Company A is a Luxembourg-based company and indirect subsidiary of another company resident in Abu Dhabi. The Third Defendant is a businessman controlling a company called Company C. Company B is incorporated in Delaware, and the Second Respondent is a property investor holding interests in a group of companies ("the Group").
Between 2008 and 2015, the Group acquired interests in a Spanish banking group headquarters financed in part by loans from a bank. Company A and Company C acquired the bank's interests in these loans in 2010. Following defaults, Company A and Company C obtained judgments against the Group entities and the Second Respondent personally.
In 2014, Company A and Company C served a statutory demand on the Second Respondent, who sought to set it aside unsuccessfully. The Second Respondent alleged efforts to settle liabilities were thwarted by the Third Defendant, leading to attempts to purchase Company A's rights directly.
Company B alleged that on 23 April 2015 the Second Respondent sent Company A a letter marked "WITHOUT PREJUDICE SUBJECT TO CONTRACT" proposing to pay 250 million for the rights ("the Offer Letter"). On 6 May 2015, during a telephone call, Company B contends the Alleged Contract was concluded subject to two conditions requiring the Offer Letter to be resent in open and binding form and satisfactory evidence of funding to be provided.
Subsequent communications included emails and texts from the Second Respondent confirming intentions to provide binding terms and funding commitments, followed by a letter dated 9 May 2015 ("the 9 May Letter") and a funding letter from a third party ("the 9 May Funding Letter"). On 10 May 2015, Company A rejected the offer and denied ongoing negotiations.
Company B issued a claim on 8 June 2015 seeking enforcement of the Alleged Contract, declarations of validity, specific performance, and an injunction against the Third Defendant. Company A applied for summary dismissal and/or strike out on the grounds that Company B's claims had no real prospects of success. The judge dismissed these applications on 18 February 2016, and Company A was granted permission to appeal.
Legal Issues Presented
- Whether the judge erred in concluding that communications following the 6 May 2015 telephone call should not be considered when determining if the Alleged Contract was made on that date.
- Whether the judge was wrong to conclude that Company B had real prospects of establishing that the Alleged Contract was concluded on 6 May 2015.
- Whether the judge was wrong to conclude that Company B had real prospects of establishing that the Conditions of the Alleged Contract were satisfied.
Arguments of the Parties
Appellants' Arguments
- Company A argued that Company B had no real prospects of proving a legally binding contract was concluded as alleged.
- They contended that the Offer Letter was "subject to contract" and therefore could not be accepted to form a binding contract.
- Company A asserted that the communications following 6 May 2015 showed no agreement to waive the "subject to contract" status.
- They submitted that the 9 May Letter was materially different from the Offer Letter and required acceptance, inconsistent with a contract already concluded.
- Company A argued that the Conditions were not satisfied because the 9 May Letter was not a resend of the Offer Letter in binding form, and the 9 May Funding Letter did not provide satisfactory evidence of funding.
Respondents' Arguments
- Company B claimed that the Alleged Contract was concluded on 6 May 2015 during a telephone call, subject only to two Conditions.
- They argued that the Offer Letter and subsequent communications evidenced an agreement to purchase the rights for 250 million.
- Company B contended that the 9 May Letter and Funding Letter satisfied the Conditions.
- At the hearing, Company B advanced an argument that Company A was making an offer which Company B accepted, but this was not the pleaded case.
- They also argued that the 9 May Letter's request for confirmation did not undermine the existence of a binding agreement on key commercial terms.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Hussey v Horne-Payne (1878) 4 App Cas 311 |
The court must consider the whole course of negotiations, not isolate communications at a single point in time, when determining contract formation. |
The court held that the judge was wrong to exclude post-6 May 2015 communications when assessing if a contract was made on that date, adopting the principle that the entire negotiation context is relevant. |
| RTS Flexible Systems Ltd v Molkerei Alois M ller Gmbh & Co KG (UK Production) [2010] UKSC 14 |
The same principles of contract formation apply to oral and written communications combined; an agreement to agree is insufficient for contract formation. |
The court emphasized that an unequivocal agreement is required to waive "subject to contract" status and that no such agreement was identified in the alleged conversation. |
| Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 |
In determining contract formation, one must look at all correspondence as a whole. |
Supported the principle that the entire negotiation history is relevant to whether a contract was concluded. |
| Perry v Suffields [1916] 2 Ch 187 |
Once a complete contract is shown, further negotiations cannot alter it without consent of both parties. |
The court distinguished this principle as applying only after contract formation, not to the question whether a contract was formed. |
| London & Regional Investments Limited v TBI Plc & Anr [2002] EWCA Civ 355 |
Deals marked "subject to contract" negate contractual intention until formal contract is executed. |
Supported the conclusion that the Offer Letter being "subject to contract" meant acceptance could not form a binding contract. |
| Easy Air Limited v Opal Telecom Limited [2009] EWHC 339 (Ch) |
Principles governing summary judgment and strike out require a realistic prospect of success, not a mere arguable case. |
The court applied these principles in assessing whether Company B had a realistic prospect of establishing contract formation and satisfaction of conditions. |
| Arcadia Group Brands Ltd & Ors v Visa Inc [2014] EWHC 3561 |
Summary judgment principles and the avoidance of "mini-trials" in preliminary applications. |
Applied to confirm the standard for considering strike out and summary judgment applications. |
| Tesco Stores Ltd v Mastercard Incorporated [2015] EWHC 1145 (Ch) |
Similar principles on summary judgment and strike out emphasizing realistic prospects of success. |
Reinforced the approach to preliminary applications in complex commercial disputes. |
Court's Reasoning and Analysis
The court first addressed whether post-6 May 2015 communications could be considered when determining if the Alleged Contract was formed on that date. It held that established authority requires the court to consider the entire course of negotiations, including subsequent communications, to avoid misleading conclusions about contract formation. The judge was therefore wrong to exclude these communications.
On the question of whether the contract was concluded on 6 May 2015, the court noted that the Offer Letter was marked "subject to contract," which negates contractual intention until formal agreement. Company B's pleaded case was that Company A accepted an offer set out in the Offer Letter, which was impossible as the letter was "subject to contract." Even alternative arguments by Company B that Company A made an offer were not supported by the pleaded facts or the language used in the telephone conversation.
The court emphasized that an unequivocal agreement to waive the "subject to contract" status is necessary and had not been demonstrated. The requirement to resend the Offer Letter in binding form further indicated no binding contract had been formed.
Subsequent dealings, particularly the 9 May Letter, which described a "Proposed Transaction" requiring Company A's acceptance and containing materially different terms, reinforced that no contract existed on 6 May 2015. The letter also included an exclusivity provision designed to facilitate contract formation, inconsistent with an existing contract.
Regarding the Conditions, the court found that the 9 May Letter did not satisfy the requirement to resend the Offer Letter in open and binding form, as it was materially different and subject to further agreement. Likewise, the 9 May Funding Letter was a non-binding statement of intent subject to conditions and did not constitute satisfactory evidence of funding ability.
The court rejected Company B's contention that the Conditions could be interpreted subjectively or in light of an unpleaded factual matrix, noting the absence of such evidence in pleadings or witness statements.
Finally, the court noted that even if a contract had been formed, the Conditions had to be satisfied within a reasonable time, which had long since passed.
Holding and Implications
The court ALLOWED THE APPEAL and entered judgment for Company A on all issues.
The direct effect is that Company B's claims based on the Alleged Contract have no real prospects of success and are dismissed at this stage. The decision clarifies the application of principles regarding contract formation in negotiations marked "subject to contract" and the proper approach to summary judgment in such contexts. No new legal precedent was established beyond the application of existing authorities.