Intense Investments Ltd v Development Ventures Ltd & Anor

Factual and Procedural Background

This opinion concerns a dispute between Plaintiff and Defendant companies arising from their business dealings related to a property development project at a site in London. The Plaintiff alleges a binding contract existed under which it loaned £350,000 to the First Defendant in return for repayment plus 50% of net profits from the sale of the site. The Defendants denied the existence of such a binding contract beyond repayment of the loan. The Second Defendant was dissolved and did not participate in the trial.

The key factual background involves a previously acrimonious relationship between two principal individuals associated with the parties, who had worked together but fell out before re-engaging over the disputed development. The Plaintiff’s case is supported by a written agreement dated 19 April 2004, signed by both parties, and the actual loan payment made thereafter. The First Defendant initially denied any binding contract but conceded during trial that some form of contract implying a 50% share of net profits might exist.

The case involved extensive documentary evidence and witness testimony over five days. The court found both key witnesses, representing Plaintiff and Defendants respectively, to be of limited credibility, with some evidence contradicted by contemporaneous documents. The dispute centered on whether a binding contract existed, its terms, whether it was communicated and accepted, whether it was terminated, and issues regarding profit calculation including tax liabilities.

Legal Issues Presented

1. Whether the document sent by the Defendants on 19 April 2004 recorded a pre-existing binding agreement.
2. Whether a unilateral contract arose in April/May 2004.
3. Whether the Plaintiff’s acceptance of the 19 April 2004 document was communicated to the Defendants.
4. Whether there was an intention to create legal relations as of 19 April 2004.
5. Whether a binding contract existed by virtue of performance (loan payment) even if acceptance was not communicated.
6. Whether the contract was terminated by agreement on 21 July 2004.
7. The proper construction of the contract terms, including issues relating to the identity of the selling company and tax liabilities.
8. Whether the Defendants are estopped from denying the existence of a binding contract.

Arguments of the Parties

Plaintiff's Arguments

• The 19 April 2004 document recorded a binding contract reached orally prior to that date.
• Even if acceptance was not communicated, performance by advancing the loan created a binding contract.
• The Plaintiff intended to create legal relations, evidenced by execution of the agreement and payment of funds.
• The Defendants should be estopped from denying the existence of the contract.
• The contract entitles the Plaintiff to 50% of net profits from the sale, regardless of which company made the sale.
• Tax liabilities incurred due to the use of a UK entity rather than an off-shore company should not reduce the Plaintiff’s share of profits.

Defendants' Arguments

• The 19 April 2004 document was only a proposal, not a record of an existing agreement.
• The Plaintiff’s acceptance was never communicated, so no contract arose.
• The contract, if any, was terminated by the Plaintiff’s letter of 21 July 2004 and no replacement agreement was made.
• The Plaintiff was entitled only to repayment of the loan and not to any share of profits.
• The profit was not made by the Defendant companies named in the agreement, but by a different entity, so no profit share is due.
• Any tax liabilities are properly deductible from profits before calculating the Plaintiff’s share.
• The estoppel argument is unsound because no binding contract existed and there was no estoppel by convention or representation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by identifying the fundamental issue: whether a binding contract existed between the parties. It dissected the timeline and evidence, finding that although the parties had a broad understanding in November 2003, no binding contract existed then due to lack of agreement on essential terms such as the loan amount and the company parties involved. The 19 April 2004 document was held to be an offer rather than a record of a pre-existing contract.

The court rejected the Plaintiff’s unilateral contract argument, concluding the document was a bilateral offer requiring acceptance. It found that acceptance was effectively communicated by the Plaintiff’s payment of £300,000 into the Defendants’ designated bank account, supported by conduct and admissions from the Defendant’s principal.

The court affirmed the presumption of intention to create legal relations given the written agreement and conduct, rejecting arguments that the Plaintiff did not intend to be bound.

Alternatively, even if acceptance had not been communicated, the court held that performance of the contract (the loan payment) implied the existence of a binding contract, relying on established authorities. The Defendant’s own evidence supported this conclusion.

The court rejected the Plaintiff’s estoppel argument, both estoppel by convention and estoppel by representation, on the basis that estoppel cannot create a contract where none exists, and no clear representation or reliance was shown.

The Defendants’ claim that the contract was terminated by the Plaintiff’s 21 July 2004 letter was dismissed. The court interpreted the letter as a proposal to replace the contract, not an effective termination. No mutual agreement to rescind was found.

Regarding contract terms, the court held the 19 April 2004 document governed the parties’ rights and obligations. It implied a term that the reference to specific Defendant companies should include any other entity receiving sale proceeds, to prevent evasion of liability through use of different company vehicles.

On the tax dispute, the court concluded that tax liabilities incurred by the Defendant companies or related entities are properly deductible as transaction costs. The contract did not guarantee the use of an off-shore company to avoid Capital Gains Tax, and the Plaintiff bore the risk of tax consequences arising from the structure chosen by the Defendants.

The court ordered the Defendants to provide a certified statement of account detailing the sale and deductions to enable calculation of the Plaintiff’s entitlement.

Holding and Implications

The court held that a binding contract existed between the parties on the terms of the 19 April 2004 document, executed by the Plaintiff on 4 May 2004, and that the Plaintiff’s acceptance was effectively communicated.

In the alternative, a contract on those terms was implied from the parties’ conduct and performance.

The Plaintiff’s estoppel argument was rejected as unnecessary and unsustainable.

The contract was not terminated by the 21 July 2004 letter or subsequent negotiations, which failed to produce a replacement agreement.

The terms of the contract entitle the Plaintiff to 50% of the net profits from the sale of the site to the purchaser, regardless of which company made the sale, and tax liabilities incurred by the Defendant companies or related entities are to be deducted as transaction costs.

The Defendants are ordered to provide a detailed and certified statement of account within 14 days to enable proper calculation of the Plaintiff’s entitlement.

This decision directly affects the parties by confirming the existence and terms of the contract and the Plaintiff’s entitlement to profit shares, but does not establish new legal precedent.