Have you 'agreed', even if you haven't signed the contract ...... ??

Published: 6th February 2009

In the recent Chancery case of GRAEME GRANT v RUSSELL BRAGG the claimant, Grant, tried to enforce the terms of a contract between him and Bragg, and Bragg counterclaimed for breach of a shareholders' agreement.

Grant and Bragg were both directors of a company in which they each held 50% of the shares. They entered into a shareholders' agreement which provided that in the event that either of them was off work due to sickness for more than 6 months they would appoint an agent to sell their shares to the other. Grant became seriously ill and Bragg took the view that the provisions of the shareholders' agreement had been triggered.

After much disagreement Bragg agreed to buy Grant's shares and arranged for terms of the agreement to be drawn up. However, before the contract document could be drafted Bragg decided to exclude Grant from the business. The contract document was then drawn up but was never signed by either of them.

Bragg continued to run the business, still excluding Grant, and Grant set up a competing business and began the court action. Bragg argued that he was not bound to buy Grant's shares as the contract had not been signed by him and Grant.

The Court disagreed. The Judge held that, ordinarily, where the parties to an agreement were proceeding in the expectation that a formal document would be later executed then the usual position was that they would not be bound unless and until they had all signed the document. However, that inference would change if the facts changed and it could be objectively established that it was the continuing intention of the parties that they be immediately contractually bound.

The Court held that on the evidence here, whilst the parties had initially intended to execute a formal document that intention had changed when Bragg had taken control of the company and had effectively forced Grant to resign as director. This action by Bragg had the effect of Bragg taking all of the benefit of Grant's shares without the shares themselves. It was clear that Grant had accepted Bragg's offer and, on the evidence, it defied commercial reality to suggest that the parties still intended that they should not be contractually bound until a formal document was executed.

[In respect of Bragg's counterclaim the Court held that Grant had done nothing that amounted to a breach of the shareholders' agreement and, in fact, his exclusion from the company business by Bragg amounted to a repudiatory breach of the shareholders' agreement by Bragg. Anything that Grant had done afterwards amounted to an acceptance of that repudiatory breach by Grant which prevented Bragg from suing under the shareholders' agreement.]

If this decision raises any questions for your organisation please contact Craig Blakemore or Duncan McAllister at our Liverpool office on 0151 236 8989 or Graeme Jump or Josh Conroy at our Manchester office on 0161 214 0500.