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Essay: Contract did not need to be signed to be effective

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  • Contract did not need to be signed to be effective
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Graeme Grant (Claimant) v Russell Bragg (Defendant): (1) Russell Bragg (Part 20 Claimant) (2) Premier Resorts Limited (Part 20 Claimant) v Graeme Grant (Part 20 Defendant) [2009] EWHC 74 (Ch).

1. Mr. Graham Grant and Mr. Russel Bragg were both directors in Premier Resorts Limited, a firm which performed sales and marketing activities for holiday and time share developments. In March 2006, Mr. Grant fell gravely ill with cancer and was absent from work for a significant period and per the Shareholder’s agreement constructed by Mr. Jenkins and signed by both parties, formed reasonable grounds for the sale of Mr. Grants shares to Mr. Bragg with Mr. Jenkins acting on behalf of Mr. Grant . Dixon Ward; which acted as solicitors on behalf of the company sent a letter informing Mr. Grant of the terms of the Shareholder’s agreement which had been triggered. Mr. Grant refused this offer and this led to period of negotiation during which both parties were of the mind that they would not be legally bound until a written contract was signed. Mr. Bragg began to exclude Mr. Grant from the activities of the company and the claimant began to set up a private business between 20th and 28th January 2007. On the 30th of January 2007, Mr. Grant received an email from Mr. Jenkins imploring him to accept the offer before 4 o’clock the same day but he failed to accept the offer until the time had elapsed and by this time Mr. Jenkins had sent the final email ending all negotiations on behalf of the shareholders.

2. This case at first instance was argued before Mr. Edward Bartley Jones QC. As of 22nd January 2009, when this case was being heard in the High Court, Mr. Grant still held shares in the company which had gone bankrupt. He claimed that the emails sent among the parties in this case satisfied the factors needed for the formation of a contract. The primary issue of this court was to determine whether both parties by the emails sent and received had entered a contract for the purchase of Mr. Grant’s shares by Mr. Bragg at a price of £346,760. The court ruled in favour of the claimant. The judge decided through the application of precedent set out in G. Percy Trentham Limited v Archital Luxfer Limited that Mr. Bragg by 30th January 2007 was already reaping the benefits of the claimant’s shares although he had not bought them. He said that, ‘nothing at this point remained to be agreed’, seeing as both parties had accepted the Dixon Ward wording and all that was needed from Mr. Grant on 30th January 2007 was to give a definitive confirmation of acceptance. He believed that the fourth email did not place a time scale for the acceptance of the contract but its purpose was to cajole Mr. Grant to come to a quick decision. His judgement provides that the first and last emails formed a contract.

3. The appellant, Mr. Bragg, brought forward three points against the previous judgement of the Royal High Court;

(a.) per the conversation between the shareholders which took place at the end of January 2007 and Mr. Grant’s rejection of the Dixon Ward wording, Mr. Grant rejected the offer and following the rules of contract law an offer once rejected becomes void. ;

(b.) Mr. Grant’s failure to respond to the offer before the designated time of expiration made his acceptance unenforceable ;

(c.) the subject to contract exclusionary principle found in the case of Cheverny Consulting Limited v Whitehead Mann Ltd which as defined by Neil Andrews is ‘…a shared understanding that the relevant consensus is not legally effective as a contract’ was applicable in this case.
Lord Justice Neuberger in his judgement states that the points raised by the appellant were valid. He believed the information obtained from the third, fourth and fifth emails implied that the offer had been rejected. His judgement states that the respondent’s failure to communicate acceptance within the given time frame made the offer inoperative. Lady Smith LJ also affirmed that in the third email Mr. Jenkins made it clear that the appellant believed there would be no contract until the Dixon Ward draft had been signed by both parties. Hence, the appeal was allowed unanimously and the judgement of the High Court was reversed.

4. This case encapsulates the difficulty involved in the establishment of acceptance via email which following precedent depends on the facts, intentions and conduct of the parties involved and the accepted business practice. There is no definitive rule for acceptance. It does not follow the postal rule or the receipt rule and this could be detrimental as shown in this case where two different judges considering the same facts came about different conclusions. It also reaffirms the existing case law on the subject to contract principle as found in Cheverny Consulting Limited v Whitehead Mann Ltd which states that a shared agreement on the provisions of the contract do not make it legally binding until a draft agreement has been signed by the parties involved. It could serve as a good example in the illustration of the time lapse rule of contract law. On a moral level one could argue that Mr. Bragg by reason of his conduct which include excluding Mr. Grant from the affairs of the company and enjoying all the benefits that would come from the acquisition of Mr. Grant’s shares even though he was yet to purchase the shares should buy the shares regardless of whether or not there was a contract since he had already begun to reap the benefits of acquiring Mr. Grant’s shareholding. The judgement made by the court of appeal was sound in all ramifications but does not invalidate the fact that in respect to communication of acceptance through email there is room for clarity.

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