England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		8 April 2011

MR. JUSTICE ARNOLD :

Introduction

1. The sole issue in these proceedings is whether the Defendant Lane Bednash, an insolvency practitioner and the liquidator of a company called BI Proceed Ltd ("the Company"), entered into a binding agreement with the Claimants to assign certain alleged causes of action belonging to the Company to the Claimants. The Claimants contend that a binding agreement was concluded on 28 August 2009 alternatively on 6 November 2009. Mr Bednash contends that no binding agreement was concluded.

The witnesses

2. I heard oral evidence from the Claimants' solicitor Ashminder Kaur, Mr Bednash and Avner Radomsky, Mr Bednash's assistant at the time. I regret to say that neither Ms Kaur nor Mr Bednash impressed me as witnesses. Ms Kaur gave evidence in a combative manner which suggested that she approached the task more as an advocate than as an objective witness of fact. Mr Bednash's oral evidence was that he had no recollection at all of his telephone conversation with Ms Kaur on 17 August 2009 despite expressly stating in his second witness statement that he did recall it. Mr Radomsky was a straightforward witness. Fortunately, little turns on the oral evidence, most of which was in my view irrelevant to the issue I have to decide.

The facts

3. The Claimants were formerly employees of the Company. The First Claimant Ian Moria was also a director of the Company. Both Claimants claim to have been beneficial shareholders. In September 2007 the Claimants brought proceedings against the Company and two of its directors, Nicholas Parkin and Richard Troth, before the Employment Tribunal for unfair and constructive dismissal, and for what was described as a "whistleblowing claim" of having been treated less favourably as a result of raising and disclosing financial irregularities. Just before those proceedings came on to be heard, Mr Bednash was appointed as administrator of the Company on 15 September 2008. The effect of this was to stay those proceedings: Insolvency Act 1986, Schedule B1, paragraph 44.
4. From early October 2008 onwards the Claimants were in discussions with Mr Bednash concerning alleged wrongdoing on the part of Mr Parkin and Mr Troth in relation to the management and affairs of the company. These allegations were set out in some detail in a letter from Ms Kaur to Mr Bednash dated 16 December 2008. Even before this, Mr Bednash had suggested that a possible way forward would be for the Claimants to purchase any claims the Company might have against Mr Parkin and Mr Troth.
5. On 30 July 2009 Ms Kaur sent Mr Bednash an email saying that the Claimants were keen to buy the causes of action and proposing a consideration of £1 alternatively a success fee of 5% of any award net of costs. On 12 August 2009 Mr Bednash replied with a counter-offer of a 25% success fee net of costs. Ms Kaur responded later that day saying "10% in this case would be the maximum I understand my clients would offer". On 14 August 2009 Mr Bednash was appointed liquidator of the Company.
6. On 17 August 2009 there was a telephone conversation between Ms Kaur and Mr Bednash. The relevant part of Ms Kaur's attendance note reads:

"Offered 10% net for assignment. Advised would be subject to client approval – to take instruction."

7. Ms Kaur was emphatic in her evidence that (a) it was Mr Bednash who had made the offer of 10% net, (b) nothing had been said by Mr Bednash to the effect that his offer was subject to contract and (c) she had told Mr Bednash that she would have to take instructions from her clients as to whether his offer was acceptable. Counsel for Mr Bednash did not challenge the factual accuracy of these statements in his cross-examination of Ms Kaur. Furthermore, as related above, Mr Bednash had no recollection of the conversation. Accordingly, I accept Ms Kaur's evidence on these points despite the reservations I have expressed above.
8. Shortly after the telephone call, Mr Radomsky sent Ms Kaur an email, copied to Mr Bednash, stating:

"Lane has agreed in principle to your client's offer of a 10% success fee and would ask that you provide him with a detailed draft assignment document."

Ms Kaur replied to Mr Radomsky, with a copy to Mr Bednash, later the same day saying:

"I noted that my clients would be unlikely to go higher than 10% success fee net however, I have to take instructions from them on this and revert."

9. On 28 August 2008 Ms Kaur sent Mr Bednash an email, copied to Mr Radomsky and the Claimants, saying:

"My clients have agreed to purchase the rights of action re BIP for the offer you made – 10% of any award net of costs.

How you would like to now proceed – is there a standard agreement you have or shall I draft one? It would assist of you have a form of agreement you can pass me to work with so we can tie this up."

Mr Radomsky replied the same day saying:

"Please can you draft an agreement for the assignment and sent it to us for review."

10. On 21 September 2009 Ms Kaur emailed Mr Radomsky and Mr Bednash a draft assignment saying "Please provide any comments and confirm signature". The draft begins by stating that it is "dated as of 28 August 2009". Recital (2) began:

"The parties have agreed on the date first written above (as evidenced in email correspondence) that the Assignor shall assign all rights of action in relation to the Company to the Assignee …"

Clause 2 provided that "… the Assignor hereby irrevocably assigns to the Assignee with full title guarantee the Claims …". Clause 4 was a clause confirming that "the Claims are still due and owing in full to the Assignor at the date of this agreement". Clause 5 contained a number of covenants. Clause 7 dealt with the conduct of the proceedings. Clause 10 was an entire agreement clause.

11. On 22 September 2009 Mr Radomsky emailed Ms Kaur an amended version of the draft assignment with the amendments shown by track changes. Some of the amendments were minor points of wording. But three were substantive changes. First, clause 4 was deleted altogether. Secondly, certain words were deleted from one of the Assignor's covenants. Thirdly, a new clause 6.4 was inserted reading as follows:

"The Assignee reserves the right to vacate office following the conclusion of his duties as liquidator. The Assignee agrees to notify the assignor of the final meetings of members and creditors."

It is obvious that the words "Assignee" and "Assignor" have been transposed in the drafting of this clause.

12. On 25 September 2009 Ms Kaur sent Mr Radomsky and Mr Bednash an email saying:

"We have spoken to counsel and he is in agreement with us that your clause 6.4 is neither standard nor acceptable. If Lane wished to vacate office, he should tell us now. We would also be happy to speak to your managing partner in relation to this. We cannot allow such a clause as it could affect our action.

…

We will make a few minor amendments which are for clarity and send the draft to you."

13. On 19 October 2009 Ms Kaur emailed Mr Bednash and Mr Radomsky a third draft of the assignment saying:

"Counsel has reviewed the above and it should be in a form that can be agreed by both parties.

…

We would be grateful if you could review, sign and return the attached, we have incorporated some of your comments, Harmi and Ian are signing today."

14. On 6 November 2009 Ms Kaur sent Mr Bednash and Mr Radomsky an email saying:

"There was legal offer and acceptance earlier, we do need you to sign and return the assignment to us by close of Monday next week."

Mr Bednash replied the same day saying:

"Avner will put it together for signature and return on Monday am and will email copy of the signed document as well."

15. On 10 November 2009 there was a telephone conversation between Mr Bednash and Mr Parkin during which Mr Bednash informed Mr Parkin about the proposed assignment. After this conversation Mr Radomsky emailed Ms Parkin, Mr Troth and their solicitor a copy of the assignment saying:

"Please note that we have agreed to sign off on the document at 5pm tonight."

16. Later the same day Mr Bednash sent Ms Kaur an email informing her that he had informed Mr Parkin, his lawyer and his accountant about the assignment and that they had objected that the claims should not be assigned until Mr Parking and Mr Troth had had an opportunity to respond to the allegations. Shortly afterwards Ms Kaur replied saying "You agreed to assign this claim".
17. On 11 November 2009 a representative of Andover Marketing Consultants LLC, an American company associated with Mr Parkin, sent Mr Bednash an email objecting to the assignment and saying that Andover would like the claims to be assigned to it, but as an alternative would pay $30,000 for a forensic investigation of the matter. Later the same day Mr Bednash sent Ms Kaur an email saying he was taking legal advice.
18. On 16 November 2009 Mr Bednash sent Ms Kaur a long letter declining to sign the assignment and giving a series of reasons. Amongst these was the following:

"Whilst we did have discussions that envisaged an assignment to your clients, those discussions were clearly subject to contract (as evidenced by the subsequent production by you of a written agreement for signature). I am therefore not bound by any of the discussions which we have had previously, and I am no longer willing to enter into an assignment with you on the terms proposed."

The law

19. There was little, if any, dispute between counsel as to the applicable legal principles. As Lord Clarke of Stone-cum-Ebony delivering the judgment of the Supreme Court in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14, [2010] 1 WLR 753 stated at [45]:

"The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement."

20. Lord Clarke went on at [49] to cite with approval the well-known summary given by Lloyd LJ (as he then was) in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep. 60 at 619:

"(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole … (2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary 'subject to contract' case. (3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed … (4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled … (5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty. (6) It is sometimes said that the parties must agree on the essential terms and it is only matters of detail which can be left over. This may be misleading, since the word 'essential' in that context is ambiguous. If by 'essential' one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by 'essential' one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by 'essential' one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the judge 'the masters of their contractual fate'. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called 'heads of agreement'."

21. Lord Clarke added at [55]-[56]:

"55. …. it is possible for an agreement 'subject to contract' or 'subject to written contract' to become legally binding if the parties later agree to waive that condition, for they are in effect making a firm contract by reference to the terms of the earlier agreement. Put another way, they are waiving the 'subject to [written] contract' term or understanding.

56. Whether in such a case the parties agreed to enter into a binding contract, waiving reliance on the 'subject to [written] contract' term or understanding will again depend upon all the circumstances of the case, although the cases show that the court will not lightly so hold. …"

22. As the statements of principle of both Lloyd LJ and Lord Clarke recognise, there is no need for communications to be expressed to be "subject to contract" or "subject to signed agreement" if the content of the communications demonstrates that they were written or spoken on that basis. As Beatson J said in Benourad v Compass Group plc [2010] EWHC 1882 (QB) at [106(a)]:

'"[T]he more complicated the subject matter the more likely the parties are to want to enshrine their contract in some written document to be prepared by their solicitors. This enables them to review all the terms before being committed to any of them. The commonest way of achieving this ability is to stipulate that the negotiations are 'subject to contract'. In such a case there is no binding contract until the formal written agreement has been duly executed …. But it is not necessary that there should have been an express stipulation that the negotiations are to be 'subject to contract'. …": Cheverney Consulting Ltd v Whitehead Mann Ltd [2006] EWCA Civ 1303 at [42], per Sir Andrew Morritt C; Investec Bank (UK) Ltd v Zulman [2010] EWCA Civ 536 at [17]. Where there is no such stipulation, this (see e.g. Winn v Bull (1877–78) LR 7 Ch 29, 32, per Jessel MR) is a question of construction. The fact that a draft contractual document or a covering letter to it invites a party to initial or sign a copy and return it to the other party, or contemplates that a party would obtain legal advice before signing are telling indications that the parties do not intend to be bound until the document is signed: Investec Bank (UK) Ltd v Zulman [2010] EWCA Civ 536 at [19–20]."

The Claimants' primary case

23. The Claimants' primary case is that (i) Mr Bednash made an offer capable of acceptance during the telephone conversation on 17 August 2009 and (ii) Ms Kaur accepted that offer by her email dated 28 August 2009, thereby concluding a binding agreement. Mr Bednash disputes this on two grounds. First, he contends that the agreement reached on 28 August 2009 was an agreement in principle which was impliedly subject to contract. Secondly, he contends that it was insufficiently complete as to important matters to be binding. The Claimants' response to the first point is that they accept that it was envisaged that there would be a written assignment, but contend that it was merely intended to be a solemn record of the agreement which had already been reached. As to the second point, the Claimants contend that the agreement was sufficiently complete to be binding.
24. It is convenient to deal with the second point first. It is common ground that it is legally possible to make an oral agreement to assign a cause of action. It follows that it is not essential to have a written agreement. But as Ms Kaur rightly said when I asked her why she had stated in her email dated 6 November 2009 that "we do need you to sign and return the assignment", without a written assignment signed by the assignor the agreement would not take effect as a legal assignment under section 136 of the Law of the Property Act 1925, but only as an equitable assignment. That would mean that the Claimants would have to join Mr Bednash as a defendant to the proceedings. This is one of the reasons why, in my experience, it is usual for causes of action to be assigned in writing. In my judgment this is an indication, albeit not a conclusive one, that the parties would not have intended to be bound until a written assignment had been signed at least by the assignor.
25. It is also common ground that the oral agreement did not include the following matters:

i) a definition of the causes of action which were to be assigned;

ii) when the consideration was payable;

iii) whether Mr Bednash would give any, and if so what, title guarantee;

iv) whether the Company or Mr Bednash was to be afforded protection from any possible costs liability;

v) whether the Company or Mr Bednash would be obliged to assist the Claimants to prosecute the claims;

vi) who was to have control over the proceedings;

vii) whether the parties would give any, and if so what, other covenants.

26. In my judgment it was not essential for any of these matters expressly to be agreed in order for there to be an effective equitable assignment of the causes of action. In the absence of the express agreement, each of these matters could be dealt with by construing what had been agreed or by implication. Thus the causes of action could be identified by reference to the preceding correspondence; the consideration would be payable within a reasonable period after the payment of any damages; and so on. Accordingly, I do not accept Mr Bednash's contention that the agreement reached on 28 August 2009 was insufficiently complete to be legally binding. On the other hand, I do consider that these are matters which both parties would have appreciated that it was very desirable should be expressly agreed. Again, therefore, I consider that this is an indication that the parties would not have intended to be bound until such matters had been negotiated, agreed and embodied in a written assignment.
27. Turning to Mr Bednash's first point, I consider that this is strongly supported by (i) Mr Radomsky's email dated 17 August 2009, (ii) Ms Kaur's email dated 28 August 2009, (iii) the subsequent correspondence and (iv) the terms of the draft assignments. I shall deal with these in turn.
28. Mr Radomsky's email dated 17 August 2009 referred to an agreement "in principle" and asked Ms Kaur for "a detailed draft assignment". It is common ground that an agreement "in principle" is one that is not intended to be binding i.e. an agreement that is subject to contract. Counsel for the Claimants submitted that the statement that Mr Bednash "has agreed in principle to your client's offer" was inaccurate in two respects: first, in saying that the offer had been made by the Claimants rather than Mr Bednash; and secondly, in stating that there had been an agreement in principle or indeed any agreement at all. At the time, however, neither Ms Kaur nor Mr Bednash suggested that it was inaccurate. While I accept that strictly speaking the statement was inaccurate, I consider that it is clear that the reason why neither Ms Kaur nor Mr Bednash corrected Mr Radomsky was they both understood what Mr Radomsky meant. What he meant was that Mr Bednash had said that a success fee of 10% as indicated in Ms Kaur's email dated 12 August 2009 would be acceptable to him in principle. In any event, I do not consider that the inaccuracies matter for present purposes. What does matter is that Mr Radomsky's email made it plain that Mr Bednash's offer was an "in principle" one. Furthermore, by requesting a "detailed draft assignment" Mr Radomsky's email also made it plain that Mr Bednash was expecting to receive a draft document for his consideration. In my judgment these are both strong indications that, on an objective assessment, Mr Bednash was not intending to be bound until that document was signed.
29. As for Ms Kaur's email dated 28 August 2009, it is quite true that this stated that the Claimants accepted Mr Bednash's offer. I also accept that it thus implicitly corrected the inaccuracies in Mr Radomsky's email dated 17 August 2009. Nevertheless, it went on to ask if Mr Bednash had "a form of agreement you can pass me to work with so we can tie this up". This made it plain that Ms Kaur was also expecting there to be negotiations over the wording of a written document in order to "tie this up". Again, in my judgment this is a strong indication that, on an objective assessment, Ms Kaur on behalf of the Claimants was not intending to be bound until that document was signed.
30. Turning to the subsequent correspondence, this shows the parties negotiating over the terms of the written agreement. Mr Bednash proposed substantive changes to the draft, two of which were accepted by Ms Kaur for the Claimants and one of which was rejected. This again indicates that the parties did not intend to bound until the document was agreed and signed. It is particularly striking that, in her email dated 25 September 2009, Ms Kaur explicitly rejected Mr Bednash's proposed clause 6.4 after taking advice from counsel. This is a telling indication that the Claimants did not intend to be bound prior to the signature of the assignment. The Claimants rely upon the statement by Ms Kaur in her email dated 6 November 2009 that there was "legal offer and acceptance earlier", but that statement came after the negotiations to which I have referred. Moreover, Ms Kaur went on in the same sentence to stress her clients' need for a signed assignment.
31. As to the draft assignments, the Claimants rely upon the fact that the first draft was dated "as of 28 August 2009" and recited that the parties "have agreed on the date first written above (as evidenced in email correspondence)" and on the absence of any objection to this from Mr Bednash in the correspondence which followed. In my view these are not indications that the parties already regarded themselves as bound. First, the recital takes one back to the email correspondence which indicates to the contrary for the reasons given above. Secondly, it is perfectly possible to read "agreed" as meaning "agreed in principle". Thirdly, the recital goes on to say "the Assignor shall assign". That tends to support the understanding that the agreement was in principle and will only become binding when the assignment is executed. That understanding is also supported by aspects of the draft assignments upon which Mr Bednash relies, namely the words "hereby assigns" in clause 2 and the entire agreement clause.
32. Taking all of these factors into account, I conclude that the agreement reached on 28 August 2009 was an agreement in principle and impliedly subject to contract. It was therefore not a binding agreement.

The Claimants' alternative case

33. The Claimants' alternative case is that by his email dated 6 November 2009 Mr Bednash indicated his acceptance of the third draft of the assignment which Ms Kaur had sent to him on 19 October 2009, thereby concluding a binding agreement. I do not accept this for the following reasons.
34. The meaning of the words "put it together" is obscure. The evidence of Mr Bednash was that it was intended to encompass a final review of the draft assignment, but his subjective intention is immaterial. In my view an objective reading of the email as a whole is that it amounts to a statement by Mr Bednash of an intention to sign the document on the following Monday. Thus I consider that it would be taken to indicate that Mr Bednash was content with the wording of the third draft of the assignment. It does not follow, however, that by indicating he was content with the wording Mr Bednash was concluding a binding agreement on those terms. On the contrary, the position remained that the agreement between the parties was impliedly subject to contract. Indeed, Mr Bednash's email reinforced that by indicating that what mattered was his signature on the document.
35. Accordingly, I agree with the submission of counsel for Mr Bednash that the exchange on 6 November 2009 was analogous to two conveyancing solicitors, each of whom holds a signed contract for the sale of land in agreed form, agreeing to exchange contracts at 4pm the next day. No-one would suggest that a binding contract for the sale had thereby been entered into. Thus one party could withdraw at 3.59.
36. For completeness, I would add two points. First, Mr Radomsky's email dated 10 November 2009 adds nothing to Mr Bednash's email dated 6 November 2009. Secondly, counsel for the Claimants spent a considerable amount of time and energy attacking Mr Bednash's reasons for declining to sign the assignment. In my judgment Mr Bednash's reasons – good, bad or indifferent – are irrelevant to the issue I have to decide.

Conclusion

37. I conclude that Mr Bednash did not enter into a binding agreement to assign the Company's causes of action against Mr Parkin and Mr Troth, if any, to the Claimants.