The judgment has now been reported on Lawtel for anyone who's interested:
SWINTON REDS 20 LTD v (1) GERARD MARTIN MCCRORY (2) SEEBECK 87 LTD (2014)
[2014] EWHC 2152 (Ch)
Ch D (N Strauss QC) 01/07/2014
COMPANY LAW - SPORT - CONTRACTS
BENEFICIAL OWNERSHIP : CONDITIONS PRECEDENT : ESTOPPEL : FOOTBALL CLUBS : SHAREHOLDERS' AGREEMENTS
An application for rectification of a company's register was granted as, although the period for the satisfaction of conditions precedent in a share subscription agreement had not been extended and the agreement had therefore ceased to exist, the parties had entered into a new agreement on the same terms but with an extended period for satisfaction of the conditions.
The claimant company (C) sought rectification of the register of the second defendant company (D2).
D2 owned 98.5 per cent of the shares in a football club. C's owner (P) claimed to have acquired 99 per cent of the shares in D2 from the first defendant (D1) under a share subscription agreement (SSA) dated April 11, 2013, which would have given P effective ownership of the football club. The SSA was subject to certain conditions precedent which had to be satisfied within 14 days. It was common ground that they were not satisfied by April 25. P claimed that the parties had agreed through a series of texts and emails that there would be an extension of the period from 14 days to three years, and that such an extension was within the absolute discretion of the defendants. He said that although both parties would have referred what had been agreed to their respective solicitors, that was simply to implement what had been agreed, without being subject to approval. D1 stated that there had been discussions between him and P, but there had been no question of extending the compliance period. He said that the reference to a three-year extension was related to P's position of Director of Football at the club. An email exchange between the parties' solicitors on May 1 referred to agreement to a three-year extension to the SSA. The principal issues were (i) whether the period for satisfaction of the conditions precedent had been extended; (ii) if not, whether the parties had subsequently entered into a new agreement on May 1 on the same terms, but with an extended three-year period.
HELD: (1) D1, in common with everyone else involved, knew that what was being extended was the period for compliance. There was no limit to P's position within the club which required formal extension. The issue was whether, accepting P's evidence, when the parties agreed to refer what they had decided to their respective solicitors, that was implicitly on the basis that the agreement was subject to their approval. The basis of the reference to the solicitors was not spelled out in the conversation between P and D1; the question was what reasonably objective inference could be drawn from those circumstances. Applying that test, the conclusion was that the agreement was subject to the approval of the parties' solicitors. The SSA was a complex agreement which had been drawn up by the solicitors and, on any sensible view, either party's solicitors might well have had reservations about the effect of extending the period for so long in respect of certain obligations, most obviously the restrictions relating to conduct of the business, on what C could do without P's written consent. The period for satisfaction of the conditions precedent had not been extended by April 25, and the SSA had ceased to exist on that date (see paras 24-27 of judgment). (2) The parties had, however, reached a clear agreement to revive the agreement with a new period for completion. The terms governing the parties' rights and obligations were clear and certain. All that was wrong was the legal designation of what was agreed. However, agreement as to its legal designation was not a necessary ingredient of a contract; the contents of the contract had to be certain but the parties could call it whatever they wanted, Street v Mountford [1985] A.C. 809 applied. The defendants' argument that there was no new agreement because the parties thought they were varying the original SSA, which they could not do as it had ceased to exist, if correct, would defeat the plain intention of the parties regarding their respective rights and obligations and would have a troubling effect in many cases. Whether an agreement was a new contract or a variation in terms was often a difficult question, and was not straightforward in the instant case. There had been a reasonable argument that the agreement remained in existence, in which case the May 1 emails would have been a variation, because of the change in the starting date for the three-year period. It would be absurd if the existence of a contract depended on whether the parties were able to categorise correctly the agreement they had made. There was no evidence that P no longer thought of himself entitled to his rights under the agreement and, in any event, the issue was whether he did have such an interest (paras 29-36). (3) If the May 1 agreement had been ineffective, there would have been a clear case of estoppel by convention. The parties had proceeded on the basis that they had revived the agreement and that their rights and obligations were governed by it, subject to the alteration in the period. Alternatively, the May 1 exchange of emails incorporated a representation by the defendants that they would continue to honour the agreement, with the altered period for completion, and there was ample evidence of detrimental reliance on C's part. Clearly, if D2 had said at that time that there was no effective agreement to revive the SSA, P would have ensured that a new and binding SSA was prepared and, given the good relations at that time, it would have been completed. C was entitled to the relief it claimed (para.37).
Application granted
Counsel:
For the claimant: Hugh Jory QC
For the defendants: Charles Douthwaite
Solicitors:
For the claimant: St John Law Ltd
For the defendants: CJ Jones LLP
http://www.lawtel.com/MyLawtel/Documents/AC0142548