Intense Investments Ltd v Development Ventures Ltd & Anor

A binding contract may arise where an offer is accepted by conduct which clearly communicates acceptance, including payment made in the manner requested by the offeror. Where contractual obligations are performed, the court may also find an implied contract on the performed terms. An agreement is not rescinded merely because one party proposes revised terms; rescission requires the consent of both parties. Contractual obligations cannot ordinarily be avoided by transferring performance or profit to another controlled entity where the agreement, construed commercially, requires payment by reference to the transaction. Tax liabilities reasonably and properly incurred in the transaction fall within the agreed deductions unless the contract expressly allocates that risk differently.

The claimant advanced £350,000 to assist the defendants with the acquisition and development of a site. It claimed repayment of the loan and 50 per cent of the net profit from the eventual sale. The defendants disputed the existence of any binding contract, contending that the April 2004 document was not accepted, was later superseded, and did not apply because the sale was conducted through another company.

The court determined whether the document created a contract, whether acceptance was communicated or the agreement arose through performance, whether the agreement was terminated by later negotiations, and how profit and tax liabilities were to be calculated.

1. Contract formation. The November 2003 discussions established only a broad commercial understanding. The amount of the loan and the contracting companies had not been finalised, and there was no sufficient intention to create legal relations at that stage. The document sent on 19 April 2004 was therefore a proposal, not a record of an earlier binding agreement.

2. The proposal was bilateral rather than unilateral. It imposed promises and obligations on both sides and expressly contemplated a response. The claimant accepted it by executing the document and paying £300,000 into the designated account. That payment was the clearest practical communication of acceptance, and the later payment of the remaining £50,000 removed any residual doubt. The executed document was also sent to a solicitor acting for CPL, and the parties’ subsequent conduct was consistent with the agreement.

3. Alternatively, applying G Percy Trentham Ltd v Archital Luxfer Ltd and Others [1993] Lloyd’s LR 25 and Brogden v Metropolitan Railway Company [1877] 2 App Cas 666, performance of the obligations established an implied contract in the same terms. The estoppel arguments were rejected. An estoppel by convention could not logically substitute for a contract where the parties had not agreed one, and the evidence did not establish the representation and reliance required for estoppel by representation.

4. The April agreement was not rescinded by the letter of 21 July 2004. The letter proposed a replacement agreement, but did not objectively show that the existing agreement had already ended. Rescission required agreement by both parties, and no such agreement was proved. Unsuccessful negotiations for revised terms left the underlying contract in force.

5. The claimant was entitled to 50 per cent of the net profit from the sale, even though the profit was received by WGLLP or another controlled entity. To give the agreement business efficacy, the reference to the borrower and CPL was impliedly extended to any other entity receiving part of the sale price.

6. Tax liabilities incurred by DVL, CPL, WGLLP or another relevant entity were prima facie transaction costs or outlays reasonably and properly incurred and therefore fell to be deducted in calculating net profit. The agreement contained no promise that an offshore company would be used or that the claimant would be protected from tax risk.

7. The first defendant was ordered to provide within 14 days an up-to-date certified statement of account showing the transaction and deductions. Costs were reserved for separate determination.

First-instance decision. The judgment records an earlier decision setting aside judgment in default, reported at [2005] B.L.R. 478, because there was a triable issue as to contract formation. The present judgment determined the preliminary issues.