Moria & Anor v Bednash

A contract may arise from correspondence even though some terms remain to be agreed, provided the parties objectively intended to be bound and the agreement is sufficiently workable. However, an agreement may be impliedly subject to contract even without those words. Negotiations for a detailed written agreement, substantive amendment of its terms, and requests for signature may show that the parties did not intend to be bound until execution. An oral agreement to assign a cause of action may take effect in equity, but the absence of agreed details may still indicate that the parties intended to defer contractual commitment.

The claimants, former employees and alleged shareholders of BI Proceed Ltd, sought to establish that the defendant, the company’s liquidator, had agreed to assign to them the company’s alleged causes of action against two former directors in return for a 10 per cent success fee.

The claimants relied first on communications in August 2009 and alternatively on an exchange of emails in November 2009 concerning a draft assignment. The defendant denied that either exchange created a binding agreement. The central issue was whether, objectively construed, the parties intended to be bound before a written assignment was agreed and signed.

1. The claim was dismissed. The defendant had not entered into a binding agreement to assign the company’s alleged causes of action.

2. The court applied the principles stated by Lord Clarke in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14, including that contractual intention and agreement are assessed objectively from the parties’ words and conduct. The correspondence must be considered as a whole, following Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep. 60.

3. The August communications amounted to an agreement in principle impliedly subject to contract. The references to agreement “in principle”, preparation of a detailed draft assignment, negotiations over substantive provisions, and requests for signature were strong objective indications that neither side intended to be bound until the written assignment had been agreed and signed.

4. The fact that an oral assignment could operate in equity did not make the August agreement binding. The parties had left several matters open, including identification of the claims, payment of the consideration, title guarantee, costs protection, assistance, control of proceedings and other covenants. Those matters could have been resolved by construction or implication, so the agreement was not too incomplete. Nevertheless, their importance supported the conclusion that the parties intended to defer legal commitment.

5. The November exchange did not alter that position. The defendant’s statement that the document would be put together for signature indicated contentment with its wording and an intention to sign, not an immediate acceptance creating a binding contract. The analogy was an agreement between conveyancing solicitors to exchange already agreed contracts at a later time.

6. The defendant’s later reasons for refusing to sign were irrelevant to whether a contract had already been formed.