Wright v Michael Wright (Supplies) Ltd & Anor

A commercial contract is interpreted according to its language and structure. Background negotiations and surrounding documents may assist only where the written agreement is ambiguous. A payment is treated as discharging a particular contractual debt only where the evidence establishes its source, purpose and the parties’ agreement to that allocation. A binding obligation to pay for services may be inferred from the parties’ conduct even without a written agreement. Persistent non-payment of a material part of a share-sale price may trigger a contractual right to terminate the agreement and recover the transferred shares.

The claimant sold all the issued shares in Michael Wright (Supplies) Limited to Turner Wright & Co Limited under a share-sale agreement. He claimed that part of the consideration remained unpaid and sought the return of the shares. He also claimed unpaid consultancy fees for management services provided to the operating company over several years.

The defendants contended that the agreement provided for a lower price, that disputed payments had discharged the share-sale consideration, and that no consultancy contract existed because there was no written agreement. The court determined the claims and counterclaims on the documentary evidence after case-management difficulties had led the parties to dispense with a conventional trial.

1. Construction of the share-sale agreement. The agreement was not ambiguous. The price was £35.50 per share for 50,000 shares, producing a total consideration of £1,775,000. The provision for monthly instalments was a long-stop payment arrangement and did not define or limit the total consideration. Background documents and negotiations were therefore inadmissible for the proposed interpretative purpose.
2. Characterisation of payments. The accounting records did not identify whether individual payments were share-sale instalments, dividends, loan repayments or consultancy payments. A payment could be treated as a share-sale debt repayment only if the evidence showed that it came from the appropriate source and had been separately agreed and recorded for that purpose. Four disputed categories, totalling at least £87,515, were not proved to be payments of the share-sale consideration.
3. Consultancy agreement. An informal but binding obligation to pay a reasonable sum for consultancy services could be inferred from the claimant’s virtually full-time work for the company, despite the absence of a written contract. The evidence, including the treatment of payments as consultancy income, established an entitlement to payment. The court awarded £100,000 for the unpaid period.
4. Contractual consequence of non-payment. At least £87,515 of the share-sale price remained unpaid after demand. Under the agreement, that non-payment entitled the claimant to terminate the sale and recover the shares. The defendants were ordered to take the necessary steps to transfer and re-register all the shares in the claimant’s name.
5. Judgment was entered against Michael Wright (Supplies) Limited for £87,515. The counterclaims were dismissed and costs were subject to detailed assessment if not agreed.