White v Parton & Ors

A binding contract does not arise where parties negotiate a package of obligations and fail to agree terms concerning an essential element. Agreement on other elements cannot ordinarily be enforced separately. Where the obligations are interdependent, performance of one party’s obligation may be a condition precedent, or concurrent condition, to the other party’s obligation. A party who refuses to perform that condition cannot establish breach by the other party for refusing to perform its corresponding obligation.

The claimant sought damages from the first and second defendants, alleging that they had agreed to procure the allotment to him of 38 per cent of the shares in a new company formed to acquire the business of the third defendant. He contended that the obligation to allot shares was independent of any obligation concerning use of his name by the business.

The defendants denied any binding agreement and contended that the proposed shareholding was conditional on the claimant’s continuing involvement in the business and permission to use his name. They also advanced a contingent counterclaim concerning the use of his name and an assignment by the company. The principal issues were whether a binding contract had been made and, if so, whether the claimant had performed the condition on which the proposed allotment depended.

1. Claim dismissed. The parties had a general plan from November 2007. It involved the claimant retaining involvement in the business, permitting the continued use of his name, and receiving a 38 per cent stake after the proposed restructuring. The claimant later withdrew permission for use of his name.
2. The plan was a package involving interdependent elements. The parties had not agreed a binding contract governing the use of the claimant’s name. Where parties negotiate a package containing elements A, B and C, agreement on A and B does not create a contract concerning those elements if the necessary terms relating to C remain unresolved. The position would differ if the parties expressly agreed to leave C as a separate collateral matter while binding themselves to A and B.
3. In any event, the claimant could not insist on receiving a 38 per cent stake in a business which no longer had the right to use his name. The defendants remained ready and willing to perform the arrangement on its proper basis. Their refusal to allot shares while the claimant denied the business the use of his name was not a breach.
4. The claimant’s obligation to permit use of his name was either a condition precedent to the defendants’ obligation to procure the share allotment or a condition to be performed concurrently with it. The claimant was unwilling to satisfy that condition and therefore could not enforce the corresponding obligation.
5. The contingent counterclaim did not arise because the claimant had failed to establish the alleged contractual obligation. The court therefore made no order on it and did not determine the issue under Insolvency Act 1986, section 127. Costs were awarded on the standard basis, with payment on account of £240,000. Permission to appeal and a stay were refused.