SALLY ELIZABETH JOHNSON v HOWARD DUNCAN SPOONER & Anor.

Whether parties have made a binding contract depends objectively on their words and conduct, viewed in context. A subject to contract label is important but does not invariably prevent immediate contractual effect. The court must determine whether the parties intended to remain unbound pending formal execution, or intended the later document merely to record terms already agreed.

Parties may become bound while leaving important or subsidiary matters for later agreement, provided the bargain remains workable and sufficiently certain. A subsequent communication may objectively vary an existing agreement, even if expressed as subject to contract, where the parties intended immediate agreement with formal documentation to follow.

The claimant sought rectification of Quay Street Ltd’s register of members under section 125 of the Companies Act 2006. An earlier order had restored her registration as holder of one share, marked disputed.

The first defendant counterclaimed that she had agreed to sell the share to him on 2 July 2020, alternatively that the agreement was made or varied through communications on 8 July 2020. The central issue was whether the parties’ oral discussions, handwritten deal notes and subsequent correspondence created a binding agreement despite references to formal documentation and the words subject to contract.

1. Outcome. The court found that the claimant agreed on 2 July 2020 to sell her share in Quay Street Ltd to the first defendant. The agreement was varied on 8 July 2020, or alternatively was made on that date. The balance of £60,001 was held by the first defendant’s solicitors. The court directed that the parties be heard on the terms of relief, including collection of any remaining personal items.
2. Applicable principles. Applying RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH [2010] UKSC 14, the question was whether, objectively, the parties’ communications and conduct showed an intention to create legal relations and agreement on the terms regarded by them or the law as essential. The court must not impose a contract which the parties had not reached. All depended on the circumstances.
3. A subject to contract designation did not determine the issue conclusively. The court considered the whole course of negotiations, the parties’ conduct, the importance of the formal document, the degree of agreement, and whether the parties intended to be bound immediately while documentation was prepared. The later document could be no more than a formal record of an existing bargain.
4. The judge accepted the first defendant’s account of the 2 July meeting. The parties discussed and agreed the payment structure, the treatment of the £85,000 expenditure, the director’s loan, the legal costs, the share transfer and the claimant’s removal of personal items. Their handshake, the handwritten notes, the subsequent removal of the items and their communications objectively demonstrated a conclusive agreement, with documentation to follow.
5. On 8 July the claimant accepted the first defendant’s offer of £135,000, subject to a personal guarantee and a payment schedule. In context, “subject to contract” referred to the obligation to put the agreement into formal written form. It did not prevent immediate agreement. The 8 July communications therefore operated as an agreed variation of the 2 July agreement, or constituted a binding agreement in their own right.

The judgment describes an earlier order of ICC Judge Jones dated 12 August 2021, which restored the claimant’s share registration subject to it being marked disputed and left open the first defendant’s counterclaim. The present judgment determined that counterclaim at first instance.