Sally Elizabeth Johnson v Howard Duncan Spooner & Anor.

Where parties have reached a binding agreement to end their joint business relationship but have not specified when a share transfer is to occur, the court may imply a term requiring transfer within a reasonable time. The term must satisfy the strict requirements of necessity or obviousness; fairness or commercial reasonableness alone is insufficient. A particular date should not be implied merely because performance on that date would satisfy the reasonable-time obligation. An express agreement to transfer shares on signing may also justify an implied term requiring the parties to prepare and sign formal documents as soon as reasonably possible. Contract formation is assessed objectively by reference to communicated words and conduct, and contractual enforceability formalities are distinct from the parties’ intention to be bound.

Mrs Johnson appealed against an order made after the trial of Mr Spooner’s counterclaim. The dispute arose from negotiations concerning the sale of her share in Quay Street Ltd and payments to be made by the company, personally guaranteed by Mr Spooner.

The trial judge found that a binding oral settlement had been reached on 2 July 2020 and varied by email exchanges on 7 and 8 July 2020. He declared that Mrs Johnson should have transferred her share when the first payment was made and thereafter held it on trust for Mr Spooner. Permission to appeal was limited to the implication of terms concerning the timing of the share transfer and Mr Johnson’s resignation, and to whether the absence of a formally drafted guarantee prevented a concluded agreement.

1. Appeal dismissed. The declarations were upheld, although the implied term was reformulated.
2. The implication of contractual terms is governed by the necessity or obviousness test stated in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and reiterated in Ali v Petroleum Co of Trinidad and Tobago. The court must first identify the express agreement. A term cannot be implied merely because it would improve the contract or appear fair.
3. The judge was wrong to imply a term requiring transfer of the share on the date of the first payment. The primary findings nevertheless established that the agreement was intended to end the parties’ joint involvement in the business immediately. Since formal transfer steps were required and no precise date had been agreed, the proper implied term was that Mrs Johnson would transfer the share within a reasonable time. Transfer by the date of the first payment satisfied that obligation.
4. The 8 July variation included the express term that the share would be transferred on signing. Because the parties had reached a binding agreement despite intending subsequently to record it in writing, a term was implied that they would prepare and sign the written terms as soon as reasonably possible. Mrs Johnson was therefore obliged to transfer the share as soon as reasonably possible.
5. The guarantee point did not invalidate the agreement. The objective test in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) concerns what the parties communicated and whether they objectively intended legal relations and agreed essential terms. It does not impute legal knowledge about formal enforceability requirements. The intention to be bound by a guarantee is distinct from the formalities required to enforce it, as explained in Golden Ocean Group Ltd v Salgaocar Mining Industries Ltd.

1. Chancery Appeals (ChD): appeal against the order of Insolvency and Companies Court Judge Prentis dated 31 March 2022. Appeal dismissed.