John Dilworth & Anor v Wosskow Brown Solicitors LLP & Ors

An agreement will not bind the parties where the correspondence shows that they intended not to be bound until a formal document containing all essential terms had been agreed and signed. The court must assess the correspondence as a whole and determine objectively whether any further condition or term was intended to be a precondition to contractual formation. Terms concerning the parties’ protection against increased risk and their ability to recover capital may be essential. Where negotiations remain exploratory, proposed security has not been agreed, and formal documentation is contemplated, no concluded variation arises. Existing loan liabilities therefore remain enforceable.

The claimants had advanced £200,000 and £300,000 to a solicitors’ LLP under loan agreements supported by personal guarantees. Following repayment defaults, the defendants contended that the loans had been discharged or partly discharged by a 2017 agreement under which £300,000 would be exchanged for preference shares in a property company, with the remaining balances repaid under a schedule.

The alleged arrangement was said to have arisen orally or, alternatively, through emails. The claimants denied that any concluded agreement had been made and relied on the absence of agreed guarantees, a guaranteed exit mechanism and signed formal documentation. The central issue was whether the 2017 correspondence created a binding contract varying or partly discharging the loans.

1. Claim succeeded. The claimants were entitled to recover the sums due under the First and Second Loans, giving credit for payments received. The guarantors were liable as primary obligors under clause 31.1 of the guarantees.

2. No oral agreement had been reached in May or June 2017. The contemporaneous correspondence did not record such an agreement, referred to continuing negotiations, and contained no attendance note despite the involvement of a solicitor acting for the LLP and guarantors.

3. The emails did not create a binding written contract. Applying the approach in RTS Flexible Systems and Pagnan, the correspondence had to be considered as a whole. Objectively, the parties intended a formal document to be a precondition to contractual formation. The references to amending the original agreement, obtaining legal advice and preparing documentation supported that conclusion.

4. The proposed guaranteed exit mechanism, under which the preference shares could be repurchased at £100 per share on notice, was an essential term. So too was protection against greater risk than under the existing personal guarantees. The response accepting the calculations did not accept the wider counter-offer or settle those matters.

5. The court rejected the contention that the absence of provisions concerning dividends or winding-up payments necessarily prevented formation. Those matters were not decisive. The decisive considerations were the parties’ objective intention, the continuing negotiations, the unresolved protections and the contemplated formal agreement.

6. Mr Dilworth had authority to negotiate on Mrs Dilworth’s behalf, but his authority extended only to negotiation and agreement in principle. Final approval was to follow legal advice and formal execution. No formal contract was executed.

The parties were invited to agree the sums due and the form of order. Further submissions would be heard if agreement could not be reached.