Vadim Perelman v George Kerr

Commercial parties who sign documents recording agreed essential terms will ordinarily be taken objectively to intend legal relations. An agreement is not rendered uncertain merely because it leaves the method of performance open where alternative methods are available and the core obligations are clear.

A term requiring co-operation may be implied where necessary to make dependent contractual obligations workable, but it cannot impose obligations beyond what the contract requires. A settlement date is not automatically of the essence in a share sale; the question is one of construction in context.

Specific performance may be appropriate for shares which are not readily realisable in the market. Where performance is dependent, the order may provide reciprocal security, including escrow arrangements.

The claimant and defendant signed a share purchase agreement for the sale of shares in Pyne Gould Corporation and a separate right of first refusal agreement. The defendant later insisted that the shares be transferred electronically, although the claimant held paper certificates and a paper transfer was legally available.

The defendant contended that neither agreement was binding, that the share purchase agreement required electronic settlement, that settlement by a specified date was essential, and that the claimant’s conduct entitled him to terminate. The claimant sought payment under the right of first refusal and specific performance of the share purchase agreement.

1. Binding agreements. Both agreements were legally binding. Objectively, the documents, their signatures, the agreed commercial terms and the parties’ subsequent conduct demonstrated an intention to create legal relations. The share purchase agreement was not too uncertain: the parties, shares and price were identified, and the absence of an agreed settlement mechanism did not prevent performance by either paper or electronic transfer. The right of first refusal was independently binding and sufficiently certain.
2. Implied terms. No term requiring electronic settlement through CREST was implied. Paper transfer was legally available, and electronic settlement was neither necessary to give the contract business efficacy nor so obvious that it went without saying. Nor was there evidence of an invariable, certain and notorious custom. By contrast, a limited co-operation term was implied. Neither party could frustrate completion, and the parties had to liaise about timing and confirm reciprocal performance. That obligation did not require the defendant to provide facilities or advice for the claimant’s transfer.
3. Time and termination. The 30-business-day settlement period was not of the essence. The agreement contained no express stipulation, the subject matter was not shown to be subject to material price fluctuation, and the interest provision contemplated late payment while leaving the agreement in force. The defendant therefore had no right to terminate for delay, repudiatory breach, renunciation or disabling conduct. His refusal to accept a valid paper transfer frustrated completion and breached the implied co-operation term.
4. Specific performance. Damages were inadequate because the shares were listed but illiquid and could not readily be sold. The contract was specifically enforceable notwithstanding the company’s registration procedures, the defendant’s nomination option and the Model Code. The parties’ dependent obligations justified reciprocal protection: the claimant’s solicitors were to hold the completed transfer form and certificates to the order of the court, after which the defendant was to pay the price and the documents would be released.
5. Right of first refusal. The right of first refusal was not conditional on performance of the share purchase agreement. Its wording contained no such condition and its entire agreement clause superseded any prior understanding. In any event, the defendant could not rely on non-performance caused by his own conduct.
6. Disposition. Specific performance of the share purchase agreement was ordered in principle, subject to consequential directions and further argument on interest. Judgment was given for the claimant for US$400,000 under the right of first refusal, with contractual interest at 14 per cent.