Litigation

UK LITIGATION REVIEW 2021 7 Contract Pre-Contractual Negotiations The Court of Appeal in Joanne Properties v Moneything 1 reiterated the significance of the "subject to contract" label in contractual negotiations. The parties had used the label early in the course of negotiations and intended that any formal agreement (if reached) would be recorded in a consent order, but no order was made. The Court of Appeal held that the High Court, in finding that a binding contract had nonetheless arisen, had placed too much emphasis on whether the purported terms were sufficiently certain and failed to give proper consideration to whether the parties had intended to enter into a legally binding arrangement at all. Allowing the appeal, the Court reiterated that, where parties used the "subject to contract" label in negotiations, it would generally be assumed that (a) neither party intends to be bound unless and until a formal contract is entered; and (b) each party reserves the right to withdraw until such time as a binding contract is made. The cases cited by the court included instances where parties had been found to have waived the protections afforded by the subject to contract label (where, for example, the putative contract had already been partly performed). Even those authorities made clear that the court will not lightly hold that such protections had been waived. If negotiations are initiated "subject to contract," the qualification will apply throughout negotiations until expressly or implicitly waived by the parties. Identifying the Parties In Bell v Ivy Technology Ltd, 2 the Court of Appeal considered the circumstances in which a third party could be bound by a contract where a named party to the agreement had contracted as the named party's disclosed principal. This follows a line of recent cases on this topic, as we noted in last year's review. 3 The case concerned the claimant's application to amend its particulars of claim in a claim for breach of warranty under a share purchase agreement. 1 [2020] EWCA Civ 1541 2 [2020] EWCA Civ 1563 3 Shearman & Sterling, Litigation Review 2020, page 7 The parties had sought to transfer shares from the first and second defendant to the claimant which were known by all persons concerned to be beneficially owned by the first and second defendant in equal proportions. However, the second defendant was not a named party to the SPA, and the recitals to the SPA stated that beneficial ownership rested only with the first defendant. The court held that the first defendant had contracted not only as principal, but also as agent for the second defendant as its disclosed principal. The second defendant further relied on an exclusion clause in the SPA (which sought to exclude third-party rights, remedies, obligations and liabilities) to argue that its liability was excluded. The court considered that there was a heavy burden on a party seeking to exclude the liability of a known and identified principal under a contract. As the SPA did not clearly and unequivocally exclude the second defendant's liability, when it could easily have done so, there was a real prospect that the trial court would conclude that the second defendant's liability was not excluded, in light of the admissible factual matrix. The court also noted that, while evidence of what was said during precontractual negotiations or of the subjective intentions of the parties was inadmissible to show what a particular contractual provision means, evidence as to the "genesis and aim of the transaction" was admissible. In Gregor Fisken Limited v Bernard Carl 4 the court gave a salutary reminder that a person signing a contract in their own name, without qualifying the capacity in which they sign, will be treated as a principal party to that contract. The agreement recorded that the claimant was party to the contract "as agent for an undisclosed principle." However, the claimant had signed the contract in their own name, without any qualification. The court referred to the signature principle in Internaut Shipping GmbH v Fercometal Sarl 5 under which a person who signs a contract as a party and without 4 [2021] EWCA Civ 792 5 [2003] EWCA Civ 812

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