Under the law of contract formation, there can’t be a legally enforceable contract without each of the following key elements:
- Intention to create legal relations
- Certainty of the essential terms
In the recent case of Kowalishin v Roberts and another, the High Court held that an investor that paid money to a company was not entitled to shares in that company because the parties hadn’t entered into a binding contract. The focus of the case was centred on whether there was certainty of the essential terms.
Kowalishin had agreed to invest £250,000 in Roberts’ company (“the Company”) in return for 30% of the shares in the Company. The investment was to be over a period of 12 months. In 2007 Kowalishin made his first investment of £50,000 on the basis that the contract would be signed in due course. No contract was signed and communications stopped a few months later.
A few years later Kowalishin contacted Roberts seeking an account of his investment.
The court held that Kowalishin was entitled to the return of his £50,000 investment (plus interest) however, there was no binding contract to transfer any shares in the Company to Kowalishin.
The court held that the essential terms of the contract remained uncertain or incomplete, and as such the contract was unenforceable.
In determining whether the parties have reached agreement on all essential terms, the governing criterion is whether an honest and reasonable businessman would have concluded from the parties’ communications and conduct that they had agreed all the terms they considered to be a precondition to creating legal relations.
In this case the parties hadn’t agreed the dates by which the remaining terms of the £200,000 investment would be paid, or how many shares Kowalishin would receive if he only invested £50,000.
This case serves as a useful reminder of the requirements for a legally binding contract and of the importance of instructing a solicitor at the earliest stage to ensure that any agreement is documented properly. Here at Farleys our experienced business solicitors specialise in commercial matters and have a wealth of expertise in all aspects of commercial and corporate law. To speak to a specialist solicitor regarding your business or company call 0845 050 1958, or alternatively please complete the online enquiry form.