Joanne Properties Ltd v Moneything Capital Ltd

Joanne Properties Ltd v Moneything Capital Ltd and another [2020] EWCA Civ 1541 is a recent Court of Appeal case that bears mentioning not because of the surprise of the result, but because of the surprise that this issue could make it so far with so many involved convinced of their own (incorrect) interpretation.

Therefore this update serves not as a lesson, but more of a reminder of the fundamentals of negotiation and contract formation:

Factual background

The appellant, Joanne Properties, had borrowed money from the respondent, Moneything Capital, a corporate lender (currently winding-down operations). This loan was secured by the grant of a legal charge over some property owned by the appellant.

The appellant fell into arrears on their repayment of this loan and so the respondent applied for receivers to be appointed. In response, the appellant brought proceedings to set aside the loan agreement and for an injunction to prevent the security being realized.

In the end the parties were able to compromise and the property was sold with an order for distribution being agreed. However, now they had to decide how to share a final sum which had up until now been ‘ring-fenced’.

The solicitors began negotiations.

Throughout these negotiations, the phrase ‘Subject to Contract’ was included on some correspondence, however it was not included on all. The respondent claimed that terms had been agreed during these negotiations and as such a binding contract was in existence, as these particular discussions were not under the ‘Subject to Contract’ label.

This is the issue the courts had to settle – whether these negotiations gave rise to a binding contract despite the use of the phrase ‘Subject to Contract’ having been used previously, and whether its absence revoked the ‘Subject to Contract’ protection.

Court’s decision

In the first instance, the judge found that a binding contract had been made.

On appeal, this was of course reversed. By making discussions ‘Subject to Contract’ there was an understanding between the parties that no binding agreement could arise until a contract was entered (or in this case, a consent order fulfilling the same role). This understanding could not be impliedly revoked simply through the lack of repetition; any revocation must be express and clear.

Lessons for in house lawyers

The judge in the first instance had undervalued the force of the ‘Subject to Contract’ label; be careful you do not do the same.

Sherbrooke v Dipple [1981] 41 P & CR 173 confirmed that once negotiations have begun ‘Subject to Contract’ this condition is carried through to the end. This is true regardless of whether the phrase is repeated with every new email or letter. Perhaps for the sake of avoiding a miscommunication, it is worth repeating the label each time. Maybe clarify at the outset that the entire negotiations are ‘Subject to Contract’ and that this will not be considered revoked unless expressly done.

As we can see here, not only did the solicitors for the respondent get it wrong, but so did the judge in the first instance. This is a mistake that does happen and can catch anyone. For the sake of avoiding protracted and needless court battles, especially at a time when courts are moving much slower and you can be waiting months for a hearing, you should always ensure your communication is as clear as it can possibly be.

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