Contact one of our advisors now Call 0800 088 6004

The importance of a written contract

In 2007 after an initial exchange of emails K transferred £50,000 to R in return for an investment of shares in R’s company – but the terms were to be agreed at a later date and it was thought that the £50,000 was simply an advance with further money to be invested at a later date.  R sent K a draft contract but K didn’t respond and over the course of a few months R and K stopped communicating.
Time passed……
Eventually K remembered his investment. K went to court and the court decided:
K was not entitled to shares in the company.  At the point at which K transferred the £50,000 the terms were too uncertain for it to be said that there was a contract in place.  K was entitled to the return of his money together with interest.  The interest awarded to K was the rate of interest which R would have had to pay had R obtained £50,000 from his bank (which it was held was 29.5% compounded)
The case above is Kowalishin v Roberts and another [2015] EWHC 1333 Ch but the courts have a long history in deciding when terms are agreed sufficiently to be binding and when they are too vague to be enforced.  Heads of terms have on occasion held to be legally binding even though not all terms had been agreed – but there has to be agreement on essential matters.  This recent case is another example of getting a proper contract drawn up correctly at the beginning when all parties are working to a common objective.
If you would like assistance in a commercial contract then please contact Andrew Kerr or Nina Wilson.