- United Kingdom
-  EWHC 893 (Ch)
- High Court of Justice, Chancery Division
- John Asher and others v Jaywing Plc
SHARE PURCHASE AGREEMENT - BETWEEN SOME ENGLISH INDIVIDUALS AND AN ENGLISH PUBLIC LIMITED COMPANY - UNIDROIT PRINCIPLES AS A MEANS FOR INTERPRETING THE APPLICABLE DOMESTIC LAW (ENGLISH LAW)
NO ORAL MODIFICATION CLAUSE IN WRITTEN CONTRACT - REFERENCE TO ART. 2.1.18 OF THE UNIDROIT PRINCIPLES - NOT APPLICABLE IN TEH ABSENCE OF A VALID REPRESENTATION
Five shareholders (hereinafter, the Sellers), who collectively owned 82.5% of shares in a digital marketing agency (the Company), entered into a Share Purchase Agreement with a public limited company (the Buyer) to sell the entire issued share capital of the Company. In the agreement, the sale was structured as an initial cash payment, plus three potential earn-out payments, that would have been received by Sellers if the Company achieved a specific target revenue in the first two years following completion. The agreement contained a provision requiring any amendment to its terms to be in writing and signed by the parties (No Oral Modification clause).
After the first earn-out payment was made, the Sellers sought entitlement to a second and third earn-out payment under the agreement, but the Buyer claimed that they were not eligible for these payments due to agreed conditions for payment not being met. However, the Claimants say that, as a result of an oral agreement reached at a meeting at which new conditions for the payment of the earn-out were agreed, they are entitled to a second earn-out payment of £ 1.212,500 and a third earn-out payment of £ 40.760. The Claimants also say that, even if no binding agreement was reached, the buyer was estopped from relying on its strict legal rights under the agreement.
The key point for the court to determine was whether a valid and binding agreement was reached. If there was no valid agreement, there was a further issue as to whether Buyer was estopped from denying that the earn-out payments were due. In practice, what the Claimants were arguing was that, as a result of representations it has made, Buyer could not require the entitlement to the earn-out payments to be assessed by reference to the strict terms of the agreement.
The court affirmed that if there had been an agreement, it would fall under the application of the no oral modification clause of the contract and would not constitute a valid variation.
In relation to the estoppel argument, the court cited two precedents in which, by analogy with the Vienna Convention on Contracts for the International Sale of Goods (1980) and the UNIDROIT Principles of International Commercial Contracts (4th Edition 2016), it was noted that a party may be precluded by its conduct from relying on a No Oral Modification provision (Rock Advertising Limited v MWB Business Exchange Centres Limited, 16 May 2018, already in Unilex); moreover, relying on an example in Article 2.1.18 of the UNIDROIT Principles, it was affirmed that the estoppel might include a situation where the person making the promise stood by and allowed the other party to perform the terms which had been agreed orally (Kabab-Ji S.A.L. v Kout Food Group, 20 January 2020, already in Unilex).
In the case at hand, however, the Court affirmed that, since no oral agreement was reached, the question of an estoppel preventing Buyer from relying on the No Oral Modification clause does not arise. In any event, even if there had been an oral agreement, which was invalid as a result of the No Oral Modification clause, there was no unequivocal representation by Buyer that the agreement was nonetheless valid.