Walford and Others v Miles and Another

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Keith of Kinkel,Lord Ackner,Lord Goff of Chieveley,Lord Jauncey of Tullichettle,Lord Browne-Wilkinson
Judgment Date23 Jan 1992
Judgment citation (vLex)[1992] UKHL J0123-1

[1992] UKHL J0123-1

House of Lords

Lord Keith of Kinkel

Lord Ackner

Lord Goff of Chieveley

Lord Jauncey of Tullichettle

Lord Browne-Wilkinson

Walford and Others
Appellants
and
Miles and another
Respondents
Lord Keith of Kinkel

My Lords,

1

I have had the opportunity of considering in draft the speech to be delivered by my noble and learned friend Lord Ackner. I agree with it, and for the reasons he gives would dismiss this appeal.

Lord Ackner

My Lords,

2

Mr. Martin Walford, the first named appellant, is a solicitor in private practice. He is the brother of the second named appellant, Mr. Charles Walford, who is a chartered accountant. They own the third named plaintiff, a company which plays no part in this dispute. The respondents, Mr. and Mrs. Miles, husband and wife, at the material time owned a company P.N.M. Laboratories Ltd., together with premises in Blackfriars Road, London which was let to the company where it carried on a photographic processing business. The company's auditors at the material time were Mr. Patel and Mr. Khanderia who carried on their profession under the name of Patel, Khanderia & Co.

3

In 1985 because of illness, Mr. Miles decided to sell the company and its business premises. Negotiations took place with Mr. Patel and Mr. Kanderia via the medium of a company, Status Guard Ltd., in which Mr. Patel and Mr. Khanderia had a 30 per cent. interest. These negotiations proved unsuccessful.

4

Towards the end of 1986 Mr. and Mrs. Miles decided once more to try to sell the company and its business premises. Mr. Patel put forward an offer of £1.9m. Meanwhile the Walfords had heard that the business was up for sale. There was a meeting between Mr. Martin Walford and Mr. Miles on 23 April 1987. Although the Walfords knew nothing about the photographic processing business, they thought they had found a bargain. The Miles were prepared to warrant that at the date of completion the cash resources in the company's bank account would not be less than £1m. and that the trading profits for the 12 months following completion would not be less than £300,000 before tax. The Walfords considered that the business and its premises were in the words of Mr. Naughton Q.C. in opening this appeal, "dramatically undervalued". They were accordingly enthusiastic to purchase it at this price.

5

Following a meeting on 12 March 1987 at Mr. Martin Walford's offices, the main terms of the purchase were agreed in principle and on 16 March Mr. Martin Walford faxed a letter expressly headed "subject to contract" to Mr. Randall of Messrs. Tarlo Lyons Randall Rose, the solicitor for Mr. and Mrs. Miles. The purchasers were not to be the Walfords but a company controlled by them (the third named appellant). In his letter of 16 March Mr. Martin Walford recorded that Mr. Miles had given his assurance that, provided he received a clear indication of the intention to proceed with the purchase not later than the close of business on Wednesday, 25 March, he would not treat with any third party or consider any other alternative offers. Mr. Randall replied on 17 March that he did not have any instructions to proceed with the sale and that Mr. Miles had not given the assurance alleged. This letter was however overtaken by oral exchanges which occurred on the same day between Mr. Martin Walford and Mr. Miles. On 18 March Mr. Martin Walford wrote to Mr. Randall confirming what had been agreed during that telephone conversation. It is common ground that the penultimate paragraph of that letter correctly sets out the agreement which had been reached as to negotiations between third parties. It reads as follows:

"The last matter discussed between Mr. Miles and me related to our ability to make payment for the shares in the business and the property. He asked me to provide a comfort letter from our bankers confirming that they are, subject to contract, prepared to provide the finance of £2,000,000 to enable Acquisition Corpn. to effect the purchase. Mr. Miles agreed that if such a letter were in your hands by close of business on Friday of this week he would terminate negotiations with any third party or consideration of any alternative with a view to concluding agreements with me and my brother and Acquisition Corpn. and he further agreed that even if he received a satisfactory proposal from any third party before close of business on Friday night he would not deal with that third party and nor would he give further consideration to any alternative."

6

The letter from Lloyds Bank which Mr. Walford enclosed, dated 18 March, was addressed to Mr. Randall and expressed to be given without responsibility. It confirmed that the bank had offered the brothers loan facilities to enable them and the company controlled by them to make the purchase for £2m.

7

On 25 March Mr. Randall wrote to Mr. Martin Walford acknowledging the receipt of this letter and enclosure, and confirmed that, subject to contract, his client agreed to the sale of the property and the shares at a total price of £2m. On the same day, Mr. Randall wrote to Mr. Patel's solicitors informing them that his client had concluded terms for the sale of the property and the shares in the company to another party and that he was waiting to receive a draft contract. He pointed out that everything was still subject to contract and that the transaction might not go through, but that if it did not, his client would be interested to pursue discussions. On 26 March Mr. Walford's solicitors sent preliminary enquiries and a draft share purchase agreement to Mr. Randall, who sent them on to Mr. Miles the following day. Mr. Martin Walford was anxious to meet Mr. Miles upon that day, but Mr. Miles was not available.

8

On 30 March Mr. Randall wrote to Mr. Martin Walford informing him that, after careful consideration, his clients had decided to sell to a company associated with the auditors, adding that he hoped that the Walfords would accept his clients' decision without question. This they refused to do. They treated Mr. Randall's letter as a repudiation of what they alleged to be a contract and then issued these proceedings. Meanwhile the shares in the company and the property in Blackfriars Road had been sold for £2m. to Statusguard Ltd, the corporate vehicle through which Mr. Patel and Mr. Khanderia had tried to make the purchase in 1985.

9

Mr. Miles did not give evidence before the trial judge, His Honour Judge Bates Q.C. sitting as a judge of the High Court. It was Mrs. Miles who informed the court that she and her husband spent the afternoon of Friday 27 March at the company's premises and during that time decided not to sell to the Walfords or their company. Her explanation was that they were concerned whether they and their staff would get on well with Mr. Martin Walford. If they failed to do so, they might lose staff and then fail to produce the £300,000 profit which was the subject of the warranty. Moreover, they were both concerned that her husband's health might suffer during the year that he would be continuing to work in the business, providing the Walfords with the expertise which they lacked. They therefore decided, either to continue in business themselves or to ask Mr. Patel if he was still interested. There was a telephone conversation on the evening of Friday, 27 March with Mr. Patel, who confirmed that he was still interested and agreed readily to increase his offer by £100,000, thus matching the price which the Walfords had offered. Mr. Patel, in his evidence, said that after he had received Mr. Randall's letter of 25 March he had no contact with Mr. Miles until the telephone conversation on 27 March, to which I have just referred. The trial judge did not believe him. He concluded that Mr. Miles and Mr. Patel had continued to keep in touch, notwithstanding the oral agreement of 17 March recorded in the letter of 18 March.

10

The pleaded case

11

The Walfords relied upon an oral agreement, collateral to the negotiations which were proceeding to purchase the company and the land it occupied "subject to contract". The consideration for this oral agreement was twofold - firstly the Walfords agreeing to continue the negotiations and not to withdraw and secondly, their providing the comfort letter from their bankers in the terms requested.

12

For this consideration it was alleged in paragraph 5 of the Statement of Claim as follows:

"… the First Defendant on behalf of himself and the Second Defendant would terminate negotiations with any Third Party or consideration of any alternative with a view to concluding an agreement with the Plaintiffs and further that even if he received a satisfactory proposal from any Third Party prior to the close of business on 25 March 1987, he would not deal with that Third Party or give further consideration to any alternative."

13

As thus pleaded, the agreement purported to be what is known as a "lock-out" agreement, providing the plaintiffs with an exclusive opportunity to try and come to terms with the defendants, but without expressly providing any duration for such an opportunity.

14

For reasons which will become apparent hereafter, it was decided to amend this paragraph by the following addition:

"It was a term of the said collateral agreement necessarily to be implied to give business efficacy thereto that, so long as they continued to desire to sell the said property and shares, the First Defendant on behalf of himself and the Second Defendant would continue to negotiate in good faith with the Plaintiff."

15

Thus the statement of claim alleged that, not only were the defendants "locked-out" for some unspecified time from dealing with any third party, but were "locked-in" to dealing with the plaintiffs, also for an unspecified period.

16

In the statement of claim it was further alleged that by reason of the wrongful repudiation by the Miles, the Walfords lost...

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