Doing an Important Business Deal? Make Sure You Get it in Writing!
The existence of oral agreements is easily asserted but very hard to prove, and that is one good reason why important deals should be in writing and professionally drafted with the benefit of legal advice. In a case on point, a businessman received nothing following the multi-million-pound stock market flotation of a company he co-founded.
The company had grown at a phenomenal rate, achieving a leading position in its market and an annual turnover of around £100 million. However, at a time when both the company and the businessman were heavily indebted, he had signed a written share purchase agreement (SPA) by which he transferred his substantial stake in the company to his co-founder for a nominal sum. He received nothing when the company was floated on the Alternative Investment Market four years later, but his co-founder made about £70 million.
The co-founder owned 92.5 per cent of the company's shares prior to the flotation and the businessman argued that, before the SPA was executed, it had been orally agreed between them that 37.5 per cent of those shares would be held on trust for him. In claiming £26.9 million from the co-founder, the businessman alleged that that agreement was irrevocable and unconditional and that the SPA was a sham.
In dismissing his claim, however, the High Court found that the SPA was genuine and that the co-founder had thereby acquired full legal and beneficial ownership of the businessman's shares. Due to the failure of other ventures, the businessman had been facing insolvency at the time and the SPA presented the best option open to him. The co-founder had not promised to hold the shares on trust for him and his accusation that he had betrayed his trust by reneging on the oral agreement was rejected.