Legal Agreements are for Life and not Just for Christmas…..
The Court of Appeal case of Dixon and another v Blindley Heath Investments Limited (2015) EWCA Civ 1023 is an interesting decision about what happens when a business (or its lawyers) prepare a set of legal documents, which are intended to govern the rights of the stakeholders in the business, but then the business ignores or forgets about those documents and acts as though they had never been written.
In this case, the shareholders entered into an agreement, which gave all the shareholders pre-emption rights over share transfers. Multiple share transfers took place to an external party, Mr Dixon, and nobody ever bothered about the rights of the shareholders to block the transfers to Mr Dixon and divvy up the shares between themselves in proportion to their existing shareholdings, as anticipated by their rights of pre-emption. Then one day everybody woke up and said that they did not want any more shares to be transferred to Mr Dixon, and pointed to their rights of pre-emption in the shareholder agreement to block the transfers.
The case went all the way to the Court of Appeal, and the Court of Appeal held that actually the shareholders by their prior behaviour had lost the right to rely on their pre-emption rights. They referred to it as “estoppel by convention”.
So, check the agreements you entered into. Don’t just leave them sitting on a shelf to gather dust, and if you have rights in an agreement, make sure you use them…..or you may just lose them!
If you have any questions about making sure that you do not use rights in an agreement you entered into, or to check that an existing agreement is fit for the purposes of your current business and its stakeholders, please contact [email protected]