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The Court of Appeal (Sir Colin Rimer, Coulson and Patten LJJ) in Doherty v Fannigan Holdings Ltd  EWCA Civ 1615, held that a payment obligation in a share purchase agreement was dependent on the transfer of shares to the purchaser rather than, as the seller contended, an independent obligation (that is, where each party is obliged to perform its duties, whether or not the other party has performed its obligations). Consequently, the seller was not entitled to serve a statutory demand as an initial step in bankruptcy proceedings when the purchaser defaulted, as the liability was not for a liquidated sum.
The agreement provided for the transfer of the shares to be in tranches, with payment for each tranche to be made prior to the related share transfer. When the purchaser failed to pay for one tranche, the seller served him with a statutory demand. The registrar held that failure to pay did not result in a liability in debt for a liquidated sum so the seller was not entitled to serve the demand. The seller successfully appealed, the deputy judge holding that the payment obligation was not dependent on the simultaneous transfer of the shares so that the purchaser's liability did amount to a debt for a liquidated sum.
In the Court of Appeal, Sir Colin Rimer reviewed the leading authorities on the distinction between dependent and independent contractual performances before noting that this turned on the interpretation of the contract. He considered that the irresistible inference from the drafting was that the parties' respective obligations were dependent obligations and that neither party was entitled to enforce the performance of the other's except against a performance of their own. Therefore, when the purchaser breached the contract by failing to make the payment, he did not become a debtor for the price. The seller's remedy lay in damages or specific performance.
Although not making any new law and perhaps unsurprising in terms of commercial reality, the case is interesting as the case law on the distinction between independent and dependent obligations is not extensive. The case also illustrates how the structuring of the payment obligation can impact on the available remedies when the payer defaults.
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