Summary

There was no common law election in the instant case between two inconsistent rights. Nor was there any basis on equitable principles to hold that the equitable doctrine of election applied where the defendant vendors of shares merely put forward an inconsistent contention without any express reservation or statement that it was alternative to their previous position.

Facts

The claimant (N) sought to claw back consideration paid to purchase the share capital of a company from the defendant shareholders (D). Clause 5.1 of the share purchase agreement required N to procure the preparation of draft earn-out accounts and a certificate to be sent to D ("stage 1"). By clause 5.2 each party was to notify the other within 10 business days of receipt of the earn-out accounts and certificate, whether or not it accepted them as drawn, and if no notification was made during that time they should be deemed to be so accepted. If notification was given under clause 5.2 within the time permitted, clause 5.3 provided 20 business days for the parties to agree any adjustments ("stage 2"). If agreement could not be reached within that period the parties were jointly obliged to appoint an independent firm of chartered accountants to make a determination ("stage 3"). N provided D under clause 5.1 with draft earn-out accounts and a draft certificate requiring a considerable payment from D to N. D gave notice pursuant to clause 5.2 that they did not accept the documents produced. N commenced proceedings claiming the sum due pursuant to the documentation. N submitted that D's counter-notice ceased to have effect by reason of D's subsequent inconsistent conduct in alleging that the documents were not qualifying documents within clause 5.1, so that the whole three stage process under clause 5 had not started.

Held

Election at common law occurred where a person had two inconsistent rights or remedies and only one of which could be exercised. Election in equity meant that a party could not both accept an instrument or judgment and reject it. He could not take a benefit under the instrument or judgment without taking the accompanying burden. On the other hand, except where it would be contrary to established equitable principles, any party to a legal dispute, before or during litigation, could put forward inconsistent arguments prior to judgment. There was no common law election in the instant case between two inconsistent rights. D had a contractual right to pursue the clause 5.3 independent adjudication provisions but there was no relevant second, inconsistent, right. Nor was there any basis on equitable principles to hold that the equitable doctrine of election applied. D had merely put forward an inconsistent contention without any express reservation or statement that it was alternative to their previous position. That did not amount to an election in the relevant sense and the inconsistent argument had been rejected by N. N had made claims that would have enabled it to compensate for any delay by an award of interest in the usual way. If N failed, it was N's conduct which had delayed matters, not the incorrect and inconsistent allegation made by D.

Judgment for defendants.