In 2001, the seven shareholders in EFI (Loughton) Ltd agreed that each of them would not sell their shares to a third party without first offering them to the other shareholders for sale at a pro rata proportion of the net asset value of the company (the pre-emption agreement).

In 2010, two of the shareholders, Mr Dixon and Mr Wells, arranged to buy the shares of two other shareholders, Mr Clarke and Ms White, through a special purpose vehicle. Mr Dixon and Mr Wells entered into agreements between themselves that regulated their ownership of those shares and other shares in EFI that they intended to buy in the future. This share sale transaction was approved at an EFI board meeting in July 2010. Although the share sale was a breach of the pre-emption agreement since the shares were not offered for sale to the other parties to the pre-emption agreement, nobody raised the point as it seems that all of the parties had forgotten about the existence of the pre-emption agreement.

In 2011, Blindley Heath Investments Ltd agreed to buy shares in EFI from Mr Bass and Mr Mingay, both of whom were parties to the forgotten pre-emption agreement. At a meeting in October 2011, the board of EFI, including Mr Dixon and Mr Wells, approved this share sale.

Shortly afterwards, Mr Dixon rediscovered a copy of the pre-emption agreement. He relied on it to block the share sale to Blindley and, at the next board meeting, EFI refused to register the transfer of shares to Blindley.

Mr Bass, Mr Mingay and Blindley argued that Mr Dixon and the other directors were estopped by convention from relying on the pre-emption agreement to block the sale of the shares to Blindley because:

The Court of Appeal upheld the decision of the High Court that Mr Dixon and the other directors were estopped by convention from relying on the pre-emption agreement to block the share sale to Blindley. It adopted a slightly modified version of the five-part summary of the principles applicable to the assertion of an estoppel by convention arising out of non-contractual dealings that was set out in HMRC v Benchdollar Ltd:

The court rejected Mr Dixon's argument that an estoppel by convention cannot apply where the parties have simply forgotten that certain rights exist, by contrast with the usual case in which the parties positively mistakenly believe that certain rights or facts do or do not exist. It held that a mistaken recollection is not legally different from a state of forgetfulness. The court said that whether the true state of things has been misappreciated, misremembered or forgotten should make no difference to whether the parties have mutually adopted a common assumption.

It noted that the problem in cases of forgetfulness is likely to be evidential rather than legal, since the party seeking to rely on the estoppel has the burden of showing that something other than forgetfulness played a part in the adoption of the assumption such that the other party assumed some responsibility for it (the second Benchdollar principle).

In many cases involving estoppel by convention and forgetfulness, the characterisation of the parties' mental state may come down to little more than semantics. In Dixon, the parties might be characterised as having forgotten the restriction on the sale of shares under the pre-emption agreement, which is a case of forgetfulness, or they might be characterised as having had a belief that there was no restriction on the sale of EFI's sales, which is a positive assumption, even though this belief depended on them forgetting about the pre-emption agreement.

The importance of the decision in Dixon lies in the court's acceptance that there is no legal impediment to grounding an estoppel by convention on an assumption resulting from forgetfulness, providing that the traditional requirements of the doctrine are met, and so there is no need to engage in these semantic arguments. The decision also provides a welcome restatement of the principles applicable in this often misunderstood equitable doctrine.