It’s no secret how common it is in these days for businesses and individuals to negotiate and conclude deals via electronic communication such as e-mail and other forms of messaging.
The speed and casual ease in which emails can be exchanged is their attraction. Matters can progress much more quickly and the issues drilled down on faster using this method. The down side is the danger emails represent when they are used for contractual negotiations, and why parties frequently find themselves in binding contracts unintentionally.
Often, the finer details of contracts and other agreements may be discussed in a series of emails.
The problem is very much a double edged sword. Both in the sense that if you did not intend to enter into a binding contract you may find yourself caught, and if you did intend to enter into a binding contract, you may find that contract is unenforceable for a wide variety of reasons.
If you have started to negotiate by email but don’t want your emails to form a binding contract, then you should clearly state in your emails that “no binding contract is formed unless and until a formal contract has been executed”.
But will that still protect you?
The answer is no. Not necessarily. But it’s a good start. If you don’t expressly state words to that effect, a Court is unlikely to imply in your emails, that you intended to be legally bound.
In the case of Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119 a binding contract for the sale of land was held as made by email.
Incredibly, both the offer email and the email accepting the offer referred to the offer being “subject to contract” and “subject to execution“. Yet this held was not enough to make the offer conditional.
The Court found that the broader context of the emails revealed that the parties had intended to be bound immediately.
The Court was also satisfied that the emails met the requirement for a contract for the sale of land under the Electronic Transactions (Queensland) Act 2001(Qld).
There is another important take-home from this case, and that is that you should be aware that a document which is labelled as something may not necessarily be found to be that document. For example what you may think is merely a memorandum of understanding, can also be a binding contract and held against you.
The Stellard decision was very similar to a decision by the Western Australian Court of Appeal in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21. In this case, it was held that a binding contract to lease commercial premises had been made by a series of emails, despite the emails referring to the offer as being “subject to formal approval“.
In NSW too, the Supreme Court found a binding settlement agreement had been made by email between lawyers in Universal Music Australia Pty Limited v Pavlovic [2015] NSWSC 791.
The Court held that a lawyer’s email stating that the client would sign the settlement deed, combined with both communications and conduct, was enough to form a binding contract.
Although it was intended that a deed would be signed, the Court refused to imply from the emails that no binding agreement would be created until the deed was actually signed.
You can see just how much of a problem this is and you can see a pattern as to how the courts are increasingly treating these matters.
Key Takeaways
The cases highlight that the Court will assess whether parties intended to form legal relations and a binding agreement which means that it is not the subjective beliefs of the parties about their obligations which govern the contractual relations. And the mere fact that parties anticipate or intend that a formal document will be completed at a later stage does not prevent the informal negotiations from becoming binding.
I think the message is clear!
If you believe you have entered into a contract by a series of emails or other correspondence, you should call me immediately, either to enforce your rights or to protect them. Don’t forget time is of the essence as the longer you wait you may not be able to enforce your rights or you may be able to have accepted the other parties conduct and denied your rights.
This publication considers legal and technical issues in a general way. It is not intended to be legal advice. Any legal advice is qualified on the basis that the reader should immediately confirm the information relied upon with Merlo Law. We look forward to being of assistance.
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