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Is your email exchange a binding contract?

Email exchanges are increasingly being viewed by the Courts as another way of creating legally binding contracts.

This should be a worrying realisation for anyone who has casually exchanged emails with someone where a legally binding agreement has been discussed.  In an increasing number of cases the Courts have deemed agreements to have been made even when the parties included expressions like “subject to contract” or “subject to formal approval”.

Many kinds of binding agreements have been made by email: sale of land agreements, lease agreements, and even settlement agreements between solicitors.

While it is legally uncertain whether some exchanges will constitute a binding agreement, the Courts have said many times that regard must be had for all the circumstances and conduct regarding the alleged agreement.  No excerpt can be solely relied upon.

A Recent Case

In the recent case of Stellard Pty Ltd v North Queensland Fuel Pty Ltd [2015] QSC 119, a sale contract was found by the Court to exist even though the emails specified “subject to contract”.

In Stellard, the seller and the buyer had reached an agreement on the terms of the sale in previous conversations.  This agreement covered many terms including purchase price, deposit, valuation of stock, due diligence period, etc.  The seller also gave the buyer a draft contract.

In subsequent phone conversations, the parties agreed that the sale would largely be on the terms included in the written contract, but the buyer did not approve that it would offer any guarantee.

The seller requested that the buyers offer be in writing so the buyer wrote an email specifying that it was made ‘subject to contract’. The seller replied to the email stating “we accept the below offer” and again specified that it would be “subject to the execution of the contract provided”.

The Decision

Upon considering the emails in the context of the previous conversations and conduct, the Court held that the exchanges constituted a binding sale contract on the terms discussed and agreed upon.

The Court made its decision citing the following (among others) as relevant reasons:

  • There was no evidence to suggest that the provision by the buyer of a guarantee was a condition precedent (an event that must occur before a contract can become binding) to the making of a formal agreement.
  • An intention to be immediately legally bound was clear from the email correspondence between the parties and the lack of a signed formal agreement was immaterial.
  • The arrangement that appeared to have been made by the parties was that the current agreement (via email) would be immediately legally binding and any further contracts made would be in replacement of the first binding contract.

 

What you can do to prevent your emails from being legally binding?

While this recent decision highlights the uncertainty around what will be considered legally binding, there are some actions that can be taken to reduce the risk that you will be bound inadvertently by what you think is a casual exchange.

Some actions you can take to reduce this risk:

  • do not use legal terminology like “offer” and “acceptance”;
  • make clear any conditions that are a compulsory requirement for a legally binding agreement to be made;
  • make a very clear statement that there is no binding agreement;
  • do not agree to the terms set out in any draft contracts you are sent without qualifying that your agreement is subject to other conditions; and
  • specify that there are further important matters that need to be discussed and agreed on for the matter to be binding.

Remember that these decisions have implications for other forms of communication that are used in a casual manner as well.

If you have a question about this article or about business contracts contact our Commercial Team now:

P 02 6215 9100

E mark.north@chamberlains.com.au

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