Business Law: Will Oakes highlights three key words - ‘subject to contract’.

Will Oakes of Attwells Solicitors.

Will Oakes of Attwells Solicitors. - Credit: Archant

A recent High Court judgment highlights the risk of using informal communications to conduct contract negotiations.

In Bieber v Teathers, the judge held that emails can be used to form a binding contract (whether intentional or not). The case concerned the settlement of court proceedings brought by 220 claimants for £20million but it is equally relevant to most commercial contracts.

Following a failed mediation, the parties’ solicitors made various offers, and counter offers, to settle the case before incurring the next set of fees in the trial process. The solicitors reached a settlement figure by email which was then to be recorded in a Consent Order and approved by the court. However, the parties were unable to agree the wording of the order.

The crucial question was whether the figure arrived at via the email exchange constituted a binding contract or whether there was to be a two stage process involving agreeing the detailed written settlement agreement.

The court held that, despite the underlying litigation being complex, settlement of the dispute was not. The parties had reached a concluded agreement on the terms of the email exchange which was not explicitly or impliedly made “subject to contract”. Simply put, a figure had been agreed and was to be paid within 28 days.

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The court’s decision might come as a shock to some, but this is not new law. Only certain contracts must be contained in a formal written document, deeds and transactions in land being the obvious examples. The case does serve as a timely reminder to those engaged in negotiations: if you do not intend to enter into a binding contract by email then you must say so.

It does not matter that one of the parties does not intend to create a binding contract; whether the parties have reached an agreement is determined objectively. Also, only outline terms need to be agreed for a contract to be formed.

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Parties are free to say their agreement will be “subject to contract”, in which case a contract will not be concluded until reduced to writing. A mutual intention that an agreement will be subject to contract may be sufficient.

The lesson is to head all emails during a negotiation with “subject to contract” if you later intend to enter into a written contract and make sure you do not waive that requirement by your actions. Otherwise you run the risk of forming an oral contract without appropriate protection.

: : Will Oakes is a partner at Attwells Solicitors.

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