The decision of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119 has decided that email correspondence between the parties were sufficient to form a binding contract for sale, notwithstanding that the terms were "subject to a contract".

This follows on from the recent Western Australian decision in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASC 21, where the Western Australian Court of Appeal similarly found that the exchange of emails manifested an intention to create a legally binding relationship in respect of a lease - notwithstanding that a formal lease and licence had yet to be agreed to.

THE FACTS

The vendor, North Queensland Fuel Pty Ltd listed a petrol service station for sale. The purchaser, Stellard Pty Ltd made a verbal offer to purchase the property subject to various conditions such as due diligence and an environmental assessment.

On 30 October 2014, the vendor's agent emailed the purchaser, setting out the basis on which the vendor would sign a contract and attaching a draft contract which contained a director's guarantee. The next day, the vendor's agent asked the purchaser to put its offer in writing. That afternoon, the purchaser emailed the vendor's agent to confirm the offer but also advised that:

"This offer is of course subject to contract and due diligence as previously discussed. We are hopeful of effecting an exchange of contracts next Monday but need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants to carry out the necessary investigations.

I look forward to receiving your client's confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses" (emphasis added).

Moments later, the vendor's representative responded that the offer had been accepted stating:

"We accept the below offer, which we understand will be subject to execution of the contract provided (with agreed amendments) on Monday, minimal due diligence period and the provision of all information/reports etc. that are obtained by the purchaser during the due diligence period."(emphasis added).

A few days later, the purchaser's solicitor sent an email containing an amended contract for sale which removed the director's guarantee clause and inserted further special conditions dealing with due diligence and environmental conditions.

In the meantime, the vendor was in negotiations with another party to enter into a contract at a higher price. As a result, Stellard sought a declaration from the Court that a binding agreement was concluded between the parties.

ISSUES

The Court had to consider whether a binding contract for sale had been made. This involved considering the following issues:

  • Did the parties manifest an intention to be legally bound by the email exchange, in particular given that the offer was made subject to contract and agreement was never reached as to the special conditions?;
  • Was the contract sufficiently evidenced in writing to satisfy the requirement of section 59 of the Property Law Act 1974 (Qld) (The Act)? NSW has equivalent requirements under section 54A of the Conveyancing Act 1919 (NSW); and
  • Did the email of 31 October 2014 constitute a signed acceptance of the offer under section 14 of theElectronic Transactions (Queensland) Act 2001 (Qld) (Electronic Transactions Act)? NSW has an equivalent provision under section 9 of the Electronic Transactions Act 2000 (NSW).

THE FINDINGS

Was there an intention to create legally binding relations such that a contract was formed?

The Court considered the particular expressions used in the emails as well as the conduct of the parties on the whole and found that a binding contract existed, despite the use of the words "subject to contract" and "subject to execution of the contract". The use of those words needed to be measured against the relevant context.

The Court found that the contract fell within the "fourth" category of circumstances which create a binding contract (additional to the three classes identified in Masters v Cameron) 1954) 91 CLR 353 and referred to inJohn R Keith Pty Ltd v Multiplex Construction [2002] NSWSC 43), namely that:

The parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract containing by consent, additional terms.

The acceptance email from the vendor was consistent with the position that a contract had been formed, and although there was a reference to "subject to execution of a contract", the parties took steps consistent with a contract being formed, with the intention that the agreement be formally recorded later.

Was the contract sufficiently in writing and signed by the party to be charged?

Section 59 of the Act provides a consequence for the absence of a signature (i.e. that no action may be brought). A "signature" will be met for an electronic communication if it satisfies section 14 of the Electronic Transactions Act. To satisfy section 14 of the Electronic Transactions Act, the purchaser had to show that:

  • the person signing was identified in the email;
  • that their intention to create legally binding relations was indicated in the communication; and
  • that the person to whom the signature is to be given consents to the signature requirement being met via email.

The Court found that the various conversations between the parties prior to 31 October 2014, including the offer contained in the email as well as the vendor's admission that its authorised representative sent the email were sufficient to satisfy the identification and intention requirements under section 14 of the Electronic Transactions Act.

The Court also held that where parties have engaged in negotiation by email and, in particular, where an offer is made by email, then it is open to the Court to infer that consent has been given by conduct of the other party.

On the basis of the above findings, the Court held that a binding contract for sale was formed and ordered the declaratory relief sought by the purchaser.

CONCLUSION - LESSONS LEARNED

In this technological age where email negotiations are a common form of correspondence, the contents of negotiations may give rise to and constitute a valid and binding contract. Therefore, parties should be careful about the contents of their emails before hitting the 'send' button.

Although emails are often considered to be a quick and informal form of messaging, they are considered by the Courts (and in NSW, the Electronic Transactions Act 2000) as evidence of writing in the same way as a signed letter.

The case serves as a reminder that parties need to be clear about the nature of communications made during negotiations and other pre-contractual agreements. If they do not intend to be bound until the parties sign a formal agreement, this should be expressly stated during any of negotiations, reiterated in all correspondences, and act in a manner consistent with such statement.

As noted in this case, even if "subject to contract" or similar words are used in correspondences, this is not a satisfactory indication of a party's intention to be bound by a contract. The Courts will assess the intention of the parties to enter into an immediately binding contract on an objective basis, i.e. what each party, by their words and conduct would lead a reasonable person in the position of the other party to believe.

It would be interesting to see how this decision will affect the prevalent practice of negotiating with multiple parties in NSW. Vendors would be wise to avoid accepting an offer (whether by email or otherwise) unless they are willing to commit to the sale.

This article was co-written by Marcus Andrews, Principal and Alvin Morales, Associate.