When the Construction Act amendments come into force and “construction contracts” no longer have to be in writing, more arguments about whether or not there was a contract can be expected. “Subject to contract” may feature as a device to prevent premature contract formation. In Moria v Bednash the issue for the court was whether Mr Bednash, an insolvency practitioner and the liquidator of a company, had entered into a binding agreement to assign some alleged causes of action. Mr Bednash said he had not, in the first place because the agreement reached with the claimants was an agreement in principle which was impliedly subject to contract. But was it?

The judge said there was no need for communications to be expressed to be “subject to contract” or “subject to signed agreement” if their content demonstrated that they were written or spoken on that basis. The parties also agreed that agreement “in principle” was not intended to be binding i.e. it was subject to contract. The judge noted that it was plain from the correspondence that Mr Bednash’s offer was made “in principle”, that he was expecting to receive a draft document to consider and that the claimants’ solicitor was expecting negotiations over the wording of a written document. There were negotiations, in which the claimants involved counsel, and all of these points indicated that the parties were not intending to be bound until the formal agreement was signed. The “agreement” reached was therefore an agreement in principle, impliedly subject to contract and not binding.

Moria & Anor v Bednash [2011] EWHC 839 (Ch)