Immingham Storage v Clear plc – absence of signed formal contract [2011] EWCA Civ 89

Following an exchange of emails negotiating the terms of a contract for the storage of fuel by the claimant, the words “a formal contract will follow in due course” in the claimant’s signed quotation did not indicate that the defendant’s acceptance of the quotation was no more than an agreement subject to contract. It was merely the expression of the desire of the parties as to the manner in which the transaction already agreed to would in fact go through.

The fact that there were some differences between the signed quotation and the formal contract (never signed by the defendant which had been unable to source the fuel to be stored) was irrelevant. If the formal contract was inconsistent with the quotation or contained additional provisions, the defendant would not be bound to accept them. Its consent would be required to any variation in the terms of the contract contained in the quotation. As it was, the points of difference were minor and no objection was raised to them by the defendant.

Comment

In this case, the parties had not used the phrase “subject to contract” in their negotiations and the Court of Appeal said that the judge below had been right to draw attention to the absence of such a term. However, another recent case, Everton Football Club Co Ltd v Sail Group Ltd, illustrates that a failure to use the term will not matter where it is clear from the negotiations between the parties that they are conducted on an implicit “subject to contract” basis. As the Court of Appeal put it in Investec Bank (UK) Ltd v Zulman, whilst the use of the phrase "subject to contract" is usually intended to indicate an absence of intention to be bound until the relevant document is signed, its absence does not necessarily mean an intention to be bound once an oral agreement is reached.

The Supreme Court held last year that it is possible for an agreement that is “subject to contract" to become legally binding where the parties later agree to waive that condition. The waiver must be agreed unequivocally but there does not have to be an express statement by the parties to that effect. The agreement can be inferred from communications between the parties and conduct of one party known to the other (RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG).

The use of the phrase may be ignored by the court where it does not reflect the intention of the parties, much as the inappropriate use of the phrase “without prejudice” will be ignored. Solicitors and their clients need to be aware of these considerations when pursuing settlement negotiations. Where a “subject to contract" qualification is introduced into without prejudice negotiations, it will only cease to apply if the parties expressly, or by necessary implication, agree.

In Jirehouse Capital v Beller and Owen the court was concerned with negotiations immediately before a trial. The judge held that there had been no express lifting of the “subject to contract” qualification but that it was to be necessarily implied that the restriction was lifted when the agreement was concluded on the telephone between the parties. The behaviour of all involved in taking the case out of the list indicated that they believed this had been achieved. The judge found that the use of “subject to contract" in the defendants’ solicitor’s later email could not unilaterally reinstate the “subject to contract" umbrella to remove the binding nature of the agreement reached on the telephone the evening before. The solicitors using the phrase did not seriously intend to do so. Instead, it was the simple repetition of a phrase which had appeared in the earlier emails without any thought as to what it was intended to cover.

By contrast, in Morgan Walker Solicitors LLP v Zurich Professional and Financial Lines, a "subject to contract" restriction in an offer to settle was found not to have been lifted either expressly or by implication, and acceptance of the offer was not binding until the parties had signed an arbitration award reflecting the terms of the settlement.

These recent cases indicate that, when deciding whether a contract has been made, the courts do have regard to the parties’ conduct and exchanges after the date of the alleged contract. The defendant in the present case argued that the judge was not entitled to take account of subsequent conduct and exchanges. Somewhat frustratingly, the Court of Appeal refused to address the point since they were satisfied that the contract was clearly established by reference only to the exchanges at the time.

The importance of using the “subject to contract” heading has been highlighted by the decision in Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd. Christopher Clarke J concluded that there was an arguable case for the purpose of service out of the jurisdiction that a sequence of email negotiations and related documents could be pieced together in such a way that a valid written and signed guarantee existed for the purpose of the Statute of Frauds 1677. The emails were signed by the electronically printed signature of the persons who sent them.

Whatever cautious steps parties take, such as avoiding the clear confirmation of terms or omitting to sign final form documents, the courts will look at all the communications between the parties when deciding whether a contract has been concluded. The routine use of phrases such as “subject to contract” will not determine the outcome but careful use of language to convey intention will.