There have been a number of recent cases around Australia relating to whether or not agreements have been formed, including, surprisingly, through emails.
These cases have thrust into the spotlight the approach that parties (and their lawyers) take in negotiations as well as in documenting the negotiations and final agreements between the parties.
OUTCOMES FROM RECENT CASES INVOLVING DISPUTES ON WHETHER AGREEMENTS HAVE BEEN FORMED
Recent cases relate to the conduct of the parties and a determination of whether there was an intention to be bound.
Key outcomes from these cases include:
- If the parties have entered into a “heads of agreement” (a dangerous phrase without specific drafting) but intend only to be bound when they enter into a subsequent agreement (which is more fulsome), the heads of agreement should state that or language to that effect should be used.
- The refusal by a party to sign a document when there is (or was) an intention to be immediately bound by the terms may result in a determination that the party is bound despite not signing the document.
- Even where there is no signed agreement, a court may infer that there is a contract where all essential terms have been agreed and reasonable people in the position of the parties would objectively think that the contract had been concluded.
These outcomes illustrate the importance of caution and advice to ensure that a party is not inadvertently bound by the agreement before they intend to be.
EMAILS CAN FORM A BINDING AGREEMENT
A Queensland case earlier this year involved parties having a dispute over whether or not a binding contract was formed by emails between representatives of the buyer and the seller.
The email exchanges referred to offers being made “subject to contract” (another dangerous phrase when used incorrectly) and the issue of whether the representatives had the ability to bind their respective clients.
The Queensland Supreme Court determined that:
- the method used to accept the offer proved identity and intention – but the Judge did not restate what the method was (e.g. email, email with the representative’s details, etc);
- the conduct of the parties (in particular the buyer who had indicated that, upon receipt of the email confirming that the offer was accepted, would commence engaging consultants, preparing documents, etc) was consistent with a contract having been formed upon receipt of the email. This was despite the emails stating that it was “subject to contract”.
This case highlighted the risks faced when using terms such as “subject to contract” and not properly stating the intention – i.e. that no agreement is formed until a formal contract has been executed by the parties.
CONDUCT THAT SUGGESTS AGREEMENT NOT FORMED UNTIL DOCUMENT SIGNED
A New South Wales case this year put the spotlight on who can bind a party to a contract – i.e. other than the party itself.
In this case it was argued that the defendant’s lawyers bound the defendant to a contract where the lawyer had sent:
- an email saying that the client “will sign” the document;
- a subsequent email saying that the document would be signed and returned to the lawyer and the other party’s lawyer on a specific date.
The document was never signed by that party and the payment required under the document was not made.
WHAT ARGUMENTS WERE MADE?
The plaintiff that had signed the document argued that the parties had entered into a binding agreement when the defendant’s lawyer informed the plaintiff’s lawyer that the defendant “will sign” the document. It was agreed that this was a clear indication that agreement between the parties had been reached and all material terms had been agreed.
Evidence of an agreement was claimed to be the email exchange between the lawyers binding the parties.
The defendant argued that the words used in the emails between the lawyers indicated an intention on the defendant’s part to be bound once the document was signed. The response of the plaintiff’s solicitor in allowing further time for the defendant to sign the document supported the position that a concluded and binding agreement had not been reached.
WHAT DID THE COURT SAY?
The court found that the defendant was not bound by the terms of the agreement because:
- there was a clear intention to be bound at a later date and the words used did not indicate that there was an acceptance of the terms of the offer;
- the negotiations incorporated indications by the parties that they would not be bound until the document was signed;
- the email granting an extension of the time for the defendant to sign the document supported the view that the defendant was not bound by the document unless and until it was signed; and
- the solicitors did not have the authority to bind the defendant.
- Say what you mean – if you do not intend to be bound by a document until you sign it, just say so.
- Put it in writing – if you reach agreement on an issue, that agreement should be included in the document. It is not enough to rely on what was said when a document contains an “entire agreement” provision saying that the document contains all matters agreed on between the parties.
- If you are granting another party an extension of time to sign the document, have they agreed to be bound by the document despite the fact that they have not signed it?