During the course of contract negotiations the phrase "subject to contract" is often used by parties to indicate that they do not yet want to be bound to any contract. In this case, the Court of Appeal considered whether an email exchange which included the phrase "a formal contract will follow" was "subject to contract".
The Claimant, a storage company, had sent a quotation to the Defendant headed "subject to board approval and tankage availability". The quotation also stated "all other terms will be as our General Storage Conditions, Version 2008" and ended with "a formal written contract will then follow in due course". The quotation was signed by the Defendant and the Claimant subsequently confirmed board approval had been given and storage space was available. A formal contract was sent to the Defendant, but this was never signed or returned. The Claimant subsequently invoiced the Defendant for storage charges, but the Defendant contended that there was no binding contract since it had not signed the formal written agreement.
The Court of Appeal held that three factors pointed to an intention to create a contract: (1) the quotation and negotiations were not made "subject to contract"; (2) the express conditions placed on the quotation had been fulfilled; and (3) all substantial terms had been agreed and there was no difference between the quotation and the written contract. The phrase "a formal contract will follow" did not, therefore, indicate that the quotation was accepted "subject to contract".
This case demonstrates the Court's willingness to enforce an agreement made informally. If you are in the process of negotiating a contract and, at that time, do not have an intention to create a contract, clear words should be used to show this. The phrase "subject to contract" creates a strong, although not conclusive, presumption that parties do not intend to be bound to any contract.
Case: Immingham Storage Company Limited v Clear Plc [2011] EWCA Civ 89
