Courts are routinely ruling that email negotiations create binding contracts well before any formal documentation is prepared or signed. Recent cases show this as a clear trend. The lesson for negotiating parties is: be aware of the binding nature of emails and use them with extreme care.
In its short life, email has quickly surpassed traditional hard copy letters and faxes to become the universally preferred communication method for businesses and lawyers alike, including in contractual negotiations.
Although the Courts are often perceived as being behind the times, they have in fact responded to this shift in communication by accepting email as a means of creating binding agreements then and there.
However, not all businesses have caught up with this trend. Some still mistakenly believe that what is said or agreed over email is not binding, and that a legally binding contract is only made when a formal written document is signed.
Below we discuss some recent decisions that show the Courts’ approach to email negotiations.
Can you avoid email negotiations being binding?
If you do negotiate by email but don’t want your emails to be binding contracts, then clearly state in your emails that no binding agreement is formed unless and until a formal contract has been executed.
If you don’t expressly state this condition, a Court is unlikely to read it as being implied in your emails.
In May this year, the Queensland Supreme Court held in Stellard Pty Ltd v North Queensland Fuel Pty Ltd that a binding contract for the sale of land had been made by email. Importantly, both the offer email and the acceptance email referred to the offer being “subject to contract” and “subject to execution”.
Following the email exchange, the buyer sent a contract to the seller for execution but it was not signed. The seller later withdrew from the deal and entered into a contract with a third party.
The Court found that by the broader context of the emails the parties had intended to be bound immediately. This was so, even though the parties expected to substitute the agreement with a formal contract containing additional terms.
The Court was also satisfied that the emails met the requirement that a contract for the sale of land be in writing and signed, applying the Electronic Transactions (Queensland) Act 2001 (Qld).
The Stellard decision mirrored an earlier decision this year by the Western Australian Court of Appeal in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd. There, it was held that a binding contract to lease commercial premises had been made by a series of emails despite the emails referring to the offer as being “subject to formal approval”.
In its decision, the Court was not deterred by the fact that the parties could not agree on a reinstatement clause and that no formal lease was ever subsequently signed despite the parties’ intentions to do so.
The ‘binding email’ trend extends to settlement negotiations between lawyers by email.
In late June, the NSW Supreme Court found a binding settlement agreement had been made by email between lawyers in Universal Music Australia Pty Limited v Pavlovic.
The Court held that the lawyer’s email stating that the client would sign the settlement deed, combined with the rest of the communications and conduct, was enough to create a binding contract.
Although it was intended that a deed would be signed (and it never was), the Court refused to read into the emails an implication that no binding agreement would be created until the deed was actually signed.
The email temptation
The casual ease with which emails can be written and exchanged is their attraction. On the flip side, it’s also their danger when they are used for contractual negotiations, and why businesses frequently find themselves in binding contracts.
The cases above show that Courts do not subscribe to the belief that a binding contract is not made until it has been formally executed. They see emails as a modern business tool capable of binding parties and clearing even strict legislative hurdles, like writing and signing.
For businesses, it’s crucial to manage the risk of being bound by emails. Statements like “subject to contract” are not enough. Clearly and consistently state in your emails that no binding agreement is made until a formal contract is executed.
It’s important to remember that for contractual negotiations by email, nothing goes without saying.