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When a Conversation becomes a Contract

A recent High Court judgment highlights the risk of using informal communications to conduct contract negotiations.

In Bieber v Teathers, the Judge held that emails can be used to form a binding contract, whether it was the intention or not.

Bieber v Teathers concerned the settlement of court proceedings but it is equally relevant to most commercial contracts.

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Following a failed mediation, the parties' solicitors made various offers, and counter offers, to settle the case before incurring the next set of fees in the trial process.

The solicitors reached a settlement figure by email which was then to be recorded in a Consent Order and approved by the Court. The parties were unable to agree the wording of the order.

Constituted a Binding Contract?

The crucial question was whether the figure arrived at via the email exchange constituted a binding contract, or whether there was to be a two stage process involving agreeing the detailed written settlement agreement.

The Court held that, despite the underlying litigation being complex, settlement of the dispute was not. The parties had reached a concluded agreement on the terms of the email exchange which was not explicitly or impliedly made "subject to contract".

A figure had been agreed and was to be paid within 28 days.

Although the case concerned solicitors involved in the settlement of Court proceedings, the case does serve as a timely reminder to all businesses engaged in negotiations via email.

Quite simply, if you do not intend to enter into a binding contract by email then you must say so.

Therefore businesses must be aware during negotiations that it does not matter one of the parties does not intend to create a binding contract.

Whether the parties have reached an agreement is determined objectively.

Only outline terms need to be agreed for a contract to be formed.

Parties are free to say their agreement will be "subject to contract", in which case a contract will not be concluded until reduced to writing.

A mutual intention that an agreement will be subject to contract may be sufficient, but that mutual intention will have to be proved.

Subject to Contract

Therefore if you are aware that you intend to enter into a written contract at the end of the negotiations make sure you mark all emails during your negotiations with "subject to contract" and make sure you do not waive that requirement by your actions. Otherwise you run the risk of forming an oral contract without appropriate protection.