When negotiating the terms of an agreement over email, at what point is a binding agreement created? It may be earlier than you think. The recent decision of Stellard suggests that agreements can be created over email before the contract documents have been signed.
Can a binding agreement be created over email?
In the recent decision of Stellard Pty Ltd v North Queensland Fuel Pty Ltd, The Supreme Court of Queensland held that a binding contract of sale existed where parties had communicated via email and intended to later enter into a written agreement.
Stellard Pty Ltd v North Queensland Fuel Pty Ltd
North Queensland Fuel (NQF) and Stellard negotiated via email for the purchase of a petrol station. Stellard sent an email to NQF containing the terms of their purchase offer. Notably, a follow up email from Stellard stated “this offer is of course subject to contract” and “[we] need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants”.
NQF replied 45 minutes later that, “we accept the below offer, which we understand will be subject to the execution of the Contract…”
Despite the use of the words “subject to contact” a binding agreement had in fact been created.
The court took the following factors into account:
- From an objective perspective, the parties intend for there to be a binding agreement. “The broader context of the two emails and the other expressions used in them strongly suggests that the parties were content to be bound immediately and exclusively by the terms which they agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”.
- There is a clear offer and acceptance. Stellard used clear words as to the effect of acceptance, in that it would begin to incur significant costs on consultants.
- The essential terms of the contract had been agreed:
(a) What was to be sold;
(b) The purchase price
(c) The deposit
(d) When stock was to be valued
(e) When testing was to occur
(f) The term of the sue diligence period
(g) When settlement was to take place
(h) Where settlement to take place
The use of the words “subject to contract” merely indicated an intention to formally record the agreement at a later date. Agreement as to whether a personal guarantee was required was not considered a matter essential to the entry of a contract.
When communicating the terms of a contract over email, take care to clearly and consistently indicate that you do not wish to immediately be bound by the agreement. We suggest repeating this message throughout your negotiations.
Always seek legal advice if you are negotiating the terms of an agreement and are unsure about the consequences of your actions. Particularly, do not sign or consent to a preliminary agreement without first seeking legal advice.