The importance of the phrase subject to contract

What Happened

In the recent case of Bieber and others v Teathers Limited (in liquidation) [2014], the court had to determine whether the parties had come to a binding settlement through an exchange of emails.  The negotiations were conducted by the parties’ solicitors.

Before trial, the defendant sent an email to the claimant enclosing an offer of settlement. The email stated only the sum that the defendant would offer to the claimant in settlement. The claimant accepted the offer by email, stating that they would send a draft consent order to the defendant soon. Upon receipt of this email, the defendant replied ‘Noted, with thanks’

It was only after the defendant had received the draft consent order from the claimant that they submitted a much more comprehensive settlement agreement to the claimant containing other terms of settlement.  The claimant refused to sign the agreement stating that the claim was settled on the terms contained in the initial email exchange. The defendant argued that the email offer had dealt only with the sum payable in settlement and not wider terms of settlement. The defendant therefore argued that the email agreement was subject to contract.

The Decision

The judge held that the agreement was not, as the defendant argued, subject to contract. It was held that the parties had agreed terms on the basis of the initial email exchange and that there was no need for a more wide-ranging settlement agreement to be drafted.

On an objective reading of the correspondence the parties’ intention was that the settlement be in terms that were full and final, no further terms were to be incorporated into the settlement and costs were also deemed to be included in the agreement.

The defendant did not state at any point that its position was reserved in relation to certain points of settlement.  The defendant’s statement ‘Noted with thanks’ did not express any intention to discuss further terms and the court held that objectively, all the essential elements had been agreed.

What this means for you

  • A binding agreement can be concluded by exchange of emails.
  • If a party should wish to reserve certain rights, the negotiations should be made ‘subject to contract’ and the party should expressly state that the negotiations are subject to contract.

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