30 Jun 2017

With email communication becoming the most commonly used means by parties to negotiate commercial and other agreements, it is important that everyone who communicates electronically is aware of potential legal implications of doing so.

Those of us who use email as part of business negotiations and transactions should take note of recent Australian cases where courts have held that negotiations via email created binding agreements, despite the lack of a formal agreement. These cases suggest an increasing trend in the willingness of Australian courts to find legally binding agreements in email correspondence. This article provides a summary of the rulings in those cases and some practical tips to keep in mind when engaging in commercial negotiations by email.

What Will a Court Look For?

In assessing whether or not the parties have entered into a legally binding agreement, courts will look objectively at the broader context of communications between the parties and the intention of the parties, including:

  • whether the parties reached some finality as to the terms of the agreement in their negotiations;

  • whether there is any indication that the parties intended to be legally bound immediately and exclusively by the negotiated terms; and

  • whether there was reference to a formal contract and the intention to sign one;

Recent Australian Cases

Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASCA 21 (‘Vantage Systems’)

In Vantage Systems, the issue was whether Priolo as lessor and Vantage as lessee had entered into a binding agreement by email to lease West Perth office premises, despite there being no formal lease documentation.

Nearing the expiry of the extended term of the lease, Priolo’s property agent and Vantage’s finance manager engaged in discussions about the possibility of entering into a new lease of the premises. Priolo’s agent sent Vantage a proposal for a new lease and this was followed by a series of emails negotiating the proposed terms of the new lease. A revised lease proposal was later sent by Priolo’s agent to Vantage. After receiving the revised lease proposal, Vantage emailed that they were ‘happy with the terms of the proposal’ and that Vantage’s sub-tenant had ‘approved the terms as well’, with further instructions to Priolo’s agent to ‘proceed with wrapping [the new lease] up’.

Following these negotiations, a draft lease was prepared and sent to Vantage and its subtenant for review. Both Vantage and its subtenant had issues with the terms of the draft lease and, despite attempts by the parties to resolve those issues, both tenant and sub-tenant attempted to assert their right to vacate the premises on the basis that there was no binding agreement to enter into the lease. Priolo argued that the emails relating to acceptance of the lease proposal constituted a binding agreement.

The Western Australian Supreme Court of Appeal held that on Vantage accepting the revised proposal the parties intended:

  • to be bound immediately and exclusively by the revised lease proposal (and any implied terms); and

  • that a formal lease agreement would be executed, incorporating the terms agreed to in the revised proposal, and any additional negotiated terms.

On the Court’s objective assessment of the state of affairs between the parties, Vantage’s acceptance by email of the revised lease proposal was sufficient for there to be a legally binding agreement.

Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119 (‘Stellard’)

This case involved an email exchange between the agents of the defendant-vendor (North Queensland Fuel) and the plaintiff-buyer (Stellard) in relation to the sale of land where a roadhouse was located in Queensland. The buyers claimed that a contract for the sale of the roadhouse was constituted by email exchange.

The buyer wanted to make an offer for the vendor’s land marketed for sale, so it requested the terms of sale from the vendor. The seller replied with an email attaching a draft contract of sale and setting out the seller’s conditions for signing the contract. The buyer confirmed its offer by email, stating that it was ‘subject to contract and due diligence as previously discussed’, and requesting acceptance of the offer with a view to exchanging the contract ‘next Monday’. Shortly after, the vendor emailed back saying ‘we accept the below offer which we understand will be subject to the execution of the Contract provided (with agreed amendments) on Monday’.

A few days later, the vendor received a higher offer from another party. The vendor notified the buyer that it was terminating the negotiations on the basis that the latest draft contract did not contain a particular condition which was contained in the original draft contract. The buyer argued that the email exchange with the seller constituted a ‘valid and binding agreement’.

The Queensland Supreme Court held that a legally binding contract had been entered into by the parties. This was despite the seller expressing that it accepted the buyer’s offer subject to execution of a formal contract. In the context of the emails between the parties and the expressions used in them, the Court found a strong suggestion that the parties wanted to be bound immediately and exclusively by the terms which they had agreed upon, with the expectation that any additional terms would be included in a further contract.

Practical Tips

Whether negotiations by email with constitute a legally binding agreement will depend on how a court will assess the broader context of the communications and the objective intentions of the parties. There are no foolproof measures, but the following steps can be taken to reduce the risk of creating a legally binding agreement:

  • treat all email and other electronic correspondence with the same caution and precision that you would a formal document. This includes the use of legal terms such as ‘offer’ and ‘acceptance’.

  • in email negotiations, clearly and consistently state that there is no legally binding agreement until the final terms have been agreed to and a formal contract has been executed.

Email provides us with the benefit of instantaneous and reliable written communication. However, for those of us who regularly use email in commercial negotiations and transactions, it is important that we are aware that the words that we hurriedly punch out on our keyboard may have legal implications and lasting consequences.

This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.

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