Email correspondence leads to binding contract despite negotiations being “subject to contract”
HopgoodGanim Lawyers recently published an alert in relation to a decision of the Court of Appeal of Western Australia, which held that an email exchange between a tenant and a landlord’s agent amounted to an immediately binding agreement to lease and a licence. The Supreme Court of Queensland also has recently considered an agreement arising in similar circumstances.
In the recent case of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd  QSC 119, the Supreme Court of Queensland found that a chain of emails in the context at hand formed a binding contract for the sale of a roadhouse. It is a decision which has important commercial ramifications, particularly in the negotiation of a term sheet or heads of agreement, as the Court made this finding even though:
In this alert, Partner Nicole Radice and Solicitor Matthew Jeffrey provide an outline and discuss the decision of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd.
The relevant facts were as follows:
“This offer is of course subject to contract and due diligence as previously discussed. We are hopeful of effecting an exchange of contracts next Monday but need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants to carry out the necessary investigations.
I look forward to receiving your client’s confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses” (the offer email).
The plaintiffs argued that the email exchanges and conversations between the agent and the plaintiffs’ representative constituted a valid and binding agreement.
NQF denied that a contract was formed, arguing that:
NQF also argued that, if a contract was found to exist, there was no sufficient written memorandum or note to satisfy the requirements of section 59 of the Property Law Act 1974 (Qld) (PLA). In summary, section 59 provides that no action may be brought upon any contract for the sale of land unless the contract (or a memorandum or note of the contract) is in writing and signed by the party to be charged.
The Court applied the principles from the well known High Court decision of Masters v Cameron, which provides (in summary) that where parties reach agreement which is to be subject to a formal contract, the agreement may be characterised as one of the following:
In this particular case, the Court agreed with the plaintiffs and found that there was a binding contract for the sale of the roadhouse. Although the agreement was expressed in informal terms, it had to be viewed against the broader context of the emails. Here, the broader context suggested that the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, while expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms (i.e. the first of the Masters v Cameron characterisations noted above).Although there was a reference in the acceptance email to “subject to execution of the contract...”, this was consistent with the parties having agreed on the essential terms with the intention that they would be formally recorded later.
In respect of NQF’s argument that there was no sufficient written memorandum or note to satisfy the requirements of the PLA, as there were a number of emails exchanged between the parties, the Court had regard to the provisions of the Electronic Transactions (Queensland) Act 2001 (Qld) (ETA).In particular, section 14 of the ETA provides that if a person’s signature is required under a Queensland law (which includes a law that provides consequences for the absence of a signature), that requirement is taken to be met for an electronic communication in certain circumstances.The Court considered that the evidence before it was sufficient to identify the person sending the acceptance email and their intention, such that the requirements of section 14 of the ETA were satisfied.Accordingly, NQF’s argument on this point failed.
This case serves as a reminder to anyone involved in the negotiation of contracts that email correspondence can lead to a binding agreement, even if the email refers to the negotiations as “subject to contract”, or similar wording. Parties need to ensure they clearly communicate their intention with respect to any proposed contract, including if it is their intention that no concluded bargain is to be reached unless and until a formal contract has been executed. Inconsistent language and actions by parties as to the characterisation of the negotiations may lead to a finding by a Court that a binding contract has been formed where such contract formation may be undesirable to one or more of the parties. This is a critical consideration in the negotiation of term sheets or heads of agreement by parties, which may occur before they seek legal advice to formally document transactions.
Additionally, given that a binding contract can be reached by the exchange of emails, it is important that any offer (or acceptance) clearly identifies any critical terms which are to be contained in the contract or agreement.
Finally, an appeal has been filed by NQF in respect of the decision, the outcome of which will be reported by HopgoodGanim Lawyers once any appeal decision has been delivered.
For more information or discussion, please contact HopgoodGanim Lawyers’ Litigation & Dispute Resolution team.