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Be mindful of what you agree to by email; it might form a binding contract


Can an email be a binding contract

In the modern world email is often the main form of communication between businesses, including negotiations in regard to the terms and conditions of contracts. 

A number of Australian Courts have considered the issue of formation of a contract by email and it is settled law that emails can give rise to a binding contract.

Unfortunately, however, the often informal nature of email correspondence can result in parties somewhat blindly entering into a binding arrangement when they had otherwise considered that a contract was yet to be finalised.

Of particular interest are recent cases in which Australian Courts have held that email negotiations in regard to contracts which were “subject to” the performance of some further obligation contained sufficient detail to define the terms of the agreement and in themselves formed a binding contract.

A case study

In Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119 the owner of a service station entered into negotiations with a purchaser in regard to its sale. In due course the parties reached agreement in regard to the price, deposit, settlement date and other relevant terms and a draft contract was prepared and sent to the purchaser by email.

The purchaser then emailed the vendor with an offer to purchase the service station, with that offer expressed to be “subject to contract and due diligence”. The email also stated that the purchaser needed “acceptance of our offer immediately”.

The vendor accepted the offer by return email shortly afterwards, with that acceptance expressed to be subject to “execution of the contract provided”.

As it turned out the contract was not in fact executed and the purchaser subsequently requested further amendments to its terms and conditions.

"... the Court found that a binding and enforceable contract for the sale of the service station had been formed."

 

In the meantime the vendor had identified an alternate purchaser who was willing to pay a higher price and took the position that a binding contract between it and the purchaser did not exist.

 

What the Court determined?

After considering the issue the Queensland Supreme Court held that despite the “subject to” statements made by both the vendor and purchaser, the emails between the parties contained sufficient detail to define the terms of the contract and evidenced an intention to be immediately bound by the initial offer, with a contract to be formally recorded later.

As such, the Court found that a binding and enforceable contract for the sale of the service station had been formed.

It can be seen from this and similar decisions that it is critical to give consideration to the content of any email that you may plan to send to ensure that it accurately represents your intentions and does not bind you or your business to an agreement unless you are certain that you wish for it to do so.

Please note, this Blog is posted in Adelaide, South Australia by Andersons Solicitors. It relates to Australian Federal legislation. Andersons Solicitors is a medium sized law firm servicing metropolitan Adelaide and regional South Australia across all areas of law for individuals and businesses.