A Careful Exchange

In a recent decision in Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119, the Supreme Court of Queensland held that email negotiations amounted to a binding contract between two parties despite reference to the fact that the offer contained in an email exchange was subject to the execution of a formal contract.

Background

In October 2014, the Plaintiffs in the matter commenced negotiations with the Defendant for the proposed sale of a service station owned by the Defendant.  After a number of telephone discussions between the parties, the Defendant sent an email to the Plaintiff confirming its offer to sell the service station for $1,600,000.00 and that the offer would be subject to a formal contract and due diligence.

That same day, the Plaintiffs sent an email in response to the offer indicating that they accepted the Plaintiffs’ offer whilst also noting that it would be subject to a minimal due diligence period and the execution of a formal Contract with agreed amendments.

In the weeks following the email exchange, the parties were unable to agree to the final terms of a Contract and as a result the Defendant did not proceed with the sale of the service station to the Plaintiffs.  In response, the Plaintiffs sought to commence an action in the Supreme Court to compel the Defendant to continue with the sale of the service station to them.

The Legal Position

In making the decision, the Court considered a number of contractual legal principles to determine whether a valid binding contract had been formed between the parties by accepting the offer contained in the Plaintiffs’ email.

In particular, the Court incorporated an objective assessment of the intention of the parties after taking into account the subject matter of the agreement, the relationship between the parties, as well as other surrounding circumstances.

Accordingly, the Court found that there was a valid binding agreement after considering the context of the emails exchanged between the parties.  His Honour Martin J went on to find that the parties in this circumstance were content on being bound immediately and exclusively by the terms which they had agreed upon, and that any reference to the formal contract was merely an intention to be later bound by a superseded formal agreement.

Despite this decision, a similar position has also been accepted in the case of Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd [2015] WASC 21 by the Court of Appeal in Western Australia.

The Lesson

Although the convenience of instant communication through emails and other similar technology has certainly improved daily life, care must be exercised when negotiations between two or more parties are on foot.

The central issue in the Queensland decision was whether the parties intended to enter into a preliminary agreement which would later be finalised by way of a formal contract.

Taking these recent decisions into account, it would be prudent for any person or company that enters into negotiations to clearly indicate their contractual intention to reduce any risk of miscommunication. This may include specifying that the parties do not intend to be bound to any agreement until such time that both parties have signed a formal contract.