It is quite common in the 21st Century for businesses and individuals to negotiate and conclude deals via electronic communication such as e-mail and other forms of messaging. Often, the finer details of contracts and other agreements may be discussed in a series of emails. Those who conduct their business in this manner should have regard to the recent case of Stellard Pty Ltd v North Queensland Fuel Pty Ltd in order to avoid unintentionally forming a binding contract.
The case concerned the sale of freehold land and a service station business in Far North Queensland. Representatives from the plaintiffs (purchasers) attended upon the location on 17 October 2014 along with representatives from the defendant (owners). During this initial meeting the plaintiffs expressed their interest in purchasing, noting however that any contract would be conditional on due diligence, a formal contract and other environmental tests. On 30 October 2014, following telephone discussions, the defendant sent an email to the plaintiff which outlined the terms on which the sellers would be prepared to contract. On 31 October, after further discussions, the plaintiffs sent an email to the defendant confirming an offer to purchase, and requesting acceptance. The same day, the defendant replied via email accepting the offer.
At all times the parties noted that the agreement would be subject to an executed written contract, due diligence, and environmental inspections among other things. Ultimately, a disagreement arose to the specific terms of the purchase, such as the presence of a guarantee by the directors of the plaintiffs. The defendant then concluded an agreement with another party, informing the plaintiffs of this course of action on 7 November 2014.
The plaintiffs argued that the email exchange on 30 and 31 October created a valid and binding contract. The defendants denied this allegation, arguing that there was no valid offer and acceptance, and that the parties did not agree on the guarantees to be provided and the due diligence period.
The Court held that a contract had in fact been formed. The Court found that the emails between the parties showed that both were “content to be bound immediately and exclusively by the terms which they had agreed upon, whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.” Moreover, the consistent use of the phrase ‘subject to contract’ was held not to have prevented a contract from being concluded via the email exchange, rather, it confirmed the party’s intentions to formalise their agreement and add additional terms.
This case highlights that the Court will assess whether a contract has been formed objectively, which means that it is not the subjective beliefs of the parties about their obligations which govern the contractual relations. Moreover, the mere fact that parties expect that a formal document will be completed at a later stage does not prevent the informal negotiations from becoming binding.
To avoid the consequences of unintentionally forming a contract, in all negotiations or discussions a party should: