In the technology age, more and more people are using email as a primary means of communication. In business, emails may be exchanged in the course of commercial negotiations to form an agreement, due to their obvious convenience. However, businesses should exercise extreme caution with using emails in this way.
Despite their less formal appearance than written contracts, an email may constitute just that – a binding contract. The words “subject to contract” or similar are not the mighty shield that some consider them to be and may not be enough to ensure email communications are treated informally.
The recent Queensland Supreme Court decision in Stellard Pty Ltd v North Queensland Fuel Pty Ltd  QSC 119 provides a timely warning of the binding nature of some email communications. In that case, North Queensland Fuel (NQF) wished to sell a service station and sought expressions of interest through an agent for the purchase of the service station. Stellard expressed interest in purchasing the service station and negotiations in relation to the terms of any contract to purchase the station took place via email communications.
The essential terms for the contract, such as the purchase price, deposit, stock valuation, due diligence and settlement date were agreed in a series of emails and NQF emailed Stellard to the effect that it required acceptance of its “offer” which was “of course subject to contract” so that its consultants could carry out the necessary investigations. Stellard responded by email to the following effect “We accept the below offer which we understand will be subject to execution of the contract provided”. A proposed contract was subsequently sent by Stellard to NQF, which had deleted a provision requiring a director’s guarantee from Stellard and was never signed. NQF pulled out of the sale and entered into a contract with a third party to purchase the service station.
The Supreme Court found that the email exchange formed a binding contract between NQF and Stellard for the purchase of the service station for the following reasons:
- All the essential terms of the contract had been agreed in the email communications.
- Even though the words “subject to contract” were used, it appeared from the context of the emails that the parties “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”.
- Although there may not have been agreement as to whether directors of Stellard would provide personal guarantees in the contract, this was not an essential term of the contract, and if NQF considered it as such, that should have been expressly stated.
- Even though there was no signed contract in accordance with legal requirements for contracts for the sale of land, the emails constituted an electronic signature pursuant to the Electronic Transactions (Queensland) Act 2001 (Qld).
The lesson to take from this case is that email communications in some circumstances can constitute binding contracts. In order to avoid emails being treated as binding contracts, it is important to:
- Clearly state that you do not intend for any binding contract to be created unless and until a formal contract is signed and exchanged;
- Not simply rely on words like “subject to contract”;
- Avoid using terminology such as offer and acceptance;
- Ensure that your conduct (e.g. any telephone calls or meetings) do not suggest that a final agreement has been reached.
Should you require any advice in relation to commercial contracts, including the purchase and sale of commercial property or businesses, contact McLaughlins Lawyers, commercial lawyers on the Gold Coast.
Author: Sonaaz Farhadi-Fard
Partner: Ian Kennedy