Negotiating Contracts by Email: Contract or no Contract?

Email negotiations are par for the course in today’s digital age.  Businesses frequently negotiate potential contractual terms by email, taking advantage of the immediacy that emails offer. But there are pitfalls in negotiating and concluding commercial contracts by email: marking (or not marking) an email ‘subject to contract’ may not necessarily be the decisive factor as to whether a legally binding contract exists. 

A recent ruling (Goel and another v Grant and another [2017] EWHC 2688 (Ch) lays bare the risks inherent in email negotiations, with important lessons for businesses. In this case, a company went into administration, and a potential claim against third parties arose. Two of the company shareholders entered into email discussions with the administrator about the potential assignment to them of the rights to that claim. A price was mentioned in the email trail between them.

The applicant shareholders argued that a contract had been concluded, but the administrator disagreed – and planned to auction the rights to the action. The applicant shareholders therefore asked the High Court for an injunction preventing the administrators from doing so. They argued that there was a binding contract that the administrator would sell the rights to one of the shareholders at the price set out in the emails.

No offer capable of acceptance

The applicant shareholders’ claim failed. The High Court took a detailed look at the emails – particularly, the language used – and decided that the administrator had made no offer that was capable of acceptance, so there was no legally binding contract. The Court found that the idea of buying the rights of action started in a “very tentative fashion” and “there was no point at which it morphed into an offer capable of acceptance”. The parties had explored further the terms on which they might be prepared to do a deal if they were minded to do so – but that was as far as it went.

Though the emails were not expressly stated to be ‘subject to contract’, the Court found that the email exchange was ‘subject to contract’ by implication from the outset – and there never came a time when its character changed. Relevant to this point was the fact that the applicant shareholders knew the administrators would instruct their own solicitors as to the exact terms of any final agreement to assign.

What does this mean for us?

Take care when negotiating by email, and always consider whether emailed correspondence should be made ‘subject to contract’ (i.e. not intended to be legally binding). However, even if it is not marked ‘subject to contract’, emails could be treated as ‘subject to contract’ by implication as in the case above.

Conversely, bear in mind that marking emails ‘subject to contract’ does not automatically mean no contract has yet been concluded, if the content of the emails and intention of the parties show the opposite was intended.

The bottom line is: whether or not a contract has been concluded via email is a question of fact based on the facts and circumstances of the relevant situation. This means any such negotiations conducted by email should be undertaken with care, taking expert legal advice if you have any concerns.

How can we help?

If you have any concerns about your contractual negotiations, particularly any potential ambiguities with emails discussions, and other negotiations conducted through digital means, contact the experienced commercial solicitors at Herrington Carmichael for specialist advice as early as possible.

Please contact Mark Chapman on 01276 686222 or Cesare McArdle on 0118 977 4045