Be careful when negotiating by email – you may find yourself bound by contract

When negotiating a deal by email or telephone you may find that you have entered unexpectedly into a legally binding contract.

In Stellard Pty Ltd v North Queensland Pty Ltd [2015] QSC 119, the Queensland Supreme Court decided that a vendor and a purchaser of a petrol station business and the land concluded a legally binding contract for sale by exchanging emails and telephone calls, including via a selling agent.

The purchaser expressed interest in buying the business and the land. The vendor sent an email to the purchaser containing terms of the proposed sale and requesting personal guarantees from directors of the purchaser’s entity. The email attached a draft contract for the purchaser’s review. On the following day the purchaser had telephone discussions with the vendor that a contract would generally be on the terms of the vendor’s email. The purchaser then sent an email to the vendor confirming the purchaser’s offer to buy for certain price and that the offer was subject to a contract which could be exchanged shortly and the offer was open for immediate acceptance. Shortly after the vendor accepted the offer by email and stated the acceptance was subject to execution of the contract which was to be amended by the purchaser as agreed and returned to the vendor. Lawyers for the purchaser then forwarded to the vendor the amended contract with deleted personal guarantees condition. Soon the selling agent informed the purchaser that the vendor would not be selling to the purchaser as the amended contract was not accepted due to deletion of the personal guarantees, and that the vendor contracted to sell to another person.

The purchaser sued the vendor for specific performance claiming that a binding contract was concluded by exchange of emails and telephone calls.

The Court handed down judgment for the purchaser and found that the binding and enforceable contract existed on basis of the circulated emails although they were expressed to be subject to execution of the contract. The Court reasoned that the context of and expressions used in the emails strongly suggested that the parties wished to be bound immediately and exclusively on the agreed terms and expected to make a further contract in substitution for the first contract and that the further contract would contain additional terms. Further, the Court held that the absence of agreement on personal guarantees did not affect existence of the contract as provision of personal guarantees was not a condition for the contract formation.

The Vendor argued that even if the contract existed it was unenforceable as it was not signed. The Court established that despite absence of formal signatures, the signature requirements were satisfied pursuant to Electronic Transactions (Qld) Act 2001 because identification of persons and their intention to sign could be established.

When negotiating by email or telephone it is important to make it clear to the other parties that there will be no legally binding concluded agreement until a formal written contract is agreed and signed.

Natalya Boyarkina

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