Exchange of emails created binding settlement
BIEBER v TEATHERS [2014]
An exchange of emails between the parties' lawyers was held to constitute a binding settlement without any further detailed agreement being required.
Facts:
- Bieber (B) had various claims against Teathers (T) due to some failed investments. The parties tried to resolve the dispute by mediation but this was unsuccessful.
- T sent a settlement offer by email to B which provided that B had agreed to settle the proceedings in return for an amount to be paid by T. B accepted that offer by email and said that it would be circulating a draft consent order to which T’s solicitor replied, "Noted, with thanks”.
- When T received the draft consent order, it sent a long-form settlement agreement to B which included an indemnity to T in case there were any third party claims. B refused to sign the agreement.
- B sought a declaration from the Court that the parties had reached a binding settlement by the exchange of emails but T disagreed that a settlement had been reached as the parties had failed to agree final terms. Two main questions arose:
- whether the parties had reached a concluded agreement; and
- if an agreement had been reached, whether the agreement had been ‘subject to contract’.
Decision:
- The Court held that:
- objectively, and considering all of the negotiations between the parties, they had intended to reach a binding settlement on the exchange of emails, without having to agree any additional terms. The agreement was not ‘subject to contract’. It was expressed to be in full and final settlement of all claims between the parties, counterclaims and costs. Even though the underlying dispute itself was complex, the settlement negotiations were not so complicated that a settlement could only be reached when the parties had signed a formal agreement;
- although a previous offer made by T had been expressed to be ‘subject to contract’, the offer which B accepted was not and could not be construed as including any such qualification;
- the email referring to the consent order which was to follow implied that there was nothing of substance left to agree other than the form of words necessary to effect the agreement reached. If this had not been T’s solicitor’s understanding, he would not have simply said, “Noted, with thanks” but would presumably have identified any outstanding issues to be resolved before a final agreement could be made;
- T’s lawyer’s response to the consent order email was therefore sufficient to confirm that there was an agreed contract.
- The judge also provided a useful summary of the principles applicable when determining whether or not the parties have reached a binding agreement:
- this is to be determined objectively by considering the whole course of the parties’ negotiations and an objective appraisal of their words and conduct;
- if, on that objective appraisal, the parties intended to conclude a legally binding agreement, the fact that certain terms of economic or other significance had not been agreed does not prevent it being concluded that the parties had reached a binding agreement. The only requirement is that the parties have agreed all the terms necessary for there to be an enforceable contract;
- where the parties wish to ensure that a contract otherwise capable of being made orally is only made in a formal document, the parties can expressly specify that their negotiations will take place ‘subject to contract’. Where there is such a stipulation, then there is no binding agreement until a formal written agreement has been duly signed;
- it is not essential that there be an express requirement that the negotiations are to be conducted ‘subject to contract’ if that was the parties’ mutual understanding. Whether there was such a mutual understanding is a question of fact in each case;
- however, even if the parties have initially agreed to proceed ‘subject to contract’, they may subsequently agree either expressly or by implication to remove or waive that qualification. Again, whether the parties have done so is a question of fact that needs to be approached with care since the Courts should ‘not impose contracts on the parties which they have not reached’.
Points to note:
- Failure to define the basis on which a contract is ‘agreed’ may result in one party (at least) being bound by an agreement that they may not have intended.
- To avoid uncertainty and the risk of being unintentionally bound by a settlement or an agreement, be absolutely clear at all times if the agreed settlement is ‘subject to contract’ and/or subject to the agreement of any further terms. However, ‘subject to contract’ does not provide an absolute defence to an agreement coming into existence if the parties nevertheless proceed to act as though a binding contract has been agreed - see for example Rugby v Proforce [2005].