Whether you are business broker, real estate agent, professional advisor, purchaser or seller of a business or property, often the key terms of the proposed acquisition are negotiated and in turn agreed by exchange of emails between the relevant parties (before a formal contract is executed).

Many people assume an exchange of emails cannot amount to a binding legal contract! This may not be the case!

If you have entered into negotiations by email exchange, those emails could constitute a binding agreement between you and the other party.

A recent decision by the Supreme Court of Queensland in Stellard Pty Ltd and Sharman Pty Ltd v North Queensland Fuel Pty Ltd

[2015] QSC 119 (“Stellard”) held that a binding agreement was created by emails exchanged in relation to the proposed sale of a service station from the defendant (“seller”) to the plaintiff (“buyer”). The issues considered were:

  1. Whether there was a binding agreement between the parties; and
  2. Whether the agreement was enforceable?

WHAT HAPPENED IN THE STELLARD CASE?

After verbal discussions between representatives of the buyer and seller, the seller’s representative sent an email to the buyer’s representative outlining the terms on which the seller would be prepared to sign a contract which attached a draft contract of sale.

After subsequent verbal discussions, the buyer’s representative made an offer by email to purchase the land and business (“offer email”), which stated that the offer was “subject to contract and due diligence as previously discussed” and sought immediate confirmation of acceptance by the seller so that the buyer could commence their due diligence investigations. It also stated that after acceptance, both parties would start to incur “significant expenses”.

The seller’s representative accepted the offer by email the following day (“acceptance email”) stating that it would be “subject to execution of the contract provided (with agreed amendments)”.

The buyer’s lawyer sent a contract to the seller for execution a few days later, however it was not signed. The seller’s representative then withdrew altogether on the basis that the contract was not on the same terms as those negotiated.

WAS THERE A BINDING CONTRACT?

Negotiations generally fall into one of four categories (the first three identified by the High Court in Masters v Cameron (1954) 91 CLR 353 and the fourth in Baulkam Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622):

  1. the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but propose to have the terms restated in a form which will be more full and precise in effect (LEGALLY BINDING);
  2. the parties have completely agreed upon all the terms of the bargain and intend no departure from or addition to those terms, but nevertheless have made performance of one or more of those terms conditional upon the execution of a formal document (LEGALLY BINDING);
  3. the intention of the parties is not to make a concluded bargain at all unless and until they execute a formal contract (NOT LEGALLY BINDING); and
  4. where the parties intend 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 (LEGALLY BINDING).

In Stellard, the judge concluded that the emails fell into the fourth category and that a binding agreement existed between the parties based on:

  • (a) the emphasis that buyer placed on requiring immediate acceptance of their offer,
  • (b) the acceptance of the offer with reference to the contract previously provided with agreed amendments together with the desire for both parties to proceed quickly (evidenced by the offer being accepted by the buyer’s representative 45 minutes after the offer email was sent); and
  • (c) by accepting the offer, the parties would quickly commence the actions necessary to complete the contract.

WHAT IS THE EFFECT OF THE EMAIL EXCHANGE ON THE ENFORCEABILITY OF THE AGREEMENT?

Section 59 of the Property Law Act 1974 requires a contract for the sale of land to be in writing and signed in order to be enforceable.

Section 14 of the Electronic Transactions (Queensland) Act 2001 (“ETQ Act”) outlines the circumstances in which the requirements for a signature are taken to be met.

In short, the person required to sign should be identified and this person’s intention in relation to the information communicated should be indicated.

In Stellard, the judge concluded that whilst the acceptor of the offer was not identified in the offer email (and the seller did not deny its representative sent the offer email), the buyer’s representative’s intention in relation to the communications was clear from the emails and conversations had, and consequently s14 of the ETQ Act was satisfied.

WHAT DOES THIS MEAN FOR YOU?

If entering into negotiations with another party you do not intend to be legally bound by these negotiations, you (or your representative) should make it clear in writing (in each email) that this is not your intention until such time as a formal contract is executed by the parties.

For a confidential discussion in relation to matters raised by this article, do not hesitate to contact Scott Keddy at Mohr Keddy Lawyers on 07 3227 1505.