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Binding negotiations via email
30 July 2015
A number of Western Australian and National cases decided in the last year have held that email negotiations are binding on the parties (even where no documents, not even a heads of agreement, have been agreed or signed).
Common assumptions
A commonly held assumption is that parties will not be bound by negotiations (even if the parties have “agreed” to main terms) until documentation (at least a heads of agreement) is signed. It is clear from these cases this assumption is no longer correct.
As a result, it is important that care is taken to specify, throughout negotiations, whether you intend to be bound by the negotiation correspondence before documentation is signed. You should also ensure that any agent acting for you in negotiations is clear in all communications as to your intention to be bound by negotiations.
Protect yourself
1. Be clear in all emails whether you intend the negotiations to be binding. If you do not intend to be bound until some form of documentation is signed ensure in each email regarding negotiations:
(a) the subject line contains the words “Subject to Contract”; and
(b) at the end of each email a statement is included that you are not bound by this email until formal documentation is prepared, agreed and executed by the parties and that the printed signature at the bottom of the email does not constitute an electronic signature to any documentation.
2. Be careful when “agreeing” or “accepting” terms of an offer by email as a Court may determine that the parties will be immediately bound from that acceptance.
3. Reply promptly to the other party if the terms outlined in their email are not what you have agreed or do not state correctly the position. Otherwise the party may rely on your silence that what is stated in their email is correct.
4. Ensure that any draft documentation attached to emails during negotiations is correct and contains provisions dealing with the parties’ intention to be bound.
5. If you are aware of the other party taking steps in furtherance of the transaction (such as due diligence or obtaining approvals) make it very clear that you have no intention to be immediately bound and that all costs of such further steps will be borne by the other party if documents are not agreed and signed.
6. If you are signing any preliminary documentation (such as a heads of agreement or offer to lease) ensure there is a clear statement in such document whether the parties are bound by that document prior to the final Contract or Lease being agreed and signed (we can assist with some standard wording).
7. If you are also negotiating with other parties for a potential substitute transaction, you need to be especially careful not to agree or accept any terms with one party without being very clear as to your intention not to be immediately bound. Ideally you would disclose that negotiations are not exclusive and reserve your right to negotiate with other parties until documentation is agreed and signed by the parties.
If you need help
If you have any queries about the above or would like further information regarding the case decisions, please give us a call.
Contacts: Michael Swift, Principal; Michael Panegyres, Special Counsel; and Sarah Moore, Senior Associate.
Click here to download pdf.