Contractually bound by email …

A recent case decided in the High Court will be of interest to all businesses which conduct contractual negotiations by email. 

In Grant v Bragg [2009] EWHC 74 (Ch), the court held that the claimant, Mr Grant, had agreed to be bound by a draft share sale agreement when he accepted its wording in an email to the lawyer of the defendant, Mr Bragg.  The High Court ruled that it reflected commercial reality, as well as being the objective intention of the parties, that Mr Grant should be bound by the terms of the draft agreement without having signed the actual document.  His agreement to its terms in his email, which was not marked as ‘subject to contract’, was sufficient to conclude the contract in the court’s view. 

The case confirms that contracts may be concluded by email which was already settled law.  It also underlines how important it is, when parties are negotiating a draft contract via email, that such e-correspondence is clearly qualified as being non contractual, otherwise an emailed indication of acceptance could be legally binding. 

… but not by performance

Perhaps slightly unexpectedly (in the context of the above), the Court of Appeal has recently found that, in spite of the parties to a case having performed what looked like a contract for a period of time, there was in fact no contract.  The case was RTS Flexible Systems Limited v Molkerei Alois Muller GmbH [2009] EWCA Cie 26.  The facts were as follows:

The defendant company had engaged the claimant company to design and install packaging lines at the defendant’s factory.  The proposed written agreement between the parties was very long, and they decided to enter into a simpler, fixed term interim written contract to allow the work to commence while the main contract was being negotiated.  The interim agreement was extended a few times before it expired.  By that point most of the very extensive main agreement had been agreed - but not all of it.  Importantly, the written terms being negotiated included a provision that they would not come into effect until they had been executed by the parties. 

The Court of Appeal held that, despite performance, there was no contract between the parties.  Any such contract would have been a variation of the terms which were being negotiated, but those written terms expressly stated that they didn’t apply until they were signed.  The court could not assume that the parties had reached a separate consensus distinct from the terms they were negotiating, nor apply an agreement which the parties themselves had not reached.  This judgment will be relevant to businesses that, due to time pressures, enter into interim arrangements while main contracts are being negotiated.  It gives helpful guidance on the sort of protective wording which should be included in the draft agreement being negotiated to prevent any contract being implied from the parties’ performance of interim agreements which have since lapsed.