Business warning on email contracts!

Business managers have been given a fresh reminder of the danger of negotiating commercial deals by email without making it clear at what point they intend there to be a legally binding contract. With terms increasingly being discussed through email correspondence or by telephone, companies are finding to their cost that discussions may constitute a binding agreement even though no document has been drawn up and signed.

Two cases have gone as far as the Court of Appeal, and in the most recent, the High Court's decision was overturned. In this instance equal shareholders in a company were involved in email correspondence regarding the terms of a draft contract outlining the purchase of one shareholder’s shares by the other shareholder.

During the course of the email correspondence the sale was agreed on the terms of the draft contract and both parties confirmed their intentions. Later, the purchaser claimed that he was not bound to buy the shares because no contract had been signed. The seller claimed that the email exchange constituted a binding agreement and the purchaser was obliged to complete the purchase of the shares.

The High Court agreed that a binding contract had been entered into by email but the purchaser appealed to the Court of Appeal which overturned the decision. The High Court’s ruling was that on the individual facts of this case, the email correspondence had not been intended to constitute a contract, however, the judgement reinforced that an email exchange can form a contract and they highlighted that a slight change in the wording of an email could have led to the opposite conclusion in this case.

Commercial law specialist Fay Goodman, of Manchester-based George Davies Solicitors LLP said, "The outcome of this is a bit of a contradiction as the important lesson is not the ruling, but the fact that if the emails had been worded slightly differently, there would have been a binding contract.

"When companies or their advisers are negotiating terms, they must be very careful to make their intentions very clear. If they intend to put the terms of an agreement into a document and intend that the agreement only becomes binding when the document is signed, it is absolutely vital to state that all correspondence before the contract is signed is on a "subject to contract" basis. It is also important to note that the same goes for telephone conversations, as very few contracts are required to be in writing under English law."

For further assistance with any aspect of business law, please contact Fay Goodman on 0161 234 8707 or email faygoodman@georgedavies.co.uk