Australia: You can't bind me: When do negotiations result in a binding contract?

Last Updated: 6 July 2015
Article by Ashley Cahif

While lawyers will generally advise against it, it is a commercial reality that many arrangements involve a series of ongoing negotiations between parties. If these negotiations break down, a key question is whether a binding contract was ever achieved?

This was the issue before the Supreme Court of Western Australia in Absolute Analogue Inc v Sundance Resources Ltd.

Background

Mr Porter, a geologist, who provided his services through the company Absolute Analogue Inc (Absolute), claimed that there was an agreement between Absolute and Sundance Resources Ltd (Sundance) for Absolute to provide the services of Mr Porter to Sundance for an agreed monthly retainer and share options to be issued directly to Mr Porter.

Sundance paid Absolute the retainer but denied that there was any contract to issue options to Mr Porter.

Issues

The key issues before the Court were:

  • Had an agreement to issue the options been reached between the negotiating parties?
  • Did the negotiating parties have the authority to bind Sundance?

Was an agreement reached?

Justice Le Miere noted that the task before the Court was to determine, from the dealing between the parties, whether they intended to "make a concluded agreement or not". This intention is to be determined objectively by reference to what a reasonable person would conclude.

His Honour stated the test as:

"A person will be held to have made a contractual offer if it was reasonable for the alleged offeree to believe that he could conclude a contract simply by indicating assent to the offeror's terms. Similarly, a response to an offer will amount to a binding acceptance, notwithstanding that the offeree did not intend it to be an acceptance, if the offeror reasonably so regarded it."

Noting that the alleged negotiations involved protracted informal discussions, his Honour stated that some of the factors relevant to determining the intentions of the parties include:

  • the customary method of concluding a contract of the sort alleged
  • whether an informal exchange would accord with the expectations of the parties in a contract of the kind that is in dispute, and
  • where the intention of the parties is equivocal, conduct or correspondence subsequent to the time when the alleged agreement was made.

On the issue of what inferences can be drawn from subsequent conduct, his Honour stated that it is not sufficient that the conduct is consistent with the alleged contract, what is required is "a positive indication that the conduct is evidence of the contract alleged".

The matter was ultimately resolved based on an in-depth examination of the specific evidence of the case, with his Honour concluding that the discussions and negotiations over the protracted period never resulted in a concluded binding agreement.

Authority to bind?

Once his Honour found that no agreement had been made, it was not necessary to consider whether the person alleged to have represented Sundance, Mr Rankine-Wilson, had the authority to enter into an agreement on Sundance's behalf. However, his Honour found that Mr Rankine-Wilson:

  • was a founding director and executive chairman of a corporate advisory services company, CIP, that was a corporate advisor of Sundance
  • through his corporate shareholdings, was a substantial shareholder, option holder and convertible note holder in Sundance, and
  • through the corporate advisory services company, had a leading role in identifying and progressing the opportunity for Sundance (including the negotiations) that required the contract for Mr Porter's services, through Absolute.

To determine whether Mr Rankine-Wilson had the authority to bind Sundance, his Honour first examined the scope of the CIP's engagement agreement. As the engagement agreement did not authorise Mr Rankine-Wilson to enter into an agreement on behalf of Sundance for the matters that Mr Porter alleged, Mr Rankine-Wilson was held not to have actual authority to bind Sundance in the manner alleged.

It is well established that a person who does not have actual authority to bind another person, may still be found to have entered into an agreement on that other person's behalf if they had ostensible or apparent authority to enter into the agreement.

The test for whether a person (the agent) has ostensible or apparent authority to enter into an agreement on another's behalf (the principal) is whether or not:

  • the principal represented that the apparent agent was authorised to enter into the transaction in question
  • the person making the representation had actual authority to enter into the transaction in question, and
  • the third party reasonably relied upon the representation as to the apparent agent's authority.

Based on the evidence, Mr Porter could not establish that Sundance's Chairman of Directors had represented to Mr Porter that Mr Rankine-Wilson was authorised to enter into the alleged agreement. Accordingly, Mr Rankine-Wilson was held to not have the ostensible or apparent authority to bind Sundance.

What this means for agencies

This case highlights some of the legal risks associated with a contractor commencing work before agreeing on a final contract. In cases involving continuing negotiations, issues such as the certainty of the arrangement and authority of the negotiators to ultimately bind a party will always be present. If, due to commercial pressures, work does need to begin before a final contract is entered into, at the very least the key points of the arrangement should be agreed and documented, through instruments such as term sheets or early works contracts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Ashley Cahif
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.