Courts are routinely ruling that email negotiations
create binding contracts well before any formal documentation is
prepared or signed. Recent cases show this as a clear trend. The
lesson for negotiating parties is: be aware of the binding nature
of emails and use them with extreme care.
In its short life, email has quickly surpassed traditional hard
copy letters and faxes to become the universally preferred
communication method for businesses and lawyers alike, including in
Although the Courts are often perceived as being behind the
times, they have in fact responded to this shift in communication
by accepting email as a means of creating binding agreements then
However, not all businesses have caught up with this trend. Some
still mistakenly believe that what is said or agreed over email is
not binding, and that a legally binding contract is only made when
a formal written document is signed.
Below we discuss some recent decisions that show the Courts'
approach to email negotiations.
CAN YOU AVOID EMAIL NEGOTIATIONS BEING BINDING?
If you do negotiate by email but don't want your emails to
be binding contracts, then clearly state in your emails that no
binding agreement is formed unless and until a formal contract has
If you don't expressly state this condition, a Court is
unlikely to read it as being implied in your emails.
In May this year, the Queensland Supreme Court held in
Stellard Pty Ltd v North Queensland Fuel Pty
Ltd1 that a binding contract for the sale of land
had been made by email. Importantly, both the offer email and the
acceptance email referred to the offer being "subject to
contract" and "subject to execution".
Following the email exchange, the buyer sent a contract to the
seller for execution but it was not signed. The seller later
withdrew from the deal and entered into a contract with a third
The Court found that by the broader context of the emails the
parties had intended to be bound immediately. This was so, even
though the parties expected to substitute the agreement with a
formal contract containing additional terms.
The Court was also satisfied that the emails met the requirement
that a contract for the sale of land be in writing and signed,
applying the Electronic Transactions (Queensland) Act 2001
The Stellard decision mirrored an earlier decision this year by
the Western Australian Court of Appeal in Vantage Systems Pty
Ltd v Priolo Corporation Pty Ltd2. There, it was
held that a binding contract to lease commercial premises had been
made by a series of emails despite the emails referring to the
offer as being "subject to formal approval".
In its decision, the Court was not deterred by the fact that the
parties could not agree on a reinstatement clause and that no
formal lease was ever subsequently signed despite the parties'
intentions to do so.
The 'binding email' trend extends to settlement
negotiations between lawyers by email.
In late June, the NSW Supreme Court found a binding settlement
agreement had been made by email between lawyers in Universal
Music Australia Pty Limited v Pavlovic3.
The Court held that the lawyer's email stating that the
client would sign the settlement deed, combined with the rest of
the communications and conduct, was enough to create a binding
Although it was intended that a deed would be signed (and it
never was), the Court refused to read into the emails an
implication that no binding agreement would be created until the
deed was actually signed.
THE EMAIL TEMPTATION
The casual ease with which emails can be written and exchanged
is their attraction. On the flip side, it's also their danger
when they are used for contractual negotiations, and why businesses
frequently find themselves in binding contracts.
The cases above show that Courts do not subscribe to the belief
that a binding contract is not made until it has been formally
executed. They see emails as a modern business tool capable of
binding parties and clearing even strict legislative hurdles, like
writing and signing.
For businesses, it's crucial to manage the risk of being
bound by emails. Statements like "subject to contract"
are not enough. Clearly and consistently state in your emails that
no binding agreement is made until a formal contract is
It's important to remember that for contractual negotiations
by email, nothing goes without saying.
1  QSC 119.
2  WASCA 21.
3  NSWSC 791.
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.
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