Over a period of three months, two law firms negotiated the
terms of a deed to be entered into by their clients. Late on
Christmas Eve, one solicitor emailed the other to say that his
client "will sign" the deed and then followed
that up with a further email to say that it will be signed and
scanned back on Boxing Day.
The solicitors and the parties then broke for Christmas, but the
signed deed and cheque for payment never materialised.
The other side insisted that an agreement had been reached and
took the matter to court. The New South Wales Supreme Court agreed
and found that the parties were, in fact, immediately bound and
that the lawyers, via their email sent on Christmas Eve, had
authority to bind their clients to terms of the deed. Later, the
Court of Appeal rejected that finding, and instead declared that
the parties were not bound nor could solicitors bind their clients
without express authority to do so.
In Pavlovic v Universal Music Australia Pty Limited
 NSWCA 791, three judges of the New South Wales Court of
Appeal found that Mr Pavlovic was not bound by the actions of his
the words "he will sign" were a statement of
future conduct that Mr Pavlovic will enter into a deed at a later
date, and were not an indication that he was accepting the terms of
the offer put by Universal Music Australia;
the negotiations between the solicitors for the three months
leading up to Christmas indicated through the various emails and
telephone calls that the parties' relationship would be
embodied in a deed to be executed and that the parties would not be
bound until the deed was signed;
a later email on Christmas Eve from Universal Music
Australia's solicitors, indicating that Mr Pavlovic had 48
hours to sign and return the deed, is clear evidence that Universal
Music Australia did not think that Mr Pavlovic was yet bound and is
inconsistent with the argument that any agreement had immediately
been entered into; and
the solicitors did not have authority to bind Mr Pavlovic.
Solicitors have an implied authority to bind parties in the context
of litigation proceedings, but that authority does not extend to
negotiations which may or may not end up in litigation.
For the above reasons, the court found that the parties were not
immediately bound, but intended to be bound at a later date only
once the formal deed had been executed, and further, that
solicitors (other than in the context of litigation proceedings) do
not have authority, unless expressly given, to bind their clients
to agreement. The law requires the parties themselves to finally
agree rather than their solicitors.
The above case is a classic example and a good reminder when
negotiating contract terms, to consider as to what point you
consider yourself to be bound. Generally there are four positions,
the parties consider themselves to be immediately bound, with a
formal agreement (with no changes to the terms agreed) to be
entered into at a later date;
the parties consider themselves to be bound, but that is
conditional upon a formal agreement being documented;
the parties do not consider themselves to be bound until such
time as a formal agreement has been entered into and signed;
the parties are bound immediately but expect to enter into a
formal document that may add some additional terms at a later
There is often a great deal of contention over the issue of
whether or not parties have finalised an agreement and are now
bound to perform that agreement. Carefully articulating as to when
negotiations will have finished and an agreement has been entered
into will save parties a lot of difficulty and uncertainty.
Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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