If, as part of negotiating a contract, your lawyer states that
you will sign a document, is this enough for you to be bound by the
contract? This was the question before the NSW Court of Appeal in
Pavlovic v Universal Music Australia Pty Limited.
In 2005, Mr Pavlovic and Universal Music Australia Pty Limited
(Universal) entered into a joint venture arrangement to run a
recording label, Modular Recordings Pty Limited (Modular).
In September 2014, the parties, through their lawyers, started
negotiations to end the joint venture through a Deed of Release and
In December 2014, Universal's lawyers sent the draft Deed of
Release (the Proposed Deed) to Mr Pavlovic's lawyer, who stated
that Mr Pavlovic will sign the Proposed Deed. Universal's
lawyers responded, allowing Mr Pavlovic "a further 48 hours to
sign the documents and forward copies to us".
Neither party sent an executed copy of the Proposed Deed to the
other, nor did Universal send a cheque for $100 for the transfer of
the shares in Modular as required under the Proposed Deed.
The two key issues before the court were:
Did each party's lawyers have actual or ostensible
authority to enter into an agreement on their behalf?
If so, did the parties—acting through their
lawyers—enter into a binding agreement on the terms of the
The Court decided that the parties' lawyers did not have
actual or ostensible authority to bind their clients to a
The Court noted the case law draws a distinction between
conducting negotiations on behalf of a client, which a lawyer has
authority to do, and contracting on behalf of a client to bind them
to contract obligations, which cannot be done without "clear
and cogent evidence".
In this case, there was no evidence that Mr Pavlovic's
lawyers had express actual authority to bind him to the
Turning to ostensible authority, the Court noted that while the
law provides for ostensible authority to bind a client in the
context of litigation conducted on a client's behalf, this
authority does not extend to negotiations of agreements arising out
of disputes that may potentially end up in litigation.
Accordingly, Universal's argument that Mr Pavlovic was bound
by his lawyer's statement that he "will sign"
A binding agreement
The Court stated that the test of whether the parties were bound
by the Proposed Deed where they have reached agreement about the
terms of a contract, but have also agreed that a further formal
agreement is to be executed, involves a determination of their
The Court noted the following factors as relevant in determining
intentions are to be determined objectively and need to
consider the "outward manifestations" of their
they are to be ascertained objectively from the terms of the
agreement, read in light of the surrounding circumstances
the commercial context and surrounding circumstances of the
parties' previous dealings
the subsequent conduct of parties to determine whether, at an
earlier point in time, the parties intended to enter into a binding
the language the parties have employed, and
in cases not involving the construction of a single document,
objectively determining intentions based on the communications
between the parties.
Applying these considerations, the Court held the parties had
not entered into a binding contract in the form of the Proposed
the formal nature of the previous relationship suggested that
the Proposed Deed would also be subject to a formal execution
the complex negotiations conducted by emails to and fro between
the parties do not support the argument that the parties intended
to be bound by email exchange
there was no indication in the communications between the
parties negotiating the draft document that, when the parties
agreed to the terms in the Proposed Deed, they would be bound
before it was executed
the terms of the Proposed Deed stated that it was to take
effect upon execution
the language used in the emails did not indicate the parties
considered themselves immediately bound, and
although the subsequent conduct of the parties indicated that
the parties were proceeding on the basis that the arrangements
would be terminated, it did not prove that the terms of the
Proposed Deed had been accepted as binding and other evidence
strongly refutes this suggestion.
What this means for agencies
This case highlights the uncertainty that can be created if
negotiations are not formally recorded in an executed agreement.
However, it also highlights the dangers of not explicitly stating
your intentions about whether the agreed outcome is still subject
to a formal agreement, as failing to do so carries a risk that you
may be bound even if you did not intend to be.
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.
Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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”
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).