A recent decision from the British Columbia Court of Appeal provides an important reminder when communicating by email regarding the negotiation of the terms of an agreement: Just because you haven't signed a contract, doesn't mean you haven't entered into a legally-binding agreement.
In Vancouver Canucks Limited Partnership v Canon Canada Inc, 2015 BCCA 144, the BC Court of Appeal was asked to review a decision from the Supreme Court of British Columbia which had held that through a series of emails, the parties had entered into a multi-year sponsorship agreement. At trial, the Canucks had successfully argued that Canon had entered into a five-year sponsorship agreement with them, despite the fact that the parties had not reached agreement on a key term, both parties had made it clear that any agreement was subject to review by their respective legal teams, and neither party had actually signed anything.
Before you ask whether the trial judge was wearing a Sedin jersey under her robes in reaching this decision (as Canon practically did in their appeal, arguing that in her analysis of the facts the trial judge conducted a "truncated and one-sided analysis that unjustifiably favoured the Canucks' perspective"), consider the three factors both Courts looked at in determining whether an agreement has been formed by email:
- whether the emails included all essential terms;
- whether the agreement was conditional on subsequent review and approval, including execution of a formal contract, or whether execution was just a formality; and
- whether a reasonable bystander would conclude the parties intended to be bound by the emails.
Canon indicated in an email to the Canucks that they wanted to "continue their sponsorship with the same rights and benefits that were in place" in the previous sponsorship agreement, cutting and pasting the benefits they were referencing into the email. This was subsequently followed by an email in which the Canucks "confirmed" the benefits and price Canon had set out, to which Canon responded, "We have an agreement in principle." Given that the parties were negotiating a renewal or extension to a long-standing relationship, and the parties had agreed to continue their relationship on the same terms, the combination of the above communications resulted in the Court finding that the parties had reached an agreement on essential terms.
While Canon had indicated to the Canucks at different times a need to have the sponsorship agreement tied to the office equipment agreement that the parties were also negotiating, and the inclusion of this clause was a sticking point between the parties, the Court held that Canon's actions and communications were inconsistent with respect to this requirement and that it "had no impact on the finality of the Sponsorship Agreement."
Subsequent Review and Execution
Early on in the negotiations, a Canon representative had indicated in an email to the Canucks that he had consulted with the Canon "executive team", and had been instructed to make the offer contained in the email. Hard to argue that further executive approval was required in light of such a statement.
While the parties both indicated that the sponsorship agreement needed to be reviewed by their legal teams and that they intended to enter into a formal (meaning printed and signed) agreement, the Court held that the emails between the two organizations did not contain a statement making review by their legal teams a precondition to the formation of the agreement or making formation of the agreement conditional on "formal documentation." This was interpreted by the Courts to mean that any formal agreement, and execution of the same, was just a way of capturing the agreement that the parties had already entered into.
Intention to be Bound
Canon stated in an email to the Canucks that they frequently work under "agreements that have been reached by way of exchange of e-mails."
Canon was also found to have indicated their intent to be bound by the email agreement via their "rapid and complete implementation of the sponsorship benefits" (i.e., they used the season tickets that were part of the sponsorship deal and proceeded with advertising in the game program and within the arena while at the same time alleging that negotiations were on-going).
The Court of Appeal was not persuaded that the trial judge's analysis was one-sided or that it unjustifiably favoured the Canucks. Despite the Canucks' efforts to find alternate sponsorship, Canon's decision to take their office equipment and go home ended up costing them over three-quarters of a million dollars.
- Choose your words carefully when communicating via email regarding a contract negotiation, especially a contract renewal or extension. Be careful not to appear to be signing off on something if any kind of management or executive approval is still required.
- "Essential terms" does not mean every term.
- Don't take the benefits under an agreement that is being negotiated until it is signed.
- If you are part of the procurement department or if only certain people in your organization have authority to enter into agreements on behalf of your company, make sure it's clear in each negotiation-related email you send that legal review and formal documentation are a condition precedent to the formation of any contract, including execution of a hard copy of the agreement.
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.