Malcolm Newbury v Sun Microsystems  EWHC 2180 (QB)
Newbury was claiming sales commission from Sun Microsystems. A few days before the matter was due to come to trial, Sun's solicitors wrote to Newbury's solicitors saying that Sun "was willing to settle the entire proceedings by paying the Claimant within 14 days of accepting this offer, the sum of [ ]..... by way of damages by means of an electronic transfer..... in full and final settlement of the Claim and counterclaim,...... such settlement to be recorded in a suitably worded agreement." The offer was stated to be open until the end of the day. Newbury's solicitors responded the same day accepting the terms of the settlement in an email marked "Without prejudice save as to costs". They said that they would forward a draft agreement for approval the next day. A dispute then arose as to whether the terms of the settlement should be put onto the public record, with the result that no formal agreement was executed.
Newbury claimed that the exchange of letters constituted a binding agreement and that the execution of the "suitably worded agreement " was not a condition of the agreement coming into effect. Sun claimed that their original offer was not an offer capable of acceptance, but even if it were, a settlement had to be recorded in a separate agreement and the courts would look at conduct after the letter to determine the issue of whether there was a binding agreement.
The High Court (Mr Justice Lewis) found in favour of Newbury. He had little doubt that, viewed objectively, the correspondence did give rise to a legally binding contract between the parties. He reached that conclusion for the following reasons:
- The letter from Sun was expressed in terms constituting an offer of settlement. The offer was stated to be available for acceptance by a specified time and that if accepted an acceptance payment would be made. Both factors were a clear indication that Sun's email was intended to be a binding offer capable of acceptance.
- The offer referred to "such settlement to be recorded in a suitably worded agreement". "Such" referred back to the earlier terms, i.e. it was not a reference to terms still to be negotiated and agreed. That conclusion was reinforced by the use of the word "recorded" i.e. the terms would be committed to writing as an authentic record of that which had already been agreed.
- The letter was not expressed to be "subject to contract". The absence of reference to those words could be significant .
- Marking the acceptance email "without prejudice" made no difference and did not mean that the parties were still negotiating. The two emails read together were consistent with a binding agreement.
- The factual background reinforced the conclusion, namely that this was to be a final attempt to compromise and avoid litigation.
- As for the argument that the parties were still negotiating, it was not legitimate to have regard to the parties' subsequent conduct for the purposes of considering whether those documents gave rise to a binding agreement. Once the parties have agreed in the same terms on the same subject matter, a contract will have been formed. In any event, the subsequent conduct of Newbury and his solicitors were consistent with a binding contract having been formed.
This case shows the importance of stating that negotiations are "subject to contract" if it is the intention that they are not to form a binding contract. It is worth noting that this is only one of several recent cases in which reference to a formal agreement to be entered into did not prevent an agreement arising in the first place.
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