What you think of as pre-contractual negotiations may amount to a binding contract, even though no formal contract has been signed and not all terms have been negotiated, according to a recent Queensland Supreme Court decision. The decision highlights the need to be diligent in all communications regarding proposed contracts, says commercial property lawyer DEAN FRITH.
The convenience and expedience of email is rapidly emerging as the preferred communication method between parties in real estate, as with most other industries. However, the legal implications of contract negotiation through emails, requires serious consideration by all parties, especially agents brokering a deal on behalf of their clients.
The Queensland Supreme Court case of Stellard v North Queensland Fuel established that Courts are now willing to consider emails as capable of forming contracts for the sale of real property.
The factual circumstances of this case were not dissimilar to many property transactions that occur every day. It involved the sale of a business (a petrol station) and real property, in which the parties had conducted negotiations through meetings, telephone calls and corresponding by email (including emails from the agent). When negotiations broke down, the vendor sought alternate buyers for the land, as it believed that no contract had or could be entered into without first being provided in writing and signed.
The original purchaser took action to prevent the alternative sale and enforce the terms agreed in the numerous emails with the vendor’s agent, arguing that a formal agreement had been formed in their numerous emails. The vendor argued that, given its agent’s use of non-binding language like “subject to contract”, it was not bound. The Court ultimately found the electronic correspondence amounted to a binding contract, considering that the emails communicated all elements of the agreement.
The most relevant factors informing the courts findings included:
- In the “offer email”, the buyer had emphasised its need for immediate acceptance by the vendor, so that due diligence investigations could begin.
- The “acceptance email’s” reference to a written contract, inclusive of agreed amendments, acknowledged the existence of a binding agreement between the parties. This was found even though further terms were to be agreed.
- There was evidence in earlier emails that the parties sought to proceed quickly and each was to take immediate steps. The quick response in providing the acceptance email was evidence of this.
- The essential elements of a contract (offer, acceptance and intention) were present in the wording used.
- All necessary essential terms to enable certainty and contract compliance made the agreement sufficiently certain.
Does email now meet acceptable statutory writing and signature requirements?
For anyone experienced in property transactions, this may seem like an impossible outcome because emails do not meet the traditional formalities of property contracts. In NSW, as in Queensland, pursuant to section 54A of the Conveyancing Act 1919 (NSW), all sale of land contracts must be in writing and signed by the parties, or their authorised agents. In spite of the obvious technical challenges for meeting such requirements within an email, the court in Stellard held that the correspondence satisfied the statutory writing and signature requirements.
The case of Stellard continues the judicial trend of accepting emails as capable of forming the basis of enforceable commercial and property contracts. Diligence in all communications regarding proposed contracts is critical: all emails by agents and parties to sale agreements must be drafted with care and caution.
While the phrase “subject to contract” was not sufficient in the Stellard case, there is certain wording that agents can use in email correspondence to reduce the risk of binding their client.
