In 2015, the Supreme Court of Queensland in the case of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd held that email correspondence between two parties constituted a binding contract.
Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd: Case Summary
This case concerned whether email correspondence passing between two parties regarding the sale of a service station (the land and the business) constituted a binding contract.
In this case, the proposed purchasers (plaintiffs in the proceedings) made an offer by email in which it stated, amongst other things:
“This offer is of course subject to contract and due diligence as previously discussed”
(‘the offer email’).
The vendor’s response (defendant in the proceedings) included the words:
We accept the below offer which we understand will be subject to the execution of the Contract provided (with agreed amendments) on Monday…”
(’the acceptance email’)
Notwithstanding the clear intention of both parties that the agreement reached was subject to the execution of a formal contract, the correspondence (emails) when viewed as a whole, indicated that the parties intended to be immediately bound by the agreement.
In this case, some of the factors which the Court regarded as reflecting an intention amongst the parties to be immediately bound included:
The plaintiffs’ email stating:
“We are hopeful of effecting an exchange of contracts next Monday but need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants to carry out necessary investigations…
“I look forward to receiving your client’s confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses”
The defendant’s email less than an hour after the plaintiff’s offer stating:
“We accept the below offer…we look forward to progressing the matter further on Monday.”
The Court found that the response from the defendant, despite using the words “subject to execution of the contract…”, in light of the email which preceded it should not be seen as a qualification to the acceptance but was in fact more consistent with the parties agreeing on the essential terms with the intention to formally record their agreement later.
Additionally, despite there being a disagreement between the parties as to whether the Defendant required the Plaintiffs to provide guarantees, the Court found that this was not detrimental to the question of whether there existed a binding agreement between the parties.
Ultimately, whether correspondence will be construed to be a binding contract will be ‘a question of how the words are to be interpreted in their context, and in light of the correspondence, viewed as a whole’.
The Court held that the Plaintiff had demonstrated the existence of a binding contract. Although the terms of the contract were expressed through email correspondence in informal terms, the essential terms of the contract had been agreed upon and the correspondence viewed as a whole indicated the intention to be immediately bound.
Electronic Transactions legislation
The Commonwealth and states have legislation which deals with how a document can be signed electronically.
In this case, the email communication did not satisfy the first provision of the legislation regarding the signing of documents electronically, that is the method of communication must:
- identify the person whose signature is required; and
- indicate the person’s intention in relation to the information communicated.
However, the legislation provides two other methods for the signing of documents electronically and the Court, in this case, found that the emails were signed electronically as the identification of the person and intention could be established through further evidence (s 14 (1)(b)(ii)).
Relevant sections are s 10 of the Electronic Transactions Act 1999 (Cth), s 9 of the Electronic Transactions Act 2000 (NSW) and in this case, s 14 of the Electronic Transactions (Queensland) Act 2001 (QLD).
What is the importance of this decision?
Parties and their legal representatives ought to be careful in their negotiations of contracts, so as not to inadvertently through their language and conduct viewed as a whole, express an intention to be immediately bound by the terms agreed.
Some of the relevant principles to be considered in determining whether or not a binding contract exists were set out in this case as summarised by Kirby P (as he then was) in Geebung Investments:
- Simply because parties contemplate the execution of a formal contract does not mean the informal agreement reached is not binding.
- However, the contemplation of the execution of a formal contract may indicate that the parties intended there be no binding agreement until a formal contract is entered into;
- If the parties have not reached agreement regarding matters of importance, it is less likely they intended to be immediately bound before the execution of a formal contract;
- To determine what aspects the parties considered necessary in order for the agreement to exist, it is appropriate to look at subsequent conduct of the parties;
- The less formal the initial agreement, the less likely it was intended to be legally binding;
- Where the agreement concerns a large sum or a significant transaction, it is less likely to have been intended to be binding prior to execution of a formal agreement. However in the case of Stellard the transaction involved a $1.6million purchase;
- Depending on the subject matter, where parties have not used solicitors but intended to do so for the drawing up of a formal agreement, this may be a factor indicating a non-binding agreement;
- Where a binding agreement is said to have been formed as a result of correspondence, it is necessary to look at the correspondence as a whole [in the case of Stellard this principal was of particular relevance].
For further information or advice pertaining to contracts arising from electronic communications, contact the experienced team at Rockliffs Lawyers today.