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Beware of Negotiation by Email

Monday, 19 November 2012

There can be few circumstances in today’s world where contractual negotiations are not carried out in some part by email. The ease and efficiency with which details can be hammered out and sent back and forth at the click of a mouse make email a common sense tool at all levels of negotiation.
However, care must be taken to ensure that a contract is not accidentally entered into before both parties are sure that they have reached a final agreement. It is surprising how easily this can happen in practice.
Freedom of Contract
The principle of freedom of contract is well established in English law. It means that parties are given great flexibility in creating a contract between themselves. Accordingly, it is widely understood that a contract can arise without an actual written agreement in place if the fundamental tenets of a contract exist, namely: offer, acceptance, intention to create legal relations and consideration.
Bearing this in mind there is considerable risk when negotiations are carried out over email that a contract might be created accidentally. If certain elements are agreed or some of the work envisaged within the negotiation has already started, then a court may take the view that a contract has in fact been created.
Golden Ocean Group Limited v Salgaocar Mining Industries PVT Ltd and another [2012]
This case provides a particularly salutary lesson. It concerned a guarantee which, unusually for a contract, does need to be in writing and signed to comply with the Statute of Frauds Act 1677.
In this case there was never a signed, completed guarantee document but the parties had negotiated the terms of a guarantee over a chain of emails. SMI had guaranteed the charter of a boat and GOG sought to rely on that guarantee when the charter fell through.
Despite the lack of a formal completed document, the Court of Appeal concluded that the chain of emails amounted to a contract. It also held that the sign-off provided by SMI’s broker ‘Guy’ was enough to constitute a signature and authenticate the contents of the guarantee for the purposes of the Statute of Frauds.
The case makes it clear that parties agreeing terms via email can certainly enter into a contract through the course of their correspondence. Furthermore, a typical email sign-off may well constitute a signature.
Negotiating parties should make their intentions absolutely clear by marking the top of email correspondence ‘subject to contract’ and avoid performing any obligations before a document is formally completed. The advice of a qualified solicitor can help avoid these pitfalls.
If you need assistance with pre-contract or contractual negotiations Rollingsons has experienced lawyers who can assist you. For more information please contact James Crighton via e-mail or by telephone on 0207 611 4848.