Subject to getting it right….

I advise a lot of clients on their commercial issues and many of those clients are sufficiently experienced to lead contractual negotiations on their own. I often say to colleagues that clients often do not follow my advice! What I really mean is they listen to what I have to say and then adapt the advice according to their commercial position.

I have been helping a client who wants to deal with negotiations herself (perfectly understandable in the circumstances) and not have me directly involved at the moment. The issue relates to an important contract for her company and how to terminate it and the best approach to achieving certain goals.

I gave my advice and emphasized the importance of ensuring that any conversations and correspondence were conducted on a subject to contract basis.

The Court of Appeal has just ruled on the effect of the words “subject to contract” in communications when settling a dispute. The Court decided that even a solicitor’s written communications on behalf of its client did not establish a binding contract which settled a dispute. It was decided in that case that as all the negotiations were stated as “subject to contract”, there was no binding agreement until a formal contract was made.

There are two distinct questions to address. Firstly, whether the parties intend to enter into a legally binding arrangement and, secondly, whether the agreed terms are sufficiently complete to amount to an enforceable contract.

Case law has established that once negotiations have begun “subject to contract”, that condition is carried all the way through the negotiations. In addition, it is not enough that the parties are of one mind. There must be a formal contract, or it must be absolutely clear the parties intended to remove the “subject to contract” qualification.

In my case, my client’s plan is to finalise the termination provisions subject to contract and then get me to record those terms in a formal agreement. She did not want to find herself having agreed to something she did not intend to without checking and having the settlement agreement drafted by me. My challenge is to produce a document which reflects the agreement reached and is signed by both parties at which point it will no longer be subject to contract!

Clients should keep in mind the value of and protection of keeping commercial discussions subject to contract until they are sure they have a deal agreed by everyone.

The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this article. © Mundays LLP

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