Contractual offer and acceptance: when can an exchange of emails be enough?
It is elementary to the law of contract that a binding contract requires an offer and acceptance of that offer. In the recent decision in Queensland Phosphate Pty Ltd v Korda,[1] the task for the Court of Appeal was to determine whether, on the facts, such qualities existed in light of an exchange of emails. The Court’s decision serves as a reminder of the importance, when seeking to create a binding contract through informal means, of not leaving too much to guess-work.
The facts
The Supreme Court proceeding
The dispute arose in the context of a purported agreement between solicitors acting for parties to a Supreme Court proceeding. In that proceeding, the plaintiffs were Messrs Korda and Shepard, liquidators appointed to a company named Legend International Holdings Inc. Legend owned all of the shares in one of the defendants, Paradise Phosphate Limited. Paradise Phosphate owned a number of tenements in Queensland.
Prior to the appointment of the liquidators, Paradise Phosphate and Legend International entered into a share subscription arrangement with Queensland Phosphate Pty Ltd. After the liquidators’ appointment, a number of events occurred which culminated in Queensland Phosphate seeking to acquire all the shares in Paradise Phosphate by way of a share sale agreement.
The liquidators claimed that the share sale agreement entered subsequent to their appointment was void and sought orders from the Supreme Court to that effect.
The purported email agreement
Queensland Phosphate and Paradise Phosphate, the defendants in the Supreme Court proceeding, alleged that an exchange of emails between their solicitors and the solicitors for the liquidators constituted a concluded and enforceable agreement to terminate the proceeding.
One email was from the solicitors for the phosphate companies and addressed to the solicitors for the liquidators. The email contained two alternate proposals for resolution of the proceeding. Both proposals stipulated that the parties were to enter into a deed of settlement and release. The proposals were open for acceptance by a particular deadline. The deadline passed without response from the liquidators’ solicitors.
Soon after the deadline, the liquidators’ solicitors sent an email with a counter offer. Unlike the phosphate companies’ proposals, the liquidators’ proposal did not expressly provide for the parties to enter into a deed of settlement and release.
The liquidators’ proposal was open for acceptance within 7 days. Within that period, the phosphate companies’ solicitors replied in an email and stated that they were instructed to accept the proposal and would further correspond with the liquidators’ solicitors the following day with respect to the terms.
The following day, there was a telephone call between the respective solicitors’ offices. The liquidators’ solicitors were of the view that a deed of settlement and release was necessary before a binding agreement came into effect, whereas their counterparts considered that the emails themselves created such an agreement.
The primary judge held that the solicitors’ emails did not constitute an agreement and declared that the proceeding remained on foot. The phosphate companies sought leave to appeal that decision.
On appeal
In a joint decision, Tate and Beach JJA and Sifris AJA granted leave to appeal but, in upholding the primary judge’s decision, dismissed the appeal.
At the outset, their Honours considered that the question of whether the exchange of emails constituted a binding agreement depended on two factors:
‘First, the question of whether there was a binding agreement is one that falls to be determined objectively from the terms of the emails, read in the light of the surrounding circumstances and having regard to the commercial content in which they were exchanged. … Secondly, in determining whether a binding contract was in fact formed, regard may be had to the parties’ subsequent communications: (1) in order to see what was important or essential to the transaction; (2) as admissions; and (3) as probative of the parties’ contractual intention’.[2]
The Court cited, as authority for that second step — the ability to look to subsequent communications — the Court’s earlier decision in Nurisvan Investment Ltd & Anor v Anyoption Holdings.[3] (I have previously written a case note on that decision, and you can read it here.)
In reaching its decision, the Court considered the wording of the ‘offer’ and ‘acceptance’ emails and noted the following.
First, the email from the liquidators’ solicitors was expressed as an ‘offer’ and was open for acceptance for a period of time after which it would ‘expire’. The Court acknowledged that, on the face of things, acceptance of this email appeared sufficient to bring about a concluded and binding agreement.
Second, the fact that the liqduaitors’ offer expressed a rejection of the phosphate companies’ earlier offers — which themselves required the entry into deeds of settlement and release — was equivocal as to the need for the parties to actually do so. As their Honours held:
‘While the [primary] judge placed some reliance upon the fact that the rejected offers … contained express reference to deeds of settlement and releases, as showing that that was the basis upon which negotiations proceeded … [o]ne could almost as easily have said that because the earlier offers containing those references had been rejected and those references not repeated [in the liquidators’ offer], deeds of settlement and releases had been ruled out by the parties’.[4]
Third, the Court considered that the reference in the last email from the phosphate companies’ solicitors foreshadowing further correspondence ‘tomorrow in respect of the agreed terms’ was similarly equivocal; it could evidence a view either that the emails did not create a binding agreement, or that there was a binding agreement and that the parties simply needed to correspond further about bringing the terms of settlement to the Court’s attention.
For the Court of Appeal, what was relevant was the complexity of the Supreme Court dispute between the parties; ‘[t]he subject of the litigation and dispute between the parties was complex and required a number of matters to be worked out’.[5] Their Honours noted that much had yet to be agreed between the parties about the various subtleties of the share sale agreement that the liquidators had taken issue with in the first place, and held that:
‘The failure of [the email from the liquidators’ solicitors] to make reference to … important issues tells substantially in favour of a conclusion that the exchange of emails between the parties’ solicitors did not give rise to a complete and binding agreement’.[6]
Their Honours also noted that the emails did not stipulate the timing for dismissal of the Supreme Court proceeding, ‘a not insignificant matter given the executory nature of the intended settlement agreement’,[7] and something the parties would have been expected to have dealt with as part of any binding settlement agreement.
For the Court of Appeal, it was not the case that an exchange of emails could not constitute a valid form of offer and acceptance. Instead, it appears the emails simply did not do enough to create a binding agreement in light of what the parties could be expected to want to achieve. For their Honours, the combination of lacunae in the emails brought into call the dictum of Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd — ‘the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention’.[8]
In resolving the questions on appeal, the Court posed two rhetorical questions:[9]
‘Can it be said that by resolving the matters that the parties did resolve [in their email correspondence] … they intended to regulate by an independent further agreement all of the other important matters [which the Court of Appeal had identified]?’
‘Did the parties intend that, in the absence of such an independent further agreement, they would nonetheless be bound by that which they had agreed on … and would leave the law, with all the related uncertainty, to deal with these further matters?’
Their Honours considered it unlikely. Instead, their Honours considered that, for the parties, ‘all matters would ultimately be “wrapped up” in a written document executed by all necessary parties … and that until this was done there was no binding settlement agreement’.[10]
A party seeking to argue the binding nature and enforceability of an agreement, especially one sought to be made by relatively informal means, could do well to ask itself those same questions too.
[1]: [2017] VSCA 269.
[2]: Ibid [37].
[3]: [2017] VSCA 141.
[4]: Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [40]
[5]: Ibid [42].
[6]: Ibid [43].
[7]: Ibid [45].
[8]: (1988) 18 NSWLR 540, 548 (Hope and Mahoney JJA agreeing).
[9]: Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [47].
[10]: Ibid [48].