Do we have a deal? How to protect yourself from litigation risks
Parties will often use the words “Subject to Contract” during the course of negotiations to seek to prevent a situation where a contract can be said to have been created inadvertently or before negotiations have actually concluded.
The power and effect of these words was confirmed by the Court of Appeal in Joanne Properties Ltd v Moneything Capital Ltd and another where it was found that because negotiations between the parties had taken place “Subject to Contract” no binding agreement had been made. The Court said that where negotiations had been carried out “Subject to Contract”, there had to have been a formal contract or a clear factual basis for inferring the parties had intended to remove the “Subject to Contract” qualification for there to have been a binding agreement.
It is not uncommon in commercial contractual negotiations, particularly where oral and written negotiations take place, that the question of precisely when a contract has been formed by the acceptance of terms to be open to argument. This could occur where a party has started to undertake the performance of proposed contractual obligations in advance of signing a contract.
Unfortunately, when things go awry litigation can often ensue especially where one party may have expended significant sums believing a contract had been formed and the conduct of the parties may point to a contract having been formed.
How to protect against litigation
To try and mitigate against this litigation risk, and leave no room for ambiguity, parties should always seek to make it explicitly clear that negotiations are “Subject to Contract” and there is no intention to create legal relations until a written contract is signed.
The Commercial Litigation team at BRM are experienced in contractual dispute resolution and can provide tailored commercial advice to help parties seek to resolve contractual issues.
If you have any queries or comments concerning the issues raised by this blog, please contact Kirsty Coggin, Senior Associate at BRM at kirsty.coggin@brmlaw.co.uk
Please note this blog is not intended to constitute legal advice. You should always take specific legal advice that relates to your circumstances.