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Case law: Court clarifies when contract negotiations amount to a legally binding agreement

Businesses negotiating contract terms should make sure everyone is clear as to whether and when they have reached a legally binding agreement, and that this is clearly recorded, a recent ruling makes clear.

Legal Alert

This update was published in Legal Alert - November 2016

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A supplier entered into discussions with a broker with a view to providing services to it. This resulted in an emailed proposal. Representatives from both parties met and discussed the proposal in detail, on a point by point basis. No changes were made to it, except for the commencement date, and the representatives shook hands on the deal.

The supplier sent the broker an email saying: "I have set out below the terms … agreed in the meeting … I am happy to sign whatever additional documents [your company] requires to record this agreement."

Three people out of four at the meeting remembered one of them saying the parties were 'done', but the fourth claimed he then said things had to go to the lawyers next.

There was a dispute over whether the parties had reached a binding agreement either at, or immediately after, the meeting. The legal test is an objective one – what terms, if any, would a reasonable observer have taken the parties to have intended to agree, given what they said and did.

The High Court found that the fourth representative did say that things had to go to the lawyers next. It ruled that this would have made it clear to a reasonable observer that the parties had not yet concluded a legally binding agreement. Even though every issue had been agreed in the negotiations, the outcome was only non-binding heads of terms which were subject to further legal scrutiny. This was particularly the case given the scale and complexity of the agreement being negotiated.

Operative date

  • Now

Recommendation

  • Businesses negotiating contractual terms should make sure everyone is clear whether and when they have reached a legally binding agreement, and that it is clearly recorded, a recent ruling makes clear

Case ref: JAS Financial Products LLP v ICAP Plc & Anor [2016] EWHC 591

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.