Be cautious when negotiating, your emails/texts may be binding

But I never signed anything!

This is a common misconception. Just because you didn’t sign a written document, does not mean that you cannot be bound by a contract’.

Such an agreement is known as a Masters v Cameron[1] agreement. It is the reason why it will not always serve you to say “But we haven’t signed anything yet.”

Lucas v Zomay Holdings Pty Ltd [2019] FCA 830 (4 June 2019)

This case concerned an offer to purchase a pharmacy. 

On 4 November 2018, in reply to the vendor’s agent’s request for a deposit, the purchaser sent the following email:

Before proceeding with a deposit can we please confirm that Jerry Hampton is comfortable with our suggested amendments to the offer? In addition, our usual process is to pay 10% of the purchase price as a deposit, is this acceptable?

On 5 November 2018 the vendor’s agent replied and said: “I have discussed things with Jerry and he agrees with everything. The deposit of 10% can be paid into our trust account”. This was the point at which the purchaser maintained that a final agreement has been reached.

Later on 5 November 2018 the solicitor for the purchaser offered to prepare a formal contract for sale. The vendor agreed. That evening the solicitor for the purchaser circulated the draft contract for sale.

Some time passed in which the purchaser followed up and was met with no reply.

On 19 November 2018, the purchaser paid the agreed deposit to the vendor.

On 22 November 2018, a solicitor for the vendor replied with an email in which he assembled a host of alleged reasons as to why the previous email correspondence did not amount to a binding contract.

On 29 November 2018, the purchaser’s solicitor retorted that it was binding. Eventually the parties ended up in Court, where the vendor’s position, was that:

no binding agreement was entered into and, in the alternative… if there was a binding contract it was repudiated by the [Vendor’s] proffer of a draft contract of sale

The issues

In what can only be described as a comprehensive rejection of the vendor’s position O’Callaghan J, found in favour of the purchaser, stating that “the Offer to Purchase is clearly an agreement that falls within the so-called fourth category of Masters v Cameron. That is to say, the parties intended to be bound immediately, notwithstanding that they contemplated the need for further documentation.”

O’Callaghan J addressed each of the arguments put forward by the vendor in a passage that is worth reproduction (almost) in full:

71. First, it is contended that the agreement is not binding because it does not say in terms that it is. That submission cannot be accepted. It amounts to saying that a contract can only be binding if it says so expressly. Acceptance of that notion would wreak havoc on the jurisprudence of the interpretation of contracts.

72. Secondly, it is contended that, when Mr Gibson told Mr Lucas that Mr Hampton he “agreed with everything”, that when read in context it is not signifying agreement to an offer to purchase. I also cannot accept that submission. It is as plain as a pike staff that Mr Gibson, on behalf of the respondents, agreed to each of the changes proposed by Mr Lucas in his email and included in the Offer to Purchase.

73. Thirdly, it is contended that at the time that the Offer to Purchase was drafted, and at 5 November, there was no nominee nominated pursuant to the and/or nominee clause, and because Mr Lucas was “part of the mix”, who he was signing on behalf of and whether or not there would be a nominee “is an issue that needs to be dealt with”. I cannot accept that contention either. The simple fact is that Mr Lucas was the purchaser, and unless and until a nominee is substituted, he remains so. There is no issue “that needs to be dealt with”.

74. Fourthly, it is contended that the Offer to Purchase was at all times headed “Offer to Purchase”. And of course it was. But that fact cannot possibly go to the question of what the parties objectively intended in all the circumstances.

75. Fifthly, it is contended that Mr Hampton never signed the Offer to Purchase in the final form – he only signed it in the original version and that “may have had different consequences”. In the absence of any indication of what those circumstances might be, I must reject that contention too.

76. Sixthly, it is contended that the effect of Mr Lucas amending the Offer to Purchase at the time of his signing it meant that it should be construed as a counteroffer. In circumstances where Mr Hampton clearly confirmed in subsequent emails that he agreed to the amendments, whether or not it was a counteroffer is irrelevant.

77. Seventhly, it is contended that when Mr Gibson sent his 5 November email the PDF of the Offer to Purchase was not included. That circumstance is wholly irrelevant and I reject the contention.

78. Eighthly, it is contended at the time the Offer to Purchase was entered into it was not intended to be legally binding because there was more to be negotiated. I reject that contention. That is the point of the fourth category of Masters v Cameron. The fact that “there is more to be negotiated” of itself is not a ground for declining to recognising an agreement as falling within the category, because it is necessarily so.

Conclusion

The end result was that the email correspondence referred to above was binding. That position did not change because the purchaser’s solicitor later put forward a ‘formal contract’.

The lesson learned is that emails, texts and even other forms of liaison (including informal conversations) can result in a Court determining that a contract had been formed.

If you subsequently try to wriggle out of the ‘contract’ on the basis that there was no formal written document signed, you may fail – and be stuck in a contract that you wish you had your lawyer advise you on beforehand.

If you wish to avoid such circumstances, the trick is to always say that everything is “subject to the execution of a final agreement, and that unless and until such a final agreement is executed, there is no concluded agreement”. For example an email in negotiations could state:

For the avoidance of any doubt, this offer is conditional upon the execution of a formal written agreement by the parties, no agreement will be binding until such a formal written agreement is agreed upon and executed by the parties.
The effect of such a statement is simply to make clear that it is not a situation were the parties intend to be bound immediately. If that is found to be the intention of the parties, the Courts will almost certainly give effect to it.

Contact us

Gavin Parsons and Associates can assist you with any questions you may have regarding contracts and agreements. Contact Gavin Parsons and Associates on (02) 9262 4471 for a free no-obligation consultation today.

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1. Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360 (Dixon CJ, McTiernan and Kitto JJ)