Commercial & Business Law: Are Emails Legally Binding?

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In this digital day and age issues such as ‘are emails legally binding’ often need to be considered.  Where parties are involved in the negotiation of a contract, it is important for those parties to understand that certain negotiations can form a legally binding contract between the parties.

In Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd Kirby J (as he then was) stated that:

“the mere fact that… parties contemplate the execution of a formal contract subsequent to an informal agreement, does not mean that that informal agreement is not presently binding”.[1]

This principle was demonstrated in the recent  Supreme Court of Queensland case of Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119, where a binding contract was held to arise from email negotiations despite the fact that such negotiations were  expressed to be ‘subject to contract’.

The Facts

This case concerned negotiations between North Queensland Fuel Pty Ltd (defendant) and associated entities of United Petroleum Pty Ltd (plaintiffs) regarding the sale of the freehold and the business of the Koah Roadhouse, a service station owned by the defendant. The plaintiffs’ representative, Mr Hurry, inspected the roadhouse on 17 October 2014 and began negotiations with Mr Beatie, who had been appointed to represent the defendant. A series of email and telephone communications then ensued between the representatives. In one particular email sent to Mr Beatie on 31 October 2014, Mr Hurry confirmed the plaintiffs’ offer of $1.6 million before stating the following:

“this offer is of course subject to contract and due diligence as previously discussed. We are hopeful of effecting an exchange of contracts next Monday but need acceptance of our offer immediately so we are in a position to instruct the appropriate consultants to carry out the necessary investigations.

I look forward receiving your client’s confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses.”

The defendants responded to this email approximately 45 minutes later, stating that:

“We accept the below offer which we understand will be subject to execution of the Contract provided (with agreed amendments) on Monday, minimal due diligence period and the provision of all information/reports etc that are obtained by the purchaser during the due diligence period.”

 When the following Monday arrived the plaintiffs presented an amended contract to the defendants who, unhappy with the proposed amendments, informed the plaintiffs that they had entered into another contract for the sale of the Koah Roadhouse with a different party. It is noted that the court found that the amendments proposed by the plaintiffs did not concern matters essential to the defendant’s entry into the contract.

The Court’s Findings

The key issue thus became whether the email exchange on 31 October 2014 constituted a valid and binding agreement with respect to the sale and purchase of the roadhouse land and business that could now be enforced by the plaintiffs. In particular, the Court addressed some of the following issues:

  • Did the parties intend to be legally bound?
  • Were the requirements for a signature satisfied by the electronic correspondence, in accordance with the Electronic Transactions (Queensland) Act 2001 (Qld)?

Whilst the purported offer and acceptance emails were expressed to be ‘subject to contract’, it was viewed that the broader context of the two emails, and the other expressions used in them, suggested that the parties were content to be immediately bound by the terms upon which they had agreed. This was supported by the fact that the plaintiffs offer emphasised the need for their offer to be accepted ‘immediately’ as both parties were to ‘start incurring significant expenses’.

The fact that each party knew that the other was going to take steps in furtherance of the contract immediately was consistent with there being a contract in existence between them. Furthermore, the defendants acceptance email which expressly referred to ‘agreed amendments’ was viewed to be consistent with something already having been resolved by the parties, and that such an agreement may be amended going forward.

Under section 59 of the Property Law Act 1974 (Qld), Contracts for sale of land usually have to be in writing, subject to a very prescriptive exception in the Electronic Transaction (Queensland) Act 1999 (Qld). The court took the view that in these circumstances, the exchange of email satisfied this exception in the Electronic Transaction (Queensland) Act 1999 (Qld).

The court ultimately viewed that there was a contract in existence between the parties regarding the sale of the Koah Roadhouse. The court ordered a judgment in favour of the plaintiffs, and allowed a further hearing for costs.

Our Comments

The use of e-mails and “messengers” is an increasingly prevalent and efficient means of communication.

The decision highlights the need to take care when drafting emails or other electronic communications during the negotiation stage of a transaction, as well as specifying the point at which a binding contract will be created.

It is important for businesses, particularly those that actively use the internet in the sale of their goods and services, to:

  • be aware that in some circumstances their electronic communications can be binding; and
  • take legal advice on how they can ensure their communications are binding (or non-binding, as the case may be).

For more information on the topic of ‘are emails legally binding’

Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our specialist Commercial Lawyers today.

[1] Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd  BC9505503at 22.