The decision in Bieber and others v Teathers Limited (in liquidation)  is a timely reminder of the importance of using, or failing to use, those three little words ‘subject to contract’.
In the Bieber case, the parties’ solicitors had agreed on a settlement figure through an exchange of emails, but were subsequently unable to agree the terms of the formal settlement agreement. A dispute arose as to whether a binding agreement had actually been reached through the exchange of emails.
The Court held that a binding agreement had been reached, despite there not being a formal settlement agreement and despite the fact that not all of the final terms had been agreed. The email correspondence made reference to the offer being in full and final settlement of all claims and was not marked ‘subject to contract’. The Court found that, when looking objectively at the parties’ course of negotiations, there was a mutual intention for the agreement to be binding. It did not matter if the Defendant believed there were still terms to be negotiated and that it was a two-stage process, as it had not communicated this to the Claimants.
Although this case was not in an employment context, the same principles would be likely to apply. It is important for parties to be aware that it is possible to reach a binding agreement through an exchange of emails, even where one of the parties did not intend to create a binding contract. Whilst it is not necessary to expressly state that negotiations are ‘subject to contract’ if this is what both parties intend, it is advisable to make this clear to avoid any doubt.
There are certain employment claims that cannot be settled without a formal signed settlement agreement, however there is no such requirement for certain other claims or for contractual claims. Parties should therefore consider taking the following steps to avoid finding themselves unintentionally bound by an agreement:
- mark all communications including draft agreements, letters, emails etc ‘subject to contract’ (except for the final agreement)
- It is also best to mark them ‘without prejudice’ if they involve settlement discussions (our article on without prejudice can be found here)
- when negotiating over a figure, consider whether there are other terms that still need to be agreed and make it clear if a formal agreement is required
- keep detailed and accurate notes, particularly of telephone conversations that are ‘subject to contract’
If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).