Last edited 22 Jun 2014

The use of email in contract negotiations

Contents

[edit] Introduction

Recent case law has, once again, revealed the dangers of protracted email correspondence creating an unintended contractual relationship between two parties.

Email is ubiquitous and is used increasingly as a means to convey 'pre-contract' requirements and terms between parties who envisage entering into a formal contractual relationship. However, unless care is taken it is possible for a contract to be formed between the parties based upon that email correspondence.

In law, a contract does not need to be signed for it to be enforceable. A contract can be verbal. Even where a contract does need to be signed, it does not necessarily mean signature with a pen. And the word 'signature' has been sufficiently widely interpreted to include e-mail names or even nicknames.

In modern email practice, where the use of the 'reply' or 'reply to all' options is common, users can find themselves in a situation where a long chain of correspondence is created that can be construed as forming the basis of a binding contract. This is amply demonstrated by the case of Golden Ocean Group v Salgoacar Mining Industries (2012), briefly described below:

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The case

The Court of Appeal considered whether a chain of emails constituted an agreement ‘in writing’ between the parties, Golden Ocean Group (GOG) the owners of a vessel that it offered to hire to a subsidiary of Salgaocar Mining Industries (SMI) who would act as guarantor of their subsidiary.

Negotiations were mostly conducted by email. The purported guarantee was not discussed in any depth, but was referred to in the description of the charterer. But the final emails exchanged on behalf of the parties made no reference to SMI’s guarantee and no formal document was drawn up.

Shortly before the vessel was due to be delivered, SMI’s subsidiary denied the existence of a charter and said it was unable to proceed. GOG sought to bring proceedings against SMI as the guarantor. SMI contended the guarantee was unenforceable because it was not in writing and not signed by the guarantor.

The court disagreed and held the requirements necessary for a contract of guarantee had been satisfied. It found an exchange of emails could constitute an agreement in writing provided the transacting parties intended to be bound by it. The lack of a signature was not a barrier.

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Preventative Measures

Conducting negotiations by email may expose a party to the possibility of unintentionally entering into an agreement. Parties should make it clear when negotiating in writing that they only intend to be contractually bound when a formal contract is drawn up and executed in a specified form. In the meantime all email should be marked 'subject to contract'. Even this is not foolproof but it should provide a measure of protection in the majority of cases.

It is also wise to avoid long strings of email correspondence.

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