Something To Reply Upon? Formation Of Contracts

Author:Ms Mary Liz Mahony and Niav O' Higgins
Profession:Arthur Cox

When a contract is formed, binding rights and obligations are created that can be legally enforced through the Courts. It is crucial to understand the many ways in which a contract can be created and whether a particular party is bound by its terms.

The rise of email has had a significant impact on how we do business and consequently, the formation of contracts. The speed and ease at which emails can be sent, and their perceived informality, has increased the flow and level of communication which may pass between negotiating parties. Recent case law from the UK now suggests that a chain of email correspondence can constitute a binding agreement, so it may be time to reassess the manner in which emails are used between contracting parties.

Formation of Contracts

To create a legally enforceable contract there must be an offer, acceptance of that offer, consideration for it and an intention to create legal relations between the parties. There is a presumption that parties to a commercial contract intend to create legal relations. Despite this basic formula, the realities of commercial life mean that agreements are not always reduced in their entirety to one concise, duly executed document. When uncertainties as to the fact, and nature and extent, of a contract arise, the parties are often forced to call on the courts to determine whether a contract has been formed and if so, what are the respective rights and obligations of the parties.

Recent Case Law

In Nicholas Prestige Homes v. Neal1, the Court of Appeal held that a binding contract was created over a chain of emails, where in response to an email from a Property Agency attaching an agency agreement, the Property Owner replied, "that's fine". The Property Agency was entitled to recover damages for breach of contract, when the property owner subsequently sold the property through a different agency. While the damages awarded were small, and the circumstances of the case discrete, this judgement serves as a warning shot from the Court of Appeal, that email correspondence, despite its perceived informal nature, can create a contract.

In another, even more recent case, Golden Ocean Group Limited v. Salgaocar Mining Industries PVT Ltd and anor2, the UK High Court held that a series of emails, could arguably create a binding guarantee. The case involved an agreement and guarantee for the chartering of a vessel over a period of ten years. When the charterers refused to take delivery of the...

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