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Are negotiations by email binding?

Since email became a popular form of communication, the legal system has been dealing with whether or not parties can be bound by representations made by an exchange of emails.

The main issue is that there can be a degree of informality in corresponding over email. One party may treat it simply as a conversation/negotiation and any agreement reached will be documented formally in a contract or exchange of letters. This leads to disputes as one party does not think they are bound by what has been negotiated through the exchange of emails and the other party thinks that they have a binding agreement.

Is such circumstances the issue for the Courts is whether parties to a dealing intended to be bound by any representations made by email. When disputes arise between parties, the Court will look to the conduct of parties during and after negotiations to determine whether a binding agreement exists.

It is common for a contract to include terms which allow either party to accept email as a valid form of notice. If this is the case, it is important steps are taken to minimise uncertainty:

  • Follow up emails with a letter or phone call to ensure the receiver has received the email;
  • Ensure emails clearly state the senders objective so that the receiver understands the nature of the correspondence;
  • Send to multiple emails if appropriate;
  • Do not make guarantees or promises by email or in letter which you do not intend to be bound by; and
  • Avoid ‘‘off the record’’ statements.

If you do not intend to be bound by a representation you should make this clear at the commencement of negotiations and at the beginning of any emails you send to the other party. Use clear statements such as:

  • ‘‘I cannot guarantee …’’
  • ‘‘I do not intend to be formally bound by …’’
  • ‘‘I do not agree to undertake … until a formal agreement is signed’’

As a general rule in negotiations, if you act as though you will be bound by an agreement, a court will most likely determine that the agreement is binding. Exercise great care and choose your words wisely when corresponding over email to ensure you are not bound by an agreement prior to signing a formal agreement.

If you have any queries or require any assistance in relation to reviewing, negotiating or drafting contracts, please contact us on 03 6332 9353.

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