In November last year the High Court of England and Wales held that an adjudication award obtained by Bridgwater Civil Engineering Limited (BCE) against Mi-Space (UK) Limited (My-Space) was unenforceable because BCE's claim for payment had already been settled by an earlier email exchange between the parties.
Background and email-exchange
The parties were in dispute over a payment application made by BCE in terms of a construction contract between the parties. Mi-Space refused to pay the sum claimed and BCE suspended work.
The parties met to explore whether settlement was possible, but did not reach agreement. During a subsequent exchange of emails, Mi-Space sent BCE an email making an offer in settlement stating that it would pay the amount offered "upon receipt of BCE's formal acceptance in writing of this agreement." The email concluded "Please confirm your agreement to the above."
BCE responded stating "Yes we are in agreement with this now. Can you carry on formalising the paperwork."
Mi-Space made the promised payment and BCE returned to site. After that, Mi-Space sent BCE a Deed of Variation, containing the terms outlined in the email exchange. BCE refused to sign that, advised Mi-Space that no binding agreement had been reached yet and suspended work again.
After that, BCE obtained an adjudication award in respect of its payment application. When that was not paid by Mi-Space, BCE commenced legal proceedings to enforce the award. In defence of that action, Mi-Space relied on the email exchange and argued settlement of the payment application had already been agreed.
Decision
The judge, Edwards-Stuart J, had to decide whether the email exchange constituted a settlement agreement or whether, as argued by BCE, it was simply an agreement in principle which required to be formalised in a written contract.
He rejected BCE's position that during the meeting between the parties it was agreed that any agreement between them would have to be put in writing and signed before it could take effect, ie that any settlement discussions would be "subject to contract". Further, in Mi-Space's email the term "subject to contract" was not used. Accordingly, no reasonable observer of the transaction would conclude that the parties intended anything other than to reach a binding agreement, as there was an offer and there was acceptance of it.
He looked closely at the wording in the emails. He decided that "formal acceptance in writing" in the circumstances meant an acceptance that was clearly and properly recorded in writing, so the email response from BCE sufficed. The reference to "formalising the paperwork" in BCE's response could have referred to the documents required to process the payment to BCE and didn't necessarily mean a formal agreement was required.
The email exchange did constitute a binding settlement agreement because:
- Mi-Space's offer covered all the matters in dispute and was clearly expressed
- BCE's email was an unequivocal and sufficiently formal acceptance of the offer made in Mi-Space's email
- No sensible businessman could have thought that the other was intending anything but the achievement of a legally binding agreement
Points to remember
This case illustrates that it's possible for contracts, including settlement agreements, to be created by informal communications such as email correspondence.
If you are engaging in settlement discussions by email but intend to negotiate a written contract thereafter, so that you can, for example, scrutinise the commercial terms internally and obtain legal advice from your in-house solicitors or external lawyers, then make it clear in the email that it is subject to contract.
If not, then it is possible that the other side (and, potentially, a court) could take the view that the terms in the email form a binding agreement between you and cannot be re-opened.
It is also important to remember that it is possible for a contract to be created orally, so the same advice applies when attending meetings to discuss settlement. It can be difficult to prove what has been said, as this case illustrates, so ensure that it is noted in the minutes of the meeting that it was agreed that the discussions would be subject to contract.
Contributor
Partner
