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Court ruled email correspondence a “contract” for the sale of business

Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119

email correspondence
Queensland Court has ruled that email correspondence amounted to a legally binding contract.

The Supreme Court of Queensland recently ruled that a series of email communications involving the sale of a business amounted to a binding contract.

It's a scary thought in this day and age where emails are fired off at an alarming rate and sometimes without much forethought or understanding of the legal ramifications they present.

Be aware that if you are negotiating by email, as is commonly done in business, the contents of your negotiations may constitute a valid and binding contract, as the court found in this case.

The Queensland Supreme Court enforced a series of email communications as constituting a binding contract for the sale of a roadhouse, where it found the following elements of a contract existed:-

  • Offer;
  • Acceptance;
  • Clear agreement as to the material terms of the contract;
  • Intention (objective intention) by both parties to be legally bound.

This case offers us some food for thought, particularly if you are in the business of negotiating on the sale or purchase of businesses or real estate or transacting leasing.  This is also highly relevant to agents acting on behalf of vendors or lessors.

Will the courts’ conclusion in this case make you slow down and re-read those email before hitting ‘send’?

The facts

North Queensland Fuel Pty Ltd entered into negotiations to sell the Koah Roadhouse to potential purchasers Stellard Pty Ltd and Sharmen Pty Ltd.  Stellard and Sharmen were related entities that were looking into the possibility of purchasing the Roadhouse together.

After inspecting the property, negotiations proceeded by way of email. 

Stellard and Sharmen emailed an offer to purchase the Koah Roadhouse ‘subject to contract’.  This offer was in turn accepted by North Queensland Fuel Pty Ltd ‘subject to execution of the contract provided (with agreed amendments)’ by reply email.

Ultimately, however, North Queensland Fuel did not follow through with the sale to Stellard and Sharmen.

Stellard and Sharmen brought an action against North Queensland Fuel Pty Ltd, claiming that the email exchange constituted a contract for the sale of the Koah Roadhouse.

In their defence, North Queensland Fuel, argued that they didn’t intend to be legally bound by the email exchange.  In addition, they claimed that there was no written agreement for the sale, which is a requirement of s 59 of the Property Law Act 1974.

The Court quoted from Kirby:-

“The mere fact that the parties contemplate the execution of a formal contract, subsequent to an informal agreement, does not mean that the informal agreement (ie. the email communications) is not presently binding”.

The court considered the following

The court looked at whether:-

  • the parties reached an agreement as to the material terms of the contract in the email correspondence;
  • whether the parties intended to be legally bound by the email correspondence; and
  • whether the requirement for a signature is satisfied by the email correspondence in accordance with the Electronic Transactions (Queensland) Act, 2001.

Agreement as to material facts

The court found the following material matters were agreed on in the email correspondence:-

  • what was to be sold;
  • the purchase price;
  • the deposit;
  • when stock was to be valued;
  • pre-conditions to the sale - when testing of tanks and lines was to occur and the terms of a due diligence period;
  • when settlement was to take place; and
  • where it was to take place.

The court found agreement on the material matters of the sale.

Intention to be legally bound

The North Queensland Fuels argument that it did not intend to be bound by the email correspondence, did not stand up.

It came to light that North Queensland Fuel had been negotiating with another party at the same time as it was negotiating with Stellard and Sharmen, in an attempt to secure the highest price and perhaps play the two interested parties against each other.

However, the court found that North Queensland Fuels hidden intention not to be bound, in other words its ‘subjective’ intention, was not of relevance. 

The court was not concerned with the “uncommunicated subjective motives or intentions of the parties” but rather the intention that would objectively be understood by the other party in the circumstances.  (Ermogenous v Greek Orthodox Community of SA Inc )

As a result, the uncommunicated reservations, or secret intentions, harboured by the North Queensland Fuel were not considered relevant.

“What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.  References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement”. (Toll (FGCT) Pty Ltd v Alphaparm Pty Ltd).

Was the Property Law Act requirement for a signature satisfied by the email correspondence?

The Property Law Act (s59) requires contracts for sale of land to be in writing.

It states:

“No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised.”

The court found that the Property Law Act requirements were satisfied by the email correspondence under the Electronic Transactions (Queensland) Act, 2001.

Conclusion

The court agreed with Stellard and Sharmen that there was indeed a contract with North Queensland Fuel.

Resources

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