Email Terms Apply in Contract

Posted: 16th April 2011

A recent case in the Court of Appeal has demonstrated that terms agreed by email can amount to a contract despite a formal contract referred to in the emails remaining unsigned. The case concerned a commodities trader and a fuel storage company that had entered into negotiations for the provision of a facility to store 3,000-4,000 cubic metres of derv fuel.

In October 2008, the commodities trader Clear plc made enquiries concerning the availability of storage capacity at Immingham Storage Company Ltd.’s facility in Immingham, Lincolnshire. Following an exchange of emails, it was established that the required storage capacity would be available from 1 May 2009 and a quotation for the storage service was sent to Clear by email.
The quotation included details of the storage availability and stipulated a minimum 12-month contract with 6 months’ notice of termination. It was stated that the quotation was subject to tankage availability and the approval of the Immingham Board. The quotation was also subject to ‘General Storage Conditions’, which were also attached to the email.
The final sentence of the document was ‘A formal contract will then follow in due course’. It was signed on behalf of Immingham and contained space for a signature from Clear under the words ‘we hereby accept the terms of your quotation subject to your Board approval’.
Included in the email was a request that the quotation should be signed and returned by fax not later than the 3 January 2009 in order for the storage capacity to be allocated. In the event, the document was signed with the approval of various officers of Clear and faxed back to Immingham on 5 January 2009.
Receipt of the fax was acknowledged by Immingham and a subsequent email noted its acceptance of Clear’s offer to take up 4,000 cubic metres of storage capacity at Immingham’s depot starting no later than 1 May 2009. It was also stated that a further confirmation contract would be drawn up and forwarded for signature. This was done on 23 January, when a legal adviser employed by Immingham wrote to Clear with a contract document enclosed and stating that ‘the contract will formalise the existing situation between us as detailed in our quotation to you’. The letter requested the document be signed and a copy returned.
Despite acknowledging receipt of the document and stating that it would be signed and returned within the week, the contract was never returned. Clear was unable to source the fuel and so made no delivery to Immingham. The storage facility was kept available for May and June, with Immingham sending invoices on 1 May and 1 June. On 25 June 2009, Clear denied the existence of any agreement, stating that acceptance of the quotation did not constitute a formal contract.
During the initial court hearing Clear argued that return of the signed quotation was not an offer capable of acceptance as a contract because of the inclusion of the words ‘A formal contract will then follow in due course’. This argument was rejected by the trial judge, who quoted established precedent for so doing. Clear was ordered to pay damages of some £197,000.
On appeal, there was further discussion over whether the existence of a contract between the two parties was conditional upon the later provision of a subsequent ‘full contract’. The Appeal Court held that the language of the relevant emails was quite explicit in being a ‘contract confirmation’ and in the acceptance of a contractual offer. The Court also noted that there was nothing in the signed quotation stating that it was ‘subject to contract’. It follows that the subsequent formal contract, had it been signed, would have been no more than ‘further confirmation’ of the contract that already existed.
The appeal by Clear was thereby dismissed.
It is a popular myth that a contract must be agreed in a written document.The fact is that terms agreed by correspondence, including emails, can constitute a legally binding contract. Businesses that don’t want to be caught out in this regard should seek expert legal guidance at the earliest stage of negotiations.