In April 2015, the Claimants sent the first two Defendants (together, Aabar) a letter marked “Subject to Contract” in which they offered to buy certain rights from Aabar (the April Offer). Global Asset Capital Inc (Global) claimed that a binding contract was formed during a subsequent telephone call (the Telephone Call), on which Aabar agreed to sell its rights to Global subject to two conditions, one of which required Global to re-send the April Offer to Aabar in an “open and binding form” (the Alleged Contract). Global then sent Aabar a letter including the key terms of the April Offer and various additional terms (the May Offer), with a covering email asking Aabar to confirm its acceptance. Aabar refused to accept the May Offer, and stated that there were no ongoing negotiations between the parties.
Global issued proceedings seeking a declaration that the Alleged Contract was valid and specific performance of Aabar’s obligations under it (or, alternatively, damages for breach of those obligations). Aabar applied for summary judgment and / or strike out on the grounds that Global had no real prospects of success in establishing that a binding contract existed. The High Court found that the parties’ communications following the Telephone Call should not be taken into account, and dismissed the application. Aabar appealed.
Can subsequent communications be taken into account when assessing whether a contract has been formed?
The Court of Appeal confirmed that, when deciding whether a contract has been made during negotiations between parties, the entire course of negotiations between those parties should be taken into account, and held that the High Court had therefore been incorrect to disregard communications which occurred after the Telephone Call. Global’s argument that this principle should not be applied to oral contracts was rejected.
The High Court had been wrong to apply principles of contractual interpretation to a question of whether a contract had been formed. Whilst it is correct that one should not interpret words used in a contract by reference to later events, this is not relevant when assessing whether a contract has been formed. Equally, the principle that further negotiations between parties cannot, without their consent, negate a contract which has already arrived at also only applies once it has been established that a contract exists. Further negotiations and later events should, in fact, be considered when assessing whether or not a contract has been formed in the first place.
Had a contract been formed?
The Court of Appeal held that no contract had been formed. The April Offer was marked as being “Subject to Contract”, and there was no evidence that this status had been waived by the parties. It was therefore not an offer capable of an acceptance by Aabar. At most, Aabar’s purported acceptance during the Telephone Call was an agreement to agree. Equally, the communications between the parties following the Telephone Call were clearly inconsistent with any argument that the Alleged Contract had already been formed - in particular the fact that the May Offer included additional terms of which its covering email sought acceptance.
Parties should bear in mind when negotiating new contracts that the entire course of their negotiations will be taken into account by a court, including communications, conduct and events subsequent to the point at which the contract has allegedly been formed.
The judgment also acts as a reminder of the importance of ensuring that any communications during negotiations should be clearly marked as being “subject to contract” to avoid an agreement being concluded prematurely.