Legal Update
Vendors beware: Email negotiations may form Binding Contract
prior to signing
It is a well-established principle that no action may be brought in relation to a contract for the sale of land,
unless that contract is in writing and signed by the party to be charged or its authorised representative:
section 59 of the Property Law Act 1974 (Qld). However a recent decision in the Supreme Court of
Queensland has potentially extended this principle in fairly controversial circumstances.
In Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119, the Supreme Court of
Queensland held that email negotiations, between a vendor’s authorised representative and a
prospective purchaser’s authorised representatives, amounted to a binding contract between two parties
despite reference to the fact that the offer contained in an email exchange was expressed to be subject to
the execution of a formal contract.
Facts
The Defendant, North Queensland Fuel Pty Ltd (“NQF”), owned a roadhouse service station in
Queensland. It appointed Colliers International (Cairns) Pty Ltd (“Colliers”), as its agent, to act on its
behalf in selling both the freehold land and the business.
The Plaintiff, through its authorised representative, commenced negotiations with Colliers and requested
NQF’s terms of sale. After numerous telephone discussions, Colliers sent an email to the Plaintiff
outlining its offer to sell the service station for $1.6 million, subject to a formal contract being prepared.
The email also attached a draft contract, which contained a special condition requiring guarantees from
the directors and shareholders of the Plaintiff.
The following day, the Plaintiff’s authorised representative sent an email to Colliers indicating that they
accepted NQF’s offer, however that it was “subject to execution of a formal Contract and a minimal due
diligence period.”
Later that day, Colliers responded to the Plaintiff’s email confirming the Plaintiff’s acceptance of the offer
and noting that it would be subject to execution of the Contract provided to the Plaintiff (with any agreed
amendments).
The Plaintiffs then submitted an amended contract to Colliers, which omitted the special condition
requiring guarantees from the directors and shareholders of the Plaintiff. NQF, who was also considering
other offers, which were higher than the Plaintiff’s offer, decided not to sell the service station to the
Plaintiff (on the basis that NQF was not satisfied with the amended contract submitted by the Plaintiff).
In response, the Plaintiff commenced action in the Supreme Court in an attempt to compel NQF to
continue with the sale of the service station to the Plaintiff.
Decision
The Court had to consider two main issues:1. Whether the email exchange between the parties constituted a valid and binding agreement; and
2. Whether the said email exchange was sufficient to satisfy the requirements of section 59 of the
Property Law Act 1974 (Qld) (“PLA”), namely that a contract for the sale of land must be in writing
and signed by the party to be charged or its authorised representative.
With respect to the first issue, the Court found that there was a valid binding agreement, as the parties
were content on being bound immediately and exclusively by the terms they had agreed upon. The Court
also noted that all references to the execution of a formal contract was evidence that the parties had
agreed on the essential terms, with the intention that a formal document containing the essential terms be
executed at a later date.
The Court also held that the writing requirements of Section 59 of the PLA were satisfied, as the
requirements in section 14 of the Electronic Transactions (Queensland) Act 2001 (Qld) were met. Section
14 sets out the requirements for implying a person’s signature by means of electronic communication.
The Court found that the extensive email correspondence between the parties established that Collier’s
acceptance email was sent on behalf of NQF.
Consequences
It is apparent from this decision that electronic communications regarding offers and purported
acceptance, occurring prior to the execution of a contract are likely to constitute a binding and valid
contract if the essential terms have been agreed.
This is likely to apply even where an offer is accompanied by a statement that an offer (or its acceptance)
is subject to the execution of a contract i.e. the execution of the contract will not necessarily be a
precondition to the creation of a valid/enforceable contract, particularly where the essential terms have
already been agreed upon (in writing) by the parties.
If you do not wish to be legally bound until formal contracts are entered into, you need to be very careful
and should state this clearly in correspondence by using words to the effect “Please note that I do not
intend to be legally bound until formal contracts are entered into”.
For further information contact Luke Steptoe.
July 2015
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