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Will you be bound by a contract agreed to in an email?

Contract Law News | October 2015

The NSW Court of Appeal, in Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313, has overturned a previous decision that discussions and correspondence between solicitors leading up to the Christmas holidays in 2014 to wind up a joint venture had created a binding contractual agreement on the solicitors’ clients.

In 2005 Mr Pavlovic and Universal Music Australia Pty Ltd (“Universal”) entered into a joint venture agreement in relation to a music recording label, Moduar Recordings Pty Ltd (“Modular”). The joint venture was governed by a shareholder’s agreement and an executive services agreement.

In late September 2014, the parties indicated to each other that they wished to terminate the joint venture agreement. Negotiations between the solicitors for the parties resulted in a deed of release and settlement being drafted.

On 23 December 2014, Universal’s solicitors sent a draft proposed deed of release (“Proposed Deed”) to Mr Pavlovic’s solicitor, who responded by email at 2:36pm the next day, stating that Mr Pavlovic “will sign” the Proposed Deed. The final correspondence between the parties was from Universal’s solicitors allowing Mr Pavlovic “a further 48 hours to sign the documents and forward copies to us.”

Neither party sent an executed copy of the Proposed Deed to the other at that time. Universal also failed to send a cheque for $100.00 to Mr Pavlovic for the transfer of the shares in Modular, as was required by the Proposed Deed.

In the earlier proceedings the Court made orders on 22 July 2015 that the parties had entered into a binding agreement on 24 December 2014 on the terms of the Proposed Deed. The Court also held that universal’s solicitor’s 23 December 2014 email constituted an offer, and that this offer was accepted by Mr Pavlovic’s solicitor by way of his response at 2:36 pm the next day.

In his Appeal, Mr Pavlovic’s raised 2 principal issues:

  1. Whether his Honour erred in his finding that Mr Pavlovic and Universal, on 24 December 2014, acting through their solicitors, entered into a binding agreement on the terms of the Proposed Deed; and
  2. Whether his Honour erred in concluding that each party’s solicitors had actual or ostensible authority to enter into an agreement on behalf of the parties on 24 December 2014.

In these recent proceedings, the Court found that the parties had not entered into a binding agreement and that Mr Pavlovic was not bound by the actions of his solicitor, for the following reasons:

  1. The words “he will sign” were a statement of future conduct that Mr Pavlovic will enter into a deed at a later date, and were not an indication that he was accepting the terms of the offer put by Universal;
  2. The negotiations between the parties’ solicitors, including the various emails and telephone calls, indicated that the parties’ relationship would be embodied in a deed to be executed and that the parties would not be bound until the deed was signed;
  3. A later email on Christmas Eve from Universal’s solicitors, indicating that Mr Pavlovic had 48 hours to sign and return the deed, is clear evidence that Universal did not think that Mr Pavlovic was yet bound by the deed; and
  4. The solicitors did not have authority to bind Mr Pavlovic in this instance.

This case is a strong reminder that the negotiation of contract terms must be absolutely clear about the point at which each party is considered to be bound by the agreement. The time that negotiations have ended and an agreement has been entered into should be clarified in writing to prevent potential difficulties further down the line.

View the case details here

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