The Courts confirmed that there are instances where, even if an agreement has been negotiated, written and agreed, it is not a legally binding contract until the document has been signed.

In Jamp Pharma Corp v Unichem Laboratories Ltd [2021] EWHC 1712 (Comm), the claimant argued that because the agreement had not been ‘subject to contract’, the addendum was legally binding on the parties. The addendum was the final written document following protracted negotiations and agreement on essential terms and had been signed by the claimant. The defendant was of the view that the agreement was not legally binding because it was conditional upon the signing of the addendum by both parties.

In making its decision the Court considered the following:

1. As a general rule, when an agreement is conditional on acceptance in a prescribed method,it will be accepted only in that manner;
2. Whether the parties intended to create a legally binding agreement is dependent on thecommunications between them, both verbal and behavioural, and the objective conclusion that can be reached as a result, taking into account whether they had reached agreement as to the terms legally required;
3. The material background relating to the matter as well as the subsequent conduct of the parties in determining whether a contract has come into existence.

The court noted that inclusion of a terms such as ‘subject to contract’ would usually negate the intention of the parties to create a legally binding agreement but does not necessarily mean that a draft agreement expected to be signed by both parties is intended to be ‘subject to contract’. Furthermore, it clarified that the inclusion in a final draft of spaces for signature, does not in itself constitute a specified mode of acceptance. The court’s decision in these circumstances was that a binding agreement had not been concluded between the parties but as seen above, this is dependent on a variety of factors.

WHY IT MATTERS TO YOU: It is extremely important that while drafting a contract and subsequently when negotiating the terms you are constantly aware of the ramifications of your behaviour and communications with other stakeholders. All needs to be as documented as possible so if a challenge arises sufficient element exist to support a position.

With unrivalled international experience in drafting and negotiating, ASV Law can help you ensure that you never end up on the wrong side of an invalid contract – saving you time and money!

Please contact ASV Law info@asvlaw.com now for more information and we will be happy to assist you.