Take note: Emails can be legally binding!

Anthony Young on the keyboard route to court

EMAILS offer an easy way of communication and is now almost universal. It is, however, important to realise that while it may appear to be informal it may inadvertently enter an organisation into legally binding contractual arrangements.

Formation of a contract: To form a contract under English law, five elements need to be present: An offer; acceptance of that offer; ‘consideration’ (what each party gives to or does for the other); an intention to create legal relations; and certainty of terms.

A contract does not need to be in writing. An oral agreement or a series of dealings between parties may also form a legally binding contract.

Informal acceptance by exchange of emails: It’s so easy to informally enter into a contract. Consider the case of Nicholas Prestige Homes v Neal (2010) where the Court of Appeal confirmed that an email exchange that fulfiled all five of the elements formed a binding contract.

In this case (which concerned a property being sold), terms were set in an email that the seller accepted by replying to the email with ‘Hi Mark, that’s fine. Looking forward to the viewings. Sally’.

A dispute arose when another agent subsequently sold the property and the first agent successfully claimed damages for commission he said was due from a sole agency appointment.

Three key messages came from this case – the courts concluded that the seller was bound by the terms of the contract she had made by email; it is easy to bind oneself into a contract by email; and it is no defence to say that the emails or attachments had not been read or did not reflect what was intended.

In Immigration Storage Company Ltd v Clear plc (2011) the Court of Appeal held that a fax quotation that was signed and returned as an email attachment created a legally binding contract, even though the fax stated that the formal contract would follow.

Email chains and signing emails: Where a firm regularly deals with the same party it is easy to build up a chain of emails going back and forth. A lengthy email chain could start with a simple enquiry but quickly develop into a legally binding contract.

The case of Green (Liquidator of Stealth Construction Ltd) v Ireland (2011), involved a dispute over the terms of a loan to a company that soon after became insolvent.

The High Court held that the parties had ‘signed’ the emails by inserting only their first names at the end of the emails; responding to an email was the equivalent to sending a signed hard copy letter countersigned by the recipient, in circumstances where the second email is sent as a reply and so creates a chain, as opposed to creating a new email; and a chain of emails could constitute a single legal document.

What is an electronic signature?: Since the coming into force of the Electronic Communications Act 2000, an ‘electronic signature’ has counted if it is incorporated into, or is associated with, an electronic communication, but there has been some debate as to what is an electronic signature.

In Lindsay v O’Loughnane (2010) the judge suggested that an email needs to ‘include a written indication of who is sending the email’. The more prevalent view, however, is that there must be some voluntary intention to add the signature.

The cases suggest that the courts will interpret sufficiency of electronic signatures in the light of what the ordinary email user would consider to be a signature – such as signing off with a name, title or informally with a forename.

Practical considerations -- Subject to contract: A string of cases suggest that parties through pre-contract emails can inadvertently form binding legal contracts. If the intention is to negotiate terms before entering into a formal contract, it is important that the emails make this very clear, by, for example, prominently stating in the header or at the top of the email in bold or underlined text ‘subject to contract’. Just including a disclaimer is unlikely to work as it is insufficiently specific and not noticeable.

Authority to enter into contracts: Any member of staff could potentially enter into a legally binding contract on behalf of an organisation.

If it is reasonable for the recipient to assume that the member of staff had authority to enter into the contractual negotiations, the emails are likely to be binding even though the member of staff may not have actual authority to do so.

The overall message is to be very careful how you use email. Writing and sending an email without thought can have serious consequences.

Anthony Young, partner at healthcare law firm Veale Wasbrough Vizards. ayoung@vwv.co.uk