English Court Of Appeal Considers The Effect Of The Words "Subject To Contract"

• Published date: 30 November 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Mayer Brown
• Author: Mr Miles Robinson, Mark Stefanini and Jonathan Cohen

Introduction

The English Court of Appeal has handed down its judgment in the case of Joanne Properties Limited v Moneything Capital Limited and another¹, which concerned the use and effect of the words "subject to contract" during the course of a negotiated settlement.

The decision highlights the importance of using labels such as "subject to contract" when negotiating contracts or settlements, as a means of indicating whether or not the acceptance of an offer will cause a binding contract to be formed immediately upon its acceptance, or whether such offer/acceptance is subject to the parties then agreeing the specific terms of their bargain.

Background

The Appellant ("Joanne") was the owner of a building in London (the "Property"). It borrowed money from the Respondents ("Moneything") secured by a legal charge over the Property. Upon falling into arrears, Moneything appointed LPA receivers in December 2018. In January 2019, the parties agreed to (and did) sell the Property.

Following the payment of the costs of sale and the capital advanced under the loan agreement, the parties agreed to "ring-fence" £140,000, representing "sums that may be determined to be payable to [either party] subject to the terms on which the claim is resolved" (the "Ring-Fenced Sum").

The parties then entered into negotiations (the "Negotiations") as regards how that amount should be shared between them, resulting in a dispute as to whether or not the parties had entered into a binding contract in relation to the Ring-Fenced Sum.

The Negotiations

The Negotiations took place by way of correspondence between the parties' respective solicitors, the majority (but not all) of which were expressly stated as being "subject to contract".

The correspondence between the solicitors culminated in the solicitor for Moneything emailing the solicitor for Joanne, stating that his client would accept £75,000 from the Ring-Fenced Sum, with "the mechanics and terms to be agreed" – the email was stated as being "without prejudice and subject to contract".

The solicitor for Joanne replied (in an email also marked "without prejudice and subject to contract") with the word "agreed", and noted that he would liaise with counsel and "put a proposal to you to achieve the desired end"

In the meantime, Joanne changed solicitors and several weeks later Moneything's solicitor wrote to Joanne's (new) solicitor, in a letter marked "subject to contract", and stated:

"We trust that your instructions accord with...