The Impact Of "subject To Contract" Wording

Published date26 February 2021
Subject MatterCorporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning
Law FirmShepherd and Wedderburn LLP
AuthorMr Iain Drummond, Leigh Herd and Ross Simpson

Aqua Leisure International v Benchmark Leisure1 involved a payment dispute between parties involved in the construction of a water park. The judgement clearly set out that an agreement made 'subject to contract' is non-binding, until and unless the formal documents are signed. The judgement also took account of common practice and understanding in deciding that a party had not waived its right to challenge the jurisdiction of an adjudicator. Also notable is the conclusion that some fundamental points of jurisdiction cannot be waived.

Background

Benchmark was the developer of a water park, and had employed Aqua to carry out building works. A dispute arose over payment and Aqua referred the matter to adjudication. The adjudicator found in favour of Aqua, and awarded a sum of money, which included legal costs under the Late Payment of Commercial Debts (Interest) Act 1998.

Shortly afterwards, the parties met to discuss settlement and reached a compromise. Under the terms of the compromise agreement, Benchmark would make several payments to Aqua, Benchmark's parent company would provide a guarantee, and Aqua would carry out snagging works. Importantly, one clause stipulated that this compromise agreement was 'without prejudice and subject to contract'.

Benchmark duly began making payments and Aqua began snagging works. Aqua sent Benchmark the formal documents for signature but received no reply. It then became clear that Benchmark was at risk of defaulting on the final payment. Aqua made it clear that it wished to rely on the parent company guarantee, to which Benchmark replied that there would be no guarantee. In response. Aqua brought the current proceedings to enforce the adjudicator's decision.

Decision

The court firstly had to decide whether the compromise agreement was binding. If so, then the compromise agreement would supersede the adjudicator's decision. Benchmark submitted that the compromise agreement was binding and argued that the parties had agreed to treat it as such, as illustrated by their performance of some of the terms of the agreement. It submitted that the 'subject to contract' proviso had been waived. Aqua refuted this, pointing to the clause that stipulated that the compromise agreement was clearly made 'subject to contract' and therefore did not become binding until it was reduced to writing. It argued that as Benchmark had refused to sign the formal documents that it was sent, the compromise agreement never became binding.

The court...

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