SUBJECT TO CONTRACT: JOANNE PROPERTIES LTD V MONEYTHING CAPITAL LTD & ANOR
In this short blog, we take a quick look at the recent decision of Joanne Properties Ltd v Moneything Capital Ltd & Anor [2020] EWCA Civ 1541 (“Joanne Properties v Moneything”), where the England and Wales Court of Appeal (“EWCA”) made clear the importance of the “subject to contract” label.
Salient facts. A dispute had arisen between Joanne Properties Ltd (“Joanne”), the owners of a building, and Moneything Capital Limited and Moneything (Security Trustee) Limited, who lent money to Joanne ([2] Joanne Properties v Moneything).
The parties then entered into a formal written agreement which, among others, stated that the sum of £140,000 was to be ring-fenced ([3] Joanne Properties v Moneything).
The issue in Joanne Properties v Moneything was whether the parties reached a further binding agreement on the sum of £140,000 pursuant to written communications passing between their solicitors ([1] read with [5] Joanne Properties v Moneything).
It suffices to state that from 29 May 2019 to 24 July 2019, the relevant written communications between the parties’ solicitors were labelled with “subject to contract” and “without prejudice and subject to contract”, save for a written offer of 19 June 2019 that was headed “without prejudice save as to costs” which was not accepted ([7] – [11] Joanne Properties v Moneything).
“Subject to contract”. As noted by the EWCA, the phrase “subject to contract” is well-known ([12] Joanne Properties v Moneything). There are, however, some points made by the EWCA which are good to refresh ourselves on:
1. Usually, once negotiations have begun “subject to contract”, this condition is carried all the way through ([17] Joanne Properties v Moneything);
2. This condition can be removed only if parties either expressly agree to “expunge” the condition or if such an agreement is to be “necessarily implied” ([18] Joanne Properties v Moneything);
3. Even if the parties had became of one mind on the terms of the contract, the “original intention still remained intact that there should be no formal contract in existence until the written contracts had been exchanged” ([19] Joanne Properties v Moneything); and
4. This issue is quite separate from whether the agreement reached between the parties is an incomplete agreement ([25] – [26] Joanne Properties v Moneything).
Application to the facts. On the facts of the case, the EWCA held that since the “alleged offer and acceptance were each headed “without prejudice and subject to contract”” and that “[a]ll that had happened was that correspondence had been exchanged”, it was not possible to ignore the “subject to contract” heading in the communications especially when that label had been used at various stages throughout the discussions. Hence, no binding contract had been made. ([27] – [30] Joanne Properties v Moneything).
Even if the parties were of one mind, there “must be a formal contract, or a clear factual basis for inferring that the parties must have intended to expunge the qualification” ([34] Joanne Properties v Moneything).
Takeaways. The “subject to contract” label is an important one. Once you use this label, it will not be easy to find that the “subject to contract” condition has been lifted such that an agreement was reached in the absence of either a formal contract or clear facts that the condition must have been lifted.
As such, if you are negotiating the terms of an agreement and intend to have a formal written agreement to record the final terms, it is prudent to make clear that the negotiations are “subject to contract”.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.