Despite their informal nature, emails can create binding obligations.
Perhaps the most important concept to keep in mind is that the basic principles applicable to the making of a contract by electronic means are no different to the basic principles applicable to contracts formed orally or in writing on paper. As stated in section 8 of the Electronic Transactions Act 2002, “information is not denied its legal effect solely because it is in electronic form”.
The five basic elements required to establish a legally enforceable contract are summarised as follows.
An offer is a definite undertaking by one party to another setting out the terms on which it is prepared to deal and is made with the intention that it will be binding as soon as it is accepted.
The two elements required to form an offer are, (a), that the terms presented are sufficiently clear to allow a contract to be formed merely by acceptance without further negotiation (although such negotiation may still occur); and, (b), there is an intention of the offeror to be legally bound (this may be inferred from words or conduct). A statement which lacks either or both of these components will constitute a mere “invitation to treat”.
There is a well-established presumption in law that parties to a business agreement intend to be legally bound. Courts will usually draw inferences from the words or conduct of the parties to establish intention and, if satisfied, will do its best to give effect to that intention.
Considering this, the best way to protect yourself when engaging in business negotiations via email is to state at the outset that an agreement is not binding until such time as a formal agreement is entered into.
Certainty of terms
Certainty of terms is another necessary element of formation. A contract may be deemed unenforceable if key terms are not settled at the time the offer and acceptance are made. It is important to note, however, that commercial contracts rarely fail on grounds of uncertainty, as courts are usually able to discern appropriate terms from the circumstances of the contract or by reference to market practice or other objective standards.
In common law jurisdictions such as New Zealand, a contract is not binding unless supported by consideration, except where made by deed.
In the commercial context, the contract will need to be supported by something of value. This could be a promise to provide goods or services, a promise to pay for goods or services, or the foregoing of a benefit (e.g. forbearance to sue).
A general principle of contract law is that a contract is formed at the time that acceptance is communicated by the offeror to the offeree. This acceptance must be full, unequivocal acceptance and must not include the introduction of any new terms. Anything less than this is likely to be treated by the courts as a rejection or counter-offer.
New Core Properties Ltd v Ganellen Construction Ltd  NZHC 3128
This is a case where an enforceable contract was deemed to have been created as a result of a sequence of email exchanges.
New Core Properties Limited owned a central city commercial property it wished to develop following the Christchurch earthquake and accordingly entered into discussions with a building company, Ganellen Construction Limited, regarding a proposed building contract.
The question before the court was whether a legally binding contract was in fact ever concluded between the parties.
The court saw particular importance in a chain of email correspondence on 1 March 2014 which involved negotiation between the two parties’ respective legal representatives as to several key terms of the contract. Factors that the court looked at closely included the wording of the emails, the timing of the emails and who the emails were actually sent by.
Despite New Core’s director’s deposition that he had no intention of becoming legally bound by the emails, the court stepped beyond this and presumed legal intention through an examination of the surrounding circumstances of the case. The court also took note of a confirmatory email sent by New Core’s solicitor to Ganellen Construction on 29 April 2014 and ruled that this demonstrated clear evidence that consensus had been reached by the parties on all essential terms.
A further defence made by New Core was that the solicitor who sent the email did not have capacity to enter into a contract on the company’s behalf. The court dismissed this claim on the grounds that the solicitors were appointed as representatives by written authority of the company and did therefore have capacity to bind New Core.
The court found that an enforceable contract had come into existence as a result of the emails on 1 March 2014, identifying a specific email as the offer and another as the acceptance. The parties were directed back to arbitration to reach an appropriate settlement.
This recent judgement highlights the important notions that:
- There is a presumption in law that parties to an apparent business transaction do intend to be legally bound;
- Legal representatives have the ability to enter into commercial contracts via email on their clients’ behalf where written authority has been obtained; and
- Agreements reached between two parties via email will be treated no differently than a contract agreed via any other medium.
Considering the above it is important that maximum caution is exercised when engaging in business negotiations with another party, particularly where those communications are made by electronic means.
Published: 11 September 2015