Negotiating heads of terms and creating a contractual agreement within an email chain has become common practice nowadays, and for the majority of businesses, emails will be their main method of communication.
Many businesses often use specific (and usually formal) language to ensure that each party has fully understood that they will be, or already have entered into a legally binding commercial contract.
However, we ask, what about when we use informal language? Can the contents of an informal email still satisfy the requirements of a legally binding commercial contract?
Athena v Superdrug
In the early 2020 decision of Athena v Superdrug, the court decided that an email chain consisting of a negotiation of terms with an offer being presented and replied to with “Please go ahead with the below…” formed a legally binding contract.
In the email exchange, Athena (a supplier of cosmetic goods) had asked Superdrug to confirm that a stated minimum number of orders was being placed by the national cosmetic store. A Superdrug employee responded with the words “Please go ahead with the below…”.
Superdrug’s arguments against a binding commercial contract being created focussed on the fact that there was no formal procedure (by the issuing of a purchase order), there was no intention to create legal relations, and the employee did not have the authority to enter into a contractual agreement to buy the goods.
The court reviewed the arguments of Superdrug and decided that their arguments had no real prospects of success, and so granted summary judgment in Athena’s favour.
On the subject of authority, the court decided that the role of the Superdrug employee who held themselves out as a “buyer” included that they were authorised to negotiate terms, and that Athena lacked any knowledge of any possible restrictions that existed on the buyer’s authority to negotiate and agree terms. There was no evidence to suggest that Athena had acted unreasonably in relying on the confirmation of the Superdrug employee.
A Useful Reminder
This recent decision shows the importance of ensuring that employees receive appropriate training to prevent similar situations as described above from happening. Putting in good working practices, clear communication and providing frequent training should also help to reduce the risk.
For more information or advice on the principles of commercial contract law and entering into legally binding commercial contracts, please contact a member of our specialist Corporate and Commercial team directly or click here to send an email.
Posted on December 14, 2020