In today’s fast-paced world, particularly in the IT field, parties may not always realise when they have entered into a binding contract. The advent of e-mail and Internet-based commercial relationships has only made the problem of the “inadvertent” contract more common.

The problem is highlighted in a recent decision of the UK High Court, which shows that a signature on a piece of paper is not always required for a contract - or a contract variation - to come into existence. Contracts can arise where the parties reach agreement in correspondence and/ or start performing the terms of the contract.

The decision serves as a reminder that, to avoid being bound by unexpected contracts, parties to a negotiation should, where possible, not start performing any work until the proper paperwork is complete, and should make sure that any pre-contract correspondence is made “subject to contract.” Parties should take particular care when operating in an environment where informal negotiations by e-mail are common. For example, problems frequently occur where:

*parties are negotiating small-scale volume licensing arrangements (where negotiations may take place very quickly and involve the e-mail exchange of contract terms); or

*having carefully and laboriously constructed a large-scale contract, the parties abandon all formalities when discussing and informally agreeing upon subsequent changes to the contract.

For those doing business in the U.S., we have also briefly covered the U.S. position on contracting formalities relevant to IT projects or transactions.

Please see full update for more information.