Three Little Words: "Subject to Contract"

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The recent decision in Newbury v Sun Microsystems [2013] EWHC 2180 (QB) highlighted the issues in ensuring that draft settlement agreements do not bind the parties until the agreements are in final form. In Newbury, a letter from the defendant’s solicitors to the claimant’s solicitors setting out the terms of a proposed settlement, coupled with a responsive acceptance email from the claimant’s solicitors (even though marked “without prejudice save as to costs”), were held to constitute a legally binding settlement agreement.

The High Court reached its decision for several reasons:

- the defendant’s solicitors' letter was expressed as an offer of settlement, set out the terms of such offer and stated that the offer was open for acceptance for a specified time. This was a clear indication that the letter was therefore intended to be a binding offer capable of acceptance with certain legal consequences following from acceptance...

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