Agreed Terms During Negotiations May Be Impliedly ‘Subject to Contract’ Under English Law

Morgan Lewis - Tech & Sourcing
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Morgan Lewis - Tech & Sourcing

A recent judgment by the High Court of England and Wales in the case of Jamp Pharma Corp v. Unichem Laboratories Limited has held that agreements reached as part of contract negotiations for contracts governed by English law may be impliedly “subject to contract” without the need to expressly state that the discussions and documents are “subject to contract” prior to a formal executed agreement.

Parties negotiating contracts or amendments to contracts governed by English law should therefore take extra care in making it expressly clear whether or not, prior to formal execution, any agreed terms are intended to be legally binding or remain subject to contract.

Background

Jamp Pharma Corporation and Unichem Laboratories Limited were parties to a contract for the distribution by Jamp of one of Unichem’s pharmaceutical products, with the potential of adding further products to the scope of the contract by written agreement of the parties.

The parties negotiated an addendum for the inclusion of a second product to the scope of the contract, and Jamp sent to Unichem a draft written addendum providing for the supply of the second product. Unichem confirmed that the addendum was acceptable, added two Unichem signatories to the signature blocks, and requested that Jamp provide partially executed copies for Unichem’s countersignature.

In subsequent meetings, Jamp provided a signed copy of the addendum to Unichem but Unichem told Jamp that discussions were on hold and did not sign the addendum.

Unichem subsequently entered into a contract with another company for the distribution of the second product, and Jamp claimed that, although there was no signed addendum, the parties had, via email exchanges, mutually agreed to the terms for the second product and therefore Unichem was in breach of contract.

Unichem stated that there was no binding contract between the parties for the second product as the addendum had never been signed and there was no intention to create a legally binding contract in respect of the second product.

Both parties agreed that there had been an offer and acceptance of the terms of the addendum. Therefore, the court had to decide if there was a legally binding contract absent a signed addendum.

Judgment

The judge dismissed Jamp’s claim, stating, among other things, that objectively the emails were clear that a signed addendum was required to create a binding contract for the second product; for example, the emails used the phrases “revised offer,” “upon signing off an addendum,” and “to review and conclude.”

The judge stated that use of the phrase “subject to contract,” while commonly used to negate contractual intention, is not necessary to indicate that agreed terms are not binding until such time as a formal document is executed.

Considerations

Where negotiating parties do not intend for agreed terms to be legally binding, they should still use the phrase “subject to contract” to make that intention clear.

If the negotiating parties do intend terms to be legally binding without both parties signing a contractual document to effect the agreed terms, the parties should make their intentions expressly clear and should not rely on conversational emails.

Additionally, negotiating parties should take care when exchanging emails regarding the agreement of terms as those emails may be used to interpret each party’s intention to make the terms legally binding if there is a dispute as to their status.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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