when is a contract not a contract?
16 March 2011
The recent High Court case of Everton Football Club Company v
Sail Group Limited and another [2011] EWHC 126 is a useful
demonstration of how important it is to get the basics right in the
formation of a contract. The claim concerned the potential
participation by Everton FC in the Vodacom Challenge in South
Africa.
Everton accepted during the case that the negotiations between
the parties were conducted on a “subject to contract” basis.
However the club maintained that a contract was concluded during a
telephone conversation in May 2007 between a representative of
Everton FC and a representative from the Second Defendant (a sports
consultancy event management business) whereas the Defendants
denied that a contract was concluded and said that in their view a
concluded agreement could only have taken effect if or when a
formal agreement was signed by the authorised signatories of all
parties. All parties to the claim conceded that no such agreement
was ever signed.
At the trial of the claim, which took five days, evidence was
heard from a number of witnesses, including two solicitors – the
two people who participated in the contentious telephone call.
Having reviewed the evidence in terms of the telephone call and
then the emails which followed the judge concluded that nothing had
changed the mutual understanding of the parties and how the
contract ought to be concluded. As a result the judge held that
Everton’s claim should be dismissed for damages which it alleged
resulted from the club’s failure to participate in the
tournament.
The judge helpfully summarises what a party needs to consider if
it wishes to enter into discussions on a “subject to contract”
basis and these are a good reminder to all those looking to enter
into contracts:
Be careful if a contract can be made orally – if you want to
make sure that everything is noted down in writing; stipulate that
all discussions are subject to contract until such time as a formal
document is signed off.
Although it is not essential that there is an express
stipulation that contract discussions are subject to contract and
that it is acceptable to show that there was a mutual understanding
between the parties, evidentially it is obviously preferable for
there to be an express stipulation.
Subject to contract can apply to any contractual negotiations –
most people think of it applying to land transactions.
Even if negotiations started on the basis of them being subject
to contract, this can be changed by the parties at any time.
Recent case law has shown that cases can and do turn on their
facts. It is therefore extremely important that parties are
diligent in their drafting and making sure that they only enter
into contracts on the terms that they intended to agree to.
This article was first published by
www.contractoruk.com