Barrister Professor Rudi Klein considers a recent case where a company sought to duck out of an email agreement.
The case is Mi-Space (UK) Ltd v Bridgwater Civil Engineering Ltd (2015). Mi-Space, part of the Midas Group, was the main contractor for a residential development in Plymouth known as Mount Wise. Bridgwater Civil Engineering (BCE) was the groundworks subcontractor.
BCE had submitted a payment application in the net sum of £346,177. Mi-Space failed to serve its payment notice on time. The amount applied for became the due sum; Mi-Space refused to pay. Subsequently, BCE suspended its work (as it was entitled to do).
BCE referred the dispute to an adjudicator who ordered Mi-Space to pay the sum claimed. Mi-Space refused to do so whereupon BCE issued court proceedings to enforce the adjudicator’s decision. Mi-Space argued that the adjudicator should not have rejected its defence; the matter had been settled by an agreement that had been reached by an exchange of emails.
The two emails in question were sent on the same day – 3 March 2015. The first was from a Nick Acheson, project surveyor for Mi-Space. It started off: “Further to our recent telephone discussion I am pleased to confirm the revised agreed proposal to resolve the account issue at Mount Wise…”
The key elements of this email were that:
- BCE would withdraw its claim, return to site immediately and that it would not claim costs in relation to the suspension.
- In return, Mi-Space would make an immediate interim payment of £79,862 and a further payment of £50,000 to be included in the first valuation of a possible future subcontract for another job (if this subcontract did not materialise, the £50,000 would, in any event, be paid by Mi-Space in a later valuation, a few months hence).
- Mi-Space would also reduce the retention percentage from 5 per cent to 3 per cent in the next payment thus immediately releasing £44,208 of the retention.
BCE’s reply was as follows: “Nick. Yes we are in agreement with this now. Can you carry on formalising the paperwork? Thanks for your efforts. Regards, Dave.”
Dave was Dave Caddick, a director and principal shareholder in BCE. The promised payment of £79,862 was made by Mi-Space and BCE returned to site.
BCE’s main argument was that the exchange of emails was always “subject to contract” and therefore the emails could not give rise to a legally binding agreement. A few days prior to the exchange of emails, Acheson and Caddick had met on a without prejudice basis. No agreement had been reached at the meeting but BCE maintained that it had insisted that, should agreement be reached, it would have to be a formal agreement signed by both parties. BCE had not waived this requirement by returning to site; this was simply a “gesture of good faith”.
Mi-Space rejected BCE’s argument that the email agreement was made on a “subject to contract” basis. BCE had regretted entering into that agreement and was now looking for a way out. In the meeting just prior to the email agreement, and in email/telephone exchanges immediately following the meeting, there was no reference to the need for both parties to sign a formal agreement.
The court’s decision
The evidence did not support BCE’s contention that the email agreement was to be subject to a formal agreement signed by both parties. In particular, previous email exchanges showed that discharge of the interim payment would dictate whether or not BCE returned to site, not the joint signing of an agreement which would have inevitably taken longer. Since the overriding concern for BCE was to obtain this payment, the suggestion that the return to site was “a gesture of good faith” was difficult to believe.
This is what the judge had to say: “On the basis of these two emails [on 3 March] alone, in my judgement no sensible businessman could have thought that the other was intending anything but the achievement of a legally binding agreement.”
The court granted Mi-Space a declaration that the dispute concerning BCE’s payment application was settled by the exchange of emails on 3 March 2015. By refusing to be bound by the settlement agreement, BCE had repudiated that agreement. In accepting this repudiation, Mi-Space was not bound by any of its obligations that remained to be discharged. The adjudicator’s decision was wrong and, therefore, ceased retrospectively to having any effect.
The immediacy of email exchanges always creates the risk that they haven’t been properly thought through, or of overlooking the need for some third-party advice. In some cases, there will be businesses that labour under the mistaken belief that email exchanges cannot give rise to legally binding agreements. BCE’s mistake was its failure to make clear that its simple emailed acceptance of Mi-Space’s offer was “subject to contract”.
But the use of these words is not necessarily “waterproof”, especially if the informal agreement is complete in most respects and the actions of the claimant have indicated that it had waived the need for a formal contract. The best advice is to avoid entering into critical agreements (having significant financial implications) by email unless advice has been obtained from a person in the business responsible for providing legal and/or commercial advice, or from an external legal adviser.