Newbury v Sun Microsystems

A binding settlement may arise from correspondence even though the parties intend to record it later in a formal agreement. The question is objective and depends on the words and conduct communicated up to the alleged agreement, read against the relevant background. A reference to recording the settlement in a suitably worded agreement does not make execution a condition of contract formation where the agreement is intended merely to record terms already reached. Subsequent conduct is generally not admissible to determine whether written documents created a contract, although it may be relevant to issues such as variation, a new agreement, sham, estoppel, or disputed oral terms.

The claimant sought a declaration that correspondence dated 3 June 2013 compromised his contractual commission claim and the defendant’s counterclaim for alleged overpayment. The defendant’s solicitors offered specified sums in full and final settlement, stating that the settlement was to be recorded in a suitably worded agreement. The claimant accepted before the deadline and proposed a draft Tomlin order.

The defendant contended that the offer was only an agreement in principle, or was conditional upon execution of a formal agreement. The central issues were whether the correspondence objectively created a binding contract and whether subsequent negotiations could show that no contract had been formed.

1. Binding agreement. The letters of 3 June 2013 objectively constituted an offer and acceptance. The offer stated the sums payable, the basis of settlement, the acceptance deadline and the resulting payment obligation. Those features indicated an intention to create legal relations and to settle the proceedings.
2. Formal agreement. The reference to settlement being recorded in a suitably worded agreement referred to a document reflecting the terms already agreed. It did not mean that the parties remained free to negotiate different payment dates, confidentiality obligations, tax provisions or other additional terms. Execution of the formal agreement was therefore not a condition of contract formation.
3. Objective construction. The correspondence had to be assessed objectively and against the relevant background, including the imminent trial. Subjective evidence of what either party intended was of little assistance where the relevant exchanges were written. The absence of the words “subject to contract” was a relevant factor, although the outcome remained fact-sensitive.
4. Subsequent conduct. Where a contract is said to be contained in written documents, conduct after those documents is not a legitimate aid to deciding whether they created a binding contract. Such conduct may be relevant to alleged variation, a new agreement, sham, estoppel, or whether particular unwritten terms formed part of an oral or partly oral contract. In any event, the subsequent correspondence was consistent with an existing agreement and did not alter the conclusion.
5. There would be a declaration that the claim and counterclaim were compromised on the terms set out in the correspondence of 3 June 2013.