Joanne Properties Ltd v Moneything Capital Ltd & Anor

Where negotiations are conducted subject to contract, neither party ordinarily intends to be legally bound until the contemplated formal contract is made. The qualification continues throughout the negotiations unless the parties expressly agree to remove it or such an agreement must necessarily be implied.

Agreement on all material terms, or language suggesting that a settlement has been reached, does not alone remove the qualification. The court must distinguish the parties’ intention to create legal relations from the separate question whether their terms are sufficiently complete. A Part 36 offer made alongside negotiations does not ordinarily alter the character of those negotiations.

The appellant challenged loan and security arrangements with the respondents. After the secured property was sold, £140,000 was ring-fenced pending resolution of the parties’ dispute. Their solicitors subsequently exchanged communications about its division, repeatedly using the heading subject to contract.

A deputy High Court judge held in an extempore judgment that those communications created a binding compromise. The appellant appealed. The central issue was whether the solicitors’ written communications objectively disclosed an intention to make an immediately binding settlement despite the qualification and the anticipated consent order.

1. Appeal allowed unanimously. The parties had not concluded a binding compromise. The deputy judge seriously undervalued the legal effect of the subject to contract qualification and failed to apply the correct test.

2. Whether parties intend to create legal relations is determined objectively in its context. The established effect of subject to contract is that neither party intends to be bound in law or equity until the contemplated formal contract is made. Each remains entitled to withdraw in the meantime. The principle is not confined to contracts for the sale of land: Generator Developments Ltd v Lidl UK GmbH [2018] EWCA Civ 396 and RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14 applied.

3. Once negotiations begin under that qualification, it ordinarily governs the negotiations throughout. It can be removed only by express agreement or where an agreement to remove it must necessarily be implied. The fact that the parties have reached consensus, speak as if settlement is expected, or have agreed every material term is insufficient: Sherbrooke v Dipple (1981) 41 P & CR 173 and Cohen v Nessdale Ltd [1982] 2 All ER 97 followed.

4. Whether the qualification has been waived depends on all the circumstances, and a court will not lightly find waiver. Partial performance may support that conclusion. Here there was neither an express waiver nor any factual basis from which waiver had necessarily to be implied. Both the alleged offer and acceptance bore the qualification, the later correspondence retained it, no performance occurred, and the anticipated consent order was the equivalent of the formal contract.

5. A Part 36 offer is free-standing. Unlike an ordinary contractual offer, it may remain capable of acceptance after the offeree makes a different proposal. Its existence does not ordinarily change the status of simultaneous without-prejudice negotiations. Even if the purported Part 36 offer had altered the earlier discussions, the subsequent expressly qualified communications reinstated the subject to contract umbrella.

6. The deputy judge conflated two distinct questions: whether the parties intended to become legally bound and whether their agreed terms were sufficiently complete. Most of his findings addressed completeness, not intention. Applying the correct test, the communications could not reasonably support a concluded contract.

• Court of Appeal (Civil Division): The appeal was allowed unanimously. The court held that no binding compromise had been concluded and displaced the decision below.
• High Court, Queen’s Bench Division: Mr Anthony Metzer QC, sitting as a deputy High Court judge, held in an extempore judgment that the written communications created a binding compromise. No neutral citation is stated.