Subject to contract: The high bar to a binding settlement

This case, arose from the collapse of a nursery roof. The Claimant, Baltimore Wharf SLP, brought proceedings under a Collateral Warranty. The Defendant, Ballymore Properties Ltd, and Part 20 Defendant, WSP UK Ltd (formerly known as WSP Buildings Limited), subsequently applied for summary judgment / strike out of the claim, arguing the proceedings had been settled.

Additionally, the Defendant applied to amend its Defence, this application was dismissed due to no real prospect of success.

The negotiations

Throughout the settlement discussions, the phrase “subject to contract” appeared in email subject lines and in the headings of draft settlement agreements. However, on 24^th September 2024, the Defendant’s solicitors omitted this reservation and emailed all parties asking, “I should be grateful if you would let me know if the Settlement Agreement is agreed.” Five minutes later, the Claimant’s solicitors replied, “I confirm that the Agreement with WSP’s amends is agreed”.

Following this exchange, the Defendant’s solicitors circulated an execution version of the agreement, without the “subject to contract” reservation. Instead of signing, on the 15^th October, the Claimant’s solicitors explained that their client required Executive Officer approval.

The parties positions

The Defendant argued that the 24^th September exchange demonstrated that the parties had removed reliance on the “subject to contract” reservation.

However, the Claimant argued, the negotiations had always been subject to contract and that the parties’ proximity to a fully executed Settlement Agreement did not mean that the subject to contract umbrella ceased to have effect. Additionally, the parties’ conduct post 24^th September, including the need for internal approval and the agreement to extend the stay, were explicitly inconsistent with a concluded settlement.

Court’s analysis

The Court reaffirmed the position that once negotiations are “subject to contract”, the reservation governs the entire process unless all parties expressly agree to remove it, or its removal is necessarily implied. The Court emphasised that there is a high threshold, designed to avoid the uncertainty otherwise produced from reliance on odd conversation and letters. The Defendant’s omission of “subject to contract” on 24^th September was insufficient.

Importantly, a binding settlement will not arise because parties appear to be agreed in substance, or exchange emails that look like an acceptance. Instead, formal execution is required, unless the “subject to contract” umbrella has clearly fallen away.

Limited relevance of post-negotiation conduct

The Court highlighted that where a contract is said to be contained in a document, it is not legitimate to have regard to the subsequent conduct of parties for the purpose of deciding if the documents gives rise to a binding agreement. Rather, such conduct is only relevant in limited circumstances, to consider if there is a variation, new agreement, or allegations that the contract is a sham or in claims of estoppel. But this is not relevant when assessing if the documents themselves are intended to give rise to a binding contract.

However, for precaution, the Court considered post-party conduct and observed the significance of all parties agreeing to stays of the timetable (not merely extensions of the stay) being inconsistent with the argument that the underlying dispute had been settled. Additionally, the Court noted that they would have expected a stronger reaction, to the news that the terms were subject of a review from the Executive Officers, had the Defendant or Part 20 Defendants believed that the agreement was already binding.

Conclusion

This judgment reaffirms the strong protective effect of the “subject to contract” reservation in settlement negotiations and the high bar to show this requirement has been met. Consequently, when negotiating settlements, parties should exercise caution, to avoid unintended contractual consequences.

Key takeaways:

• Negotiations labelled subject to contract remain conditional unless the parties clearly agree otherwise.
• Apparent agreement “in substance” or language suggesting acceptance cannot, on its own, create a binding contract.
• Formal execution is essential: ambiguous conduct will not be treated as evidence of intention to be bound.
• Parties should ensure agreements are approved and signed by individuals with proper authority, recognising the distinction between agreeing terms and entering a legally binding contract.

If you have any questions regarding points raised above, or how this may impact your business, please contact the authors, Alice Sleep and Ishbel Speirs.