Is it a done deal?
When does pre-settlement correspondence constitute a binding agreement?
A recent New South Wales Court of Appeal case, Feldman v GNM Australia Ltd, considered whether correspondence between parties, prior to the execution of a formal settlement deed constitutes a binding agreement.
The case concerned defamation proceedings brought by Rabbi Feldman against GNM Australia Pty Limited (GNM), the publisher of the Guardian newspaper.
In February 2015, a number of articles were published on the Guardian’s website about Feldman and evidence he gave to the Royal Commission into Institutional Responses to Child Sexual Abuse. Feldman served a concerns notice on GNM pursuant to section 14(2) of the Defamation Act 2005 (NSW) (Concerns Notice). In response, GNM through its solicitors sent an email offering to remove the articles from its website and publish a statement made by Feldman, if Feldman agreed to release GNM of all liability. The email stated that [a]n agreement reflecting the above would be documented in a Deed of Release which would also include obligations of confidentiality.
Subsequent correspondence passed between the parties. On 30 April 2015, GNM’s solicitors confirmed GNM’s acceptance of settlement terms outlined in the parties correspondence in an email attaching a draft deed of release documenting the parties agreed terms. Neither GNM nor Feldman executed any settlement deed. Further correspondence between the parties ensued, largely relating to the confidentiality requirements under the agreement.
On 7 July 2015, Feldman’s solicitors wrote that their client had withdrawn his offer to settle the matter. Feldman subsequently commenced defamation proceedings against GNM and the author of the articles. GNM sought a permanent stay of proceedings, contending that the parties had a concluded settlement agreement as at 30 April 2015. The primary judge, McCallum J found in favour of GNM.
Feldman sought leave to appeal. The key questions answered on appeal were whether:
- there was a binding agreement between the parties as at 30 April 2015; and
- a solicitor has ostensible authority (also called apparent authority) to bind a client to a contract where litigation is not on foot.
Did the email correspondence constitute a binding agreement?
A contract will fail for incompleteness if an essential or important term is not agreed. Feldman submitted that as at 30 April 2015, the parties did not have a binding agreement because the following terms were incomplete:
- Time frame: The correspondence did not specify any timeframe for the performance of the obligations. This contrasted with the terms of the draft deed which detailed when specific steps had to be completed. GNM argued that a Court could and would imply reasonable time frames.
- Confidentiality obligations: No terms had been agreed as to the obligations of confidentiality. GNM argued that the nature of the correspondence and the generic confidentiality clause in the draft deed indicated that the obligation of confidentiality was not considered by the parties to be essential. Further, GNM submitted that the confidentiality obligations were not part of the agreement as at 30 April 2015, but were an optional extra, to be agreed on later.
Generally, where negotiating parties decide on terms of a contractual nature and agree that the subject of their negotiation is to be dealt with in a formal contract, the agreement will fall into one of the following four categories:
- First Category: the parties decide on all the terms in their agreement and intend to be immediately bound, but also intend to have the terms restated in a form which will be more complete or precise, but of the same effect.
- Second Category: the parties agree on all the terms of their arrangement, they intend no departure from these terms, but performance of one or more terms is conditional upon a formal contract being executed.
- Third Category: the parties do not intend to be bound unless and until a formal contract has been executed.
- Fourth Category: the parties are content to be bound immediately and exclusively by the terms which they have agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.
In Feldman, Beazley P highlighted that the above categories are neither strict nor prescriptive. Nor are they exclusive nor necessarily exhaustive. Rather, they describe circumstances in which a finally binding contract may or may not have come into existence.
GNM submitted that the contract between the parties as at 30 April 2015 fell into the First Category or Fourth Category.
The Court held:
- There was nothing in the correspondence stating expressly, or indicating that the parties intended to be bound immediately if the terms offered were accepted (First Category). Nor did the communications evince an intention to be immediately bound by some of the terms specified in the emails and to then have a substitute contract with additional agreed terms (Fourth Category).
- GNM’s reliance on the First Category was inconsistent with its argument that a reasonable time would be implied for the performance of obligations. The absence of any confidentiality obligations in the alleged agreement further supported this. Objectively viewed, the correspondence made it apparent that the parties intended their agreement to contain a confidentiality clause. That the obligations of confidentiality were to be contained in the proposed deed indicated the parties intended to be bound to the agreement only after the deed was finalised and executed. The significance of obligations of confidentiality were further supported by the commercial context of the negotiations.
- For essentially the same reasons, the Court held that the circumstances did not fall within the Fourth Category.
- Conduct after the date of an alleged agreement can inform whether a contract has been formed. In Feldman, the nature of the subsequent correspondence and the failure of GNM to take steps to implement the agreement indicated that the parties did not believe they were already bound.
In summary, the email correspondence did not constitute a binding agreement.
Do solicitors have ostensible authority to bind a client to a contract where litigation is not on foot?
Determining whether or not a person has ostensible authority usually involves an inference based on a representation made by the principal (in this case the client) that the agent (in this case the solicitor) has authority to contract within the ambit or scope of the apparent authority.
As a general rule, solicitors do not have ostensible authority to bind their clients to contracts. An exception to this rule is in the context of litigation. In the context of litigation, a legal practitioner has ostensible authority to bind their client to a contract provided that the contract actually and genuinely relates to the litigation.
In this case, a majority of the Court held that Feldman’s solicitors did not have ostensible authority to bind their client to a contract. Three key factors informed this decision:
- Feldman had not made any representation that his solicitors had authority to enter into a binding agreement on his behalf.
- The concerns notice made it clear that if Feldman’s demands were not met, legal proceedings would be commenced. The agreement was not in the context of litigation .
- The correspondence between the parties’ respective solicitors indicated that it was Feldman himself who would enter into the deed. For example, the email of 30 April 2015 from GNM’s solicitors stated [c]ould you please let me know if your client has any comments and asked that, if not, arrangements be made for Feldman to sign the deed.
Feldman has since been cited with approval by:
- the Victorian Court of Appeal in Nurisvan Investment Ltd v Anyoption Holdings handed down on 16 June 2017; and
- the Supreme Court of Western Australia in Marindi Metals Ltd v Kidman Resources Ltd handed down on 7 July 2017.
- The question of whether parties intend to bind themselves to a contract is determined objectively, having regard to the intention conveyed in the language used by the parties.
- If you are negotiating a settlement agreement and wish to be bound immediately upon an offer being accepted, it is best practice to:
- expressly state that this is your intention;
- ensure that both parties agree on all important terms; and
- actively take steps to implement the agreement after the agreement has been reached.
- If you do not wish to be bound immediately upon agreement of terms in the absence of a written contract, expressly state (ideally in writing) that this is your intention.
- If you do not hold your solicitors out to have authority to bind you to a contract and no litigation is on foot, as a general rule, your solicitors will not have ostensible authority to enter into a contract on your behalf.