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A series of emails and phone calls were not sufficient to establish a contract, the Court of Appeal has ruled. The communications did not contain enough information or the formal qualities necessary for a contract to have been made, it said.

Language school the European Language Center (ELC) used to use vacant summer accommodation and teaching space at the University of Plymouth for its courses. The University told ELC in 2005 that it would have less space available in 2006.

ELC later claimed that emails and phone calls in which the University told it that it would have less space available and which contained estimates that it might have 200 beds available constituted a contract to provide that amount of space.

Plymouth County Court ruled that the communications represented a contract, but the Court of Appeal disagreed.

On 24 May 2005 an employee of the University emailed ELC managing director Helge Maule in 2005 to say that "there will certainly be less beds available [in 2006] than this year, so we are advising you that there will only be 200 beds available for you to sell… I will keep you informed as soon as we know of any plans which may affect your summer booking with us".

That number was eventually reduced to 100 beds, and Maule sued, claiming that his company and the University had a contract based on the 24 May email.

Lord Justice Moore-Bick disagreed, saying that the email and Maule's lack of immediate response to it did not give the communication the properties of a contract.

"Further e-mail discussion on numbers and prices followed, the last exchange before the critical e-mail taking place on 12 May [2006]," said his ruling. "In none of those messages is there any indication that any informal contract had come into existence on an earlier date; rather, the impression one gets is that the parties were even at the late stage still negotiating with a view to reaching a final agreement on terms."

"Viewed in that context, and in the context of the wider course of dealing between the parties, the e-mail of 24 May 2005 does not look like a binding offer on the part of the university to make facilities available in 2006," he said.

A contract can be created verbally, on the phone or by email, but in England and Wales it must contain four elements. These are an unconditional offer, an unconditional acceptance, a consideration and an intention by both parties to create a legally binding relationship.

The ruling said that in previous years the contracts agreed by ELC and the University had been detailed. The absence of such detail in the communications made it difficult to sustain the argument that they represented a contract, the Court ruled.

"It is not without significance, in my view, that [ELC] found it extremely difficult to identify the terms on which [it] said the parties had agreed," said Lord Justice Moore-Blick. "If there was to be a contract between them it was necessary for it to contain all the terms needed to enable it to work."

Jon Fell of Pinsent Masons, the law firm behind OUT-LAW.COM, said that the ruling made it clear that you could conclude a contract by phone and email, but only if all the qualities of a contract were present.

"What is clear is that if you do have all of those elements present there is no reason that you couldn't have a contract formed even with the most informal email or phone communication. It would be just a question of what evidence there was of the elements of a contract being there," he said.

To be sure that email exchanges do not create contractual relations, employees should be clear, he said. "If you are worried then the thing to do is to put 'subject to contract' in your business communications," said Fell. "But it can be more difficult than that."

"What you really have to do is make sure that staff are aware of the potential risks involved in communicating and agreeing the terms of a contract and the fact that they might in themselves become a contract," he said.

Fell said that it is helpful to follow up anything which might be a contract with written communication.

"What was interesting in this judgment was that it said that the email clearly wasn't important because no-one had written anything about it down," said Fell. "If you want to make sure someone is bound by something you should not only write it down but send a communication on to confirm it so that there is no doubt about what has been agreed."

The ruling can be read here.

Copyright © 2009, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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