Back to basics: contract law 101

Was there a contract?  It’s among the most fundamental of legal questions, and it’s one that was recently taken all the way to the NSW Court of Appeal.  Animax Films Pty Ltd (the Appellant) and Simlogic Pty Ltd and Bohemia Interactive Australia Pty Ltd (the Respondents) were unable to agree on whether the exchange of five simple emails had resulted in a binding contract under which the Appellant would produce a “teaser” (aka preview) of a film for the Respondents.  The relevant parts of the emails are set out below.  Can you tell if a contract was formed?

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First email (from the Appellant to the Respondents, 22 October 2007)
 
Hi David,
 
I hope this Ok, talk soon.

[A form of agreement was then set out]

Please confirm your agreement with these terms by return email or incorporate your required amendments for further discussion.
 
Thanks
Damien Lay.

 

Second email (from the Respondents to the Appellant, 1 November 2007)
 
Hi Damien
 
I got this back from Pete, again take a look, I haven’t read it yet, very busy here, we can discuss it next Tuesday night np.

[The form of agreement as set out in the first email was again set out]

Please confirm your agreement with these terms by return email or incorporate your required amendments for further discussion.
 
Kind regards
David Lagettie.
 
Third email (from the Appellant to the Respondents, 1 November 2007)
 
Hi David,
 
Thanks, looks the same excluding Bohemia references. Happy to discuss Tuesday.
 
Damien.
 
Fourth email (from the Respondents to the Appellant, 1 November 2007)
 
Sorry wrong one.

[An amended agreement was then set out]

Kind Regards
David Lagettie
 
Fifth email (from the Appellant to the Respondents, 8 November 2007)
 
Dear David and Peter,
 
I would like to acknowledge my acceptance of these terms, I will print and sign a copy of the following for you.

[The form of agreement as set out in the fourth email was again set out]
 
Damien Lay
Animax Films Pty Limited.

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Have you reached a view?  If you concluded that the emails did not give rise to a binding contract then you’d find yourself in good company, Justices Handley, Hammerschlag and MacFarlan reaching the same conclusion.
 
Ultimately, the question was one of offer and acceptance.  The fifth email certainly appeared to be an acceptance; however, the unanimous view of the Court was that there hadn’t been an offer.  It was held that the comments in the second email clearly applied to the fourth email (which merely substituted the correct response for the incorrect one).
 
The Court considered that the second email made clear that the sender had not yet read the terms of the amended agreement and intended to discuss those terms in the upcoming meeting.  Their Honours agreed with the Respondents, holding that this could not be construed as an offer.  However, it’s easy to see the other side of the coin (ie that a genuine offer was made) given that the concluding words of the second email were: “Please confirm your agreement with these terms by return email or incorporate your required amendments for further discussion.”

Whether you’re dealing with films (as in this case) or with other areas of IP, every business relationship is likely to be underpinned by a contract, whether oral or written, express or implied.  This makes an understanding of the basic principles of contract law essential.
 
The email medium lends itself to the use of informal language and it’s easy to take a more relaxed approach to sending emails compared to sending letters.  This decision is a timely reminder that while informal language is fine, a lack of clarity on whether an email constitutes an offer (as opposed to merely being an invitation to discuss the terms on which an offer might be made) can cause problems.

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