The importance of wording in binding agreements

In Newbury v Sun Microsystems, the High Court has offered valuable views on what constitutes a binding agreement. In this particular case, the parties exchanged letters to the effect that an offer was made, was agreed, and it was stated that the agreement would be recorded in a “suitably worded agreement”. Neither letter referred to being subject to contract.

The High Court held that this exchange of letters constituted a binding agreement upon which the parties could rely. There was clearly an intention to create legal relations and the parties had agreed on all the essential terms. Only if the letters had contained the words “subject to contract” would it have been clear that the settlement terms were not agreed until a formal contract had been drawn up and concluded.

Hence the importance of ensuring that any such correspondence is carefully worded in accordance with what is actually intended.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.