The English Court of Appeal has recently (November 2020) handed down judgment in the case of Joanne Properties Limited v Moneything Capital Limited (1) . The Court of Appeal had to decide whether a legally binding contract – in this case, a contract of compromise – had been entered into through correspondence written by the parties’ lawyers.
Joanne Properties (‘Joanne’) had bought a property in London using money borrowed from Moneything Capital (‘Moneything’). Joanne fell into arrears with its payments to Moneything.
Joanne and Moneything agreed that the property should be sold and a certain amount of money - £140,000 - should be ‘ring-fenced’ and then distributed between the parties. However, how that money should be distributed was to be the subject of another agreement (the ‘contract of compromise’).
The parties’ lawyers then began to correspond with each other in writing. The early correspondence contained the words ‘subject to contract’. An agreement was reached, in principle, but Joanne’s lawyer had written ‘subject to contract’ on the correspondence. Moneything believed that a legally binding agreement had been reached and applied to court seeking an order that there had been a concluded agreement.
The English High Court held that there was a legally binding agreement. Joanne appealed to the Court of Appeal. The Court of Appeal overturned the judgment of the High Court and held that there had not been a legally binding agreement.
The Court of Appeal stated that the High Court judge had underestimated the importance of the words ‘subject to contract’ on the correspondence. The Court of Appeal restated the legal understanding of the words ‘subject to contract’; namely, that
· it meant that neither party intended to be legally bound until a formal contract was entered into, and
· it meant that each party had the right to withdraw until a formal contract was entered into.
The case highlights the importance of lawyers using the words ‘subject to contract’ in correspondence where parties are trying to reach a formal agreement. Until the parties are ready to conclude the formal contract, or agreement, best practice is to label all correspondence relating to it ‘subject to contract’.
(1)  EWCA Civ 1541.
Find a word or phrase in the text which means:
1. Gave, or announced a formal judgment
2. An agreement to settle a dispute, usually with both parties making some concessions (‘give and take’)
3. The situation where someone should make payments to another person, for example someone who borrows money and agrees to pay by instalments but does not make those payments on the day or date they should be made.
4. Set aside something, such as a sum of money, for a particular purpose.
5. A remedy of a court which, for example, tells one party in a dispute to do something
1. handed down (to hand down a judgment)
3. fell into arrears (to fall into arrears)
4. ring-fenced (to ring-fence)
[Note: This article is intended for educational and study purposes only. It is not intended to contain legal advice. If you need legal advice on any matter, you should consult an appropriate lawyer]
© Cambridge Legal English Academy 2020