With COVID-19 forcing contractual negotiations to be performed remotely, a recent High Court ruling has provided a timely reminder of the care needed to be taken when undertaking negotiations by email, even for household names.
Well known high street store Superdrug recently lost a dispute against Athena, a small cosmetics manufacturer regarding whether a legally binding contract existed for the purchase of a minimum quantity (Athena Brands Ltd v Superdrug Stores Plc [2019] EWHC 3503).
Athena claimed that the email correspondence between it and Superdrug created a legally binding contract where Superdrug agreed to buy a minimum amount of various cosmetic products over a 12-month period. The sale price would have exceeded £1.3m.
At first Superdrug placed orders, however in response to slower than expected sales Superdrug stopped placing orders. Athena then claimed nearly £980,000 in damages due to breach of contract. Superdrug disputed the claim. Superdrug’s argument was that, (a) the emails don’t record an agreement to purchase such minimum quantity as Superdrug’s practice was to only purchase by use of purchase order, and (b) even if an agreement on minimum quantities had been reached by email, it was not legally binding because Superdrug had no intention to create legal relations in this matter. Such intention is a prerequisite for a binding contract.
In addition, Superdrug argued that its buyer, who had conducted the email correspondence, had no authority to enter into such a contract on its behalf.
In summary judgment, the High Court found clear agreement by Superdrug in the emails to the minimum quantity. Its terms and conditions were ambivalent on the issue, and the wording of the emails indicated acceptance by the buyer. Nothing indicated that Superdrug would not, or that its buyer could not, agree a minimum yearly commitment. Also, the High Court noted that nothing in Superdrug’s evidence showed that Athena was unreasonable in relying on the buyer’s confirmation as being sufficient to bind Superdrug. The buyer had been held out by Superdrug as a buyer authorised to negotiate terms of trade on its behalf and no restrictions on their authority had been disclosed.
Particularly relevant to the court’s finding was the buyer’s failure to make Athena aware of Superdrug’s complex purchasing policies, in particular that Superdrug would only contract for products via purchase orders. Had the buyer made Athena aware of the policies, the outcome of the claim would likely have been different. In the event, the court awarded Athena the £980,000 damages it sought.
More than ever, businesses must take care when negotiating potential contracts via email or even other more casual methods such as Whatsapp or Zoom chatboxes.
Policies governing the making of, or signing of, contracts should be made clear to the other party. Also, employees and directors should understand their limits of authority, and again should make it clear to the other party whether they have the power to enter into the specific contract under discussion. Depending on circumstances (and as was the case in the Superdrug case), it can be reasonable for the other party to believe the person they are dealing with has authority to enter into the specific contract at hand on behalf of the company, even if this is not the case. This is especially important where an employee has limited authority, but are liaising on a contract that is outside their normal authority with a regular supplier
It should be made clear at all times that email correspondence or similar is a precursor to a formal contract. In particular, any travelling draft of a contract issued in an email should also be clear that it is only a draft and not an offer of a final contract as drafted.
It is worth taking legal advice when entering into contractual negotiation, especially for higher value contracts to ensure that your risks are fully known and addressed and to avoid being committed to something you wish to avoid.
If you have any queries, our Commercial Team would be happy to assist. The Commercial Team’s webpage can be found here.
