Is my document binding?
18 June 2018
"...no reasonable person present in the Horse & Groom ... would have thought that the offer to pay Mr Blue £15 million was serious and was intended to create a contract, and no one who was actually present in the Horse & Groom that evening – including Mr Blue – did in fact think so at the time. They all thought it was a joke. The fact that Mr Blue has since convinced himself that the offer was a serious one, and that a legally binding agreement was made, shows only that the human capacity for wishful thinking knows few bounds."
Here are some tips, from Richard's talk, if you don't want your agreement to be binding:
- Whether an agreement has been reached is determined objectively; consider the question from that perspective.
- An agreement can still be concluded even if some things are not agreed; bear this in mind if you are deliberately missing elements out to avoid an agreement being binding.
- In the commercial context, the burden of disproving an intention to create legal relations is a heavy one. So you'll need to make it very clear if there is no such intention.
- Labelling a document, for example as a "Term Sheet" or "Head of Terms", is unlikely to be enough on its own to convey that you don't wish to be bound.
- Use aspirational language rather than promissory language. Language in the present tense is better than the future. Words like "shall" are best avoided.
- Avoid deploying legal terminology and legal structure in your document.
- The gold standard wording – "Subject to Contract" – is highly effective at preventing there being a binding agreement.
- Be careful that your subsequent conduct does not give rise to binding agreement, a waiver or an estoppel.
- If it is clear that you do intend to create legal relations, then the court will do its utmost to address any potential issues of uncertainty. Do not therefore place too much hope on the agreement being unenforceable as an agreement to agree.