Want to talk to an expert employment law solicitor?

You'll receive a callback from a specialist within an hour

In this article we’re going to take a look at the recent case of Newbury v Sun Microsystems [2013] EWHC 2180 QB, a High Court case which examined the circumstances in which a binding contract may be formed when the parties to the litigation are negotiating settlement terms.

The facts of Newbury v Sun Microsystems

This case involved an employment dispute between Mr Newbury and his employer, Sun Microsystems. Mr Newbury maintained that he was owed unpaid commission by Sun Microsystems and sued in the civil courts. Approximately a week before the case was due to come to trial Sun Microsystems’ solicitors wrote to Mr Newbury’s solicitors and proposed that the matter be settled by paying approximately £600,000 to Mr Newbury and £180,000 towards his legal costs within 14 days of settlement being agreed. The settlement was to be “recorded in a suitably worded agreement” according to the settlement terms of the defendant.

Unfortunately, there was a dispute as to the actual terms of the settlement agreement (but not the headline settlement figure). The claimant’s solicitors therefore applied to the High Court for a declaration that there was a binding contract between the parties as the defendant had made an offer which the claimant had accepted. The defendant, on the other hand, argued that their offer was “in principle” only.

The relevant law relating to the formation of contracts

As the High Court emphasized, the principles of whether parties have reached an agreement is succinctly laid out in the judgment of the Supreme Court in RTS Flexible Systems Ltd. V Molkerei Alois Muller GmbH [2010] UKSC 13. According to Lord Clarke, whether

[quote]there was a binding contract between the parties and if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations[/quote]

The relevant principles in determining whether there has been an agreement were also set out by Lord Clarke in the same judgment, those being:

[quote](1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole …

(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary ‘subject to contract’ case.

(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed …

(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled …

(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty[/quote]

The High Court’s decision in Newbury v Sun Microsystems

The High Court ruled in favour of the claimant, finding that the fourth principle espoused above applied. The court found that there was a binding legal agreement between the parties and that if the defendant had intended its offer to be “in principle” only then their letter proposing settlement should have included the words “subject to contract”.

This is an important and an illustrative case, as it highlights the importance of clarity in negotiations regarding whether or not an offer is to be seen as a starting point in negotiations or whether it is intended to be capable of acceptance in itself. If the offeror intends for further negotiations to conclude specific terms of the agreement (such as, for example, arbitration clauses, confidentiality agreements etc.) then this must be made clear otherwise – as in this case – a binding agreement may have been reached unintentionally. Inclusion of the word “subject to contract” may help to give clarity where the offeror does not intend its offer to be immediately capable of agreement but wishes to engage in further negotiation regarding ancillary terms.

About Chris Hadrill

Chris is a specialist employment lawyer at Redmans. He specialises in contentious and non-contentious employment matters, including breach of contract claims, compromise agreements and Employment Tribunal cases. He writes on employment law matters on a variety of websites, including Direct 2 Lawyers, Lawontheweb.co.uk, LegalVoice, the Justice Gap and his own blog. Contact Chris by emailing him at chadrill@redmans.co.uk

Want to talk to an expert employment law solicitor?

You'll receive a callback from a specialist within an hour

Share →

Our awards

Request a callback

    Your first name (required)

    Your last name (required)

    Your email (required)

    Your telephone number (required)

    Brief details of your enquiry

    Contact us

    Please feel free to discuss your own position and concerns. Contact your nearest office on:

    T: 020 3397 3603
    E: enquiries@redmans.co.uk
    W: www.redmans.co.uk

    Testimonials

    4.76 Average

    235 Reviews

    Paul O

    Chris & Rana guided me through a redundancy discussion. Prompt & patient assistance with the documents & meetings. Clear advice & fast responses regarding negotiations. Would definitely recommend & would use again without hesitation.

    Posted 1 month ago

    Anonymous

    Outstanding, efficient service. Thank you so much!

    Posted 1 month ago

    Jaswant S

    Very very happy with the good service I got Thank you so much for your help

    Posted 1 month ago

    Anonymous

    Mel and Chris were fantastic and supportive throughout! 1000% recommend.

    Posted 1 month ago

    Emma D

    Good responsive service

    Posted 1 month ago

    Mike T

    Good efficient service.

    Posted 1 month ago

    Brenda G

    Very professional and helpful

    Posted 1 month ago

    Charles A

    Chris Hadrill was recommended to me when I found myself in need of a solicitor at very short notice. He contacted me almost immediately to arrange a call. Chris handled my case in a professional and timely manner and kept me notified throughout. Chris inspired confidence and made me feel I was being cared for. If ever I'm in need of legal representation, I would not hesitate to contact Chris. And will gladly recommend him to family and friends.

    Posted 1 month ago

    Rosalind R

    I was very happy with the service that I received from Redmans Solicitors. They were able to advise me accordingly with regards to my employment matter and stay within the agreed costing.

    Posted 1 month ago

    Karl B

    Caroline and Chris were so helpful and friendly. Couldn't of asked for a better service.

    Posted 1 month ago

    Dimitrios P

    Excellent, professional service, in time and within the expected value.

    Posted 1 month ago

    Barbara K

    Everything quickly and fairly. Very professional. Thank you.

    Posted 1 month ago

    Sabrina J

    I received a efficient professional service during the whole process of liasing between myself and my former employer to getting all forms signed and receiving my redundancy payment in full in the summer of this year.

    Posted 1 month ago

    Anonymous

    I received legal advice on a redundancy settlement agreement from Redmans Solicitors and was very impressed by the quality of their service. Chris Hadrill is highly experienced in settlement matters and was especially understanding of the particulars of my case, going out of his way to ensure that it was resolved quickly and with the utmost professionalism. I have no hesitation in recommending Redmans to anyone in need of employment advice and settlement resolution.

    Posted 1 month ago

    Anonymous

    Excellent service, with full explanations of everything needed. Both Chris and Mel answered all emails very promptly and were personable and efficient.

    Posted 1 month ago

    Anonymous

    I would like to thank Chris Hadrill, in particular who handled my case, for all his hard work, expertise and dedication. He listened with empathy and offered suitable advice, which made me feel valued and confident through a difficult time. I would highly recommend Chris and the team at Redmans Solicitors. Thank you.

    Posted 1 month ago

    Yann G

    Yann Guezennec / Chris Hadrill - Thanks for the detailed, informed and professional advice for my settlement. When comprise is the rule I felt we could have been maybe a bit more aggressive from the start. However an acceptable outcome considering the situation. Thank you

    Posted 1 month ago

    Valentina D

    Great service from Mel, she was very good at explaining every part of the settlement agreement and very efficient dealing with the HR team. Very professional team, I would definitely use them again in future if the opportunity came up.

    Posted 1 month ago

    Olaf S

    I was very happy with the service that I have received. Thank You Regards

    Posted 1 month ago

    Rebecca A

    I had a wonderful solicitor called Caroline who was so helpful and gave me all the information I need and explained everything in detail so I was crystal clear. Would highly recommend if you are in need of a solicitor!

    Posted 1 month ago

    Gareth J

    Very efficient, helpful and pragmatic support from Caroline. Happy to work with my requirements / suggestions but also made some very good points which helped to achieve a higher settlement amount. Would highly recommend Caroline and Chris.

    Posted 1 month ago