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Article Story:
"SUBJECT TO CONTRACT" NOT SUBJECT TO CONTRACT: THE RUGBY GROUP
LTD V PROFORCE RECRUIT LTD
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Date:
23.02.2005
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The words "subject to contract" are universally used by the
sender of a document as a means of avoiding the recipient of that
document being able to accept the terms of the "offer", and thereby
bind the sender to those terms. A recent case has however
highlighted the dangers of assuming that the use of such
terminology is the end of the matter. It serves as a
cautionary tale to all of us that if parties then proceed to act on
the basis that the terms contained in the document are binding, a
Court may then determine that they are.
A proposal from one party to another of terms clearly marked
“subject to contract” has recently been found to be a valid and
enforceable contract. On 2 February 2005 in The Rugby
Group Limited v ProForce Recruit Limited [2005] EWHC
70 (QB), the high court allowed an appeal from The Rugby Group
("Rugby") to grant summary judgment against ProForce Recruit Ltd
("ProForce") in its claim for breach of contract.
ProForce had claimed that, despite the “subject to contract”
heading, the document marked "Subject to Contract" was enforceable
because the parties had then acted in a way which was consistent
with the agreement set out in the document being in
force. It also claimed that Rugby had breached it by
failing to honour the “preferred supplier status” conferred on
ProForce in one of the proposed terms. For the purposes of
this note, it is the status which the Court accorded to the
"subject to contract" document which is of importance.
The Court accepted that in general, except in a very strong and
exceptional case, the words “subject to contract” would usually
prevent a binding agreement coming into force. It appears, however,
that the Court regarded this case as “strong and
exceptional”. The reason the Court gave in this instance was
that after the document was signed, the parties then did “those
things that the agreement contemplated that each should do for the
benefit of the other”. The Court therefore found that the parties
had by their actions entered into an implied binding contract on
the terms of the agreement. This is consistent with a long
line of authorities which have held that a formal offer (i.e. one
that is not "subject to contract") could be accepted by
conduct.
It seems then that the standard insertion of the words “subject
to contract” at the top of the first page of a document may
actually be held to mean “not subject to contract” if the parties
then act as if the proposal were a binding agreement. This case is
a strong judicial endorsement of “substance over style” in
commercial contracts and should serve as a warning to those who,
after having sent such a document, then fail to complete and
finalise agreements before actually beginning work under the
auspices of the "subject to contract" document. If a final
agreement is never subsequently concluded, the Court may bind the
parties to a "subject to contract" document as the best (possibly
the only) evidence of what the parties intended to be the terms of
the agreement between them.
Tom Frederikse
Jonathan Coad
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