• news-banner

    Expert Insights

“Subject to Contract” does not amount to an agreement

My colleagues Anna Sowerby and Eveline Strecker recently commented on the case of Joanne Properties Limited v Moneything Capital Limited where the Court of Appeal overturned a decision of the lower court which had found that a binding agreement had been arrived at despite communications being labelled “subject to contract” during settlement negotiations: Subject to contract’ – The effect of these words in settlement negotiations.

A recent case in the Technology and Construction Court has reinforced the message that labelling communications “subject to contract” will generally prevent an agreement coming into force.

Section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 states that:

“…the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement” [emphasis added].

In Aqua Leisure International Limited v Benchmark Leisure Limited the court had to decide whether the conduct of the parties amounted to an agreement so that the adjudicator’s decision was no longer binding and therefore incapable of enforcement.

Background facts

Aqua Leisure was successful in an adjudication in July 2017 in relation to an interim application for payment.  Following that decision, the parties met to discuss and agree the final settlement of the account, including release of any retention which was subsequently due to Aqua Leisure.

On 31 August 2017, agreement was reached via a telephone conversation between the principals of the parties.  This was recorded in an email exchange between the principals which was expressly stated to be without prejudice and subject to contract.

The agreed terms were for staged payments to be made by Benchmark, for Aqua Leisure to complete the “warranty works” and for a payment of £110,000 to be guaranteed by Benchmark’s parent company.  Some of these stage payments were subsequently made by Benchmark, albeit not strictly within the deadlines stipulated in the parties’ agreement.

In the interim, Aqua Leisure circulated a settlement deed and asked Benchmark to execute it.  The terms of the settlement deed did not reflect the entirety of the parties’ agreement of August 2017 and instead sought to increase the payment that the parent company was guaranteeing.   Benchmark never signed the settlement deed and on 11 May 2018 confirmed that there would be no parent company guarantee.

The sums awarded under the adjudication were not paid in full and the payments due under the staged payment regime agreed by the parties in August 2017 were also not paid in full.

Aqua Leisure therefore applied to the court to enforce the adjudicator’s decision in April 2019.

The court’s decision

The adjudicator’s decision was enforced by the Technology & Construction Court.  In doing so the judge noted that the parties had clearly agreed in August 2017 that there would be no binding contract until the terms were reduced to writing and signed off.  This was clear by the words “subject to contract” in the email communications around that time, as well as Aqua Leisure’s subsequent chasing of Benchmark for execution of the agreement.

The court held that the question was whether (after the email exchange in August 2017), the parties had agreed to enter into a binding contract (a new contract) without the need for all terms to be reduced to writing.  The court found that there nothing in the points advanced by the defendant that allowed a conclusion that a new contract was made.

The judge was not persuaded by the fact that stage payments had been made by Benchmark and that Aqua Leisure had carried out the warranty works.  The judge pointed out that in the absence of a compromise, sums were still due under the original contract and under the terms of the binding adjudicator’s award.  Payments made and work carried out was therefore not evidence of a new contract having come into existence but rather simply evidence that the parties were working together to settle debts and obligations under the original contract.

The Late Payment of Commercial Debts (Interest) Act

This case also confirmed the previous position that an adjudicator cannot award legal costs pursuant to the Late Payment of Commercial Debts (Interest) Act 1998.  The court severed the aspects of the adjudicator’s decision awarding costs, finding that the adjudicator had no jurisdiction to make such an award.

Practical tips

Due care must always be taken by parties seeking to compromise matters arising out of an adjudicator’s decision.  If communications are labelled as “subject to contract” and no formal agreement has been executed, it is likely that a court will find that the parties have not reached a binding agreement.  Until such time as a binding settlement agreement has been reached, the parties would be well advised to treat the adjudicator’s decision as binding.

Care should also be taken to carefully record the terms of any oral agreement between the parties and to then ensure that any subsequent settlement agreement accurately reflects that agreement. 

For more information please contact your usual Charles Russell Speechlys contact. 

Our thinking

  • IBA Annual Conference 2024

    Charlotte Ford


  • Property Patter: Hotels

    Naomi Nettleton


  • Employment Law & Worker Rights – The Labour Manifesto

    Nick Hurley


  • Nick White and Sarah Johnson write for City AM on how Rule 40 affects marketing around the 2024 Olympic Games

    Nick White

    In the Press

  • Nick Hurley writes for People Management on the Conservatives' employment law proposals ahead of the General Election

    Nick Hurley

    In the Press

  • Is a Big Mac meat or chicken? Thoughts on the recent General Court decision

    Charlotte Duly

    Quick Reads

  • Tortious liability: Supreme Court brings relief for directors

    Olivia Gray


  • Stephen Burns and Katie Bewick write for New Law Journal on shareholders’ rights after Zedra

    Stephen Burns

    In the Press

  • Rhys Novak writes for Solicitors Journal on what legal advisors need to know about dawn raids

    Rhys Novak

    In the Press

  • Employment Law & Worker Rights - The Conservative Party’s Manifesto

    Nick Hurley


  • "Has anyone seen my cat?" - Pet-Nups and Pet Disputes between Unmarried Couples

    Jessie Davies

    Quick Reads

  • Employment Law & Worker Rights - The Liberal Democrats Manifesto

    Nick Hurley


  • The Africa Debate: Africa’s role in a changing global order

    Matthew Hobbs

    Quick Reads

  • Re UKCloud: The importance of exercising control over a fixed charge asset

    Cara Whiffin


  • Bloomberg quotes Dominic Lawrance on pledges to scrap preferential tax treatment for non-doms

    Dominic Lawrance

    In the Press

  • Consumer Duty Board Report

    Richard Ellis


  • Standard of repair put to the test - Estates Gazette Q&A

    Emma Humphreys


  • LIDW: Is arbitration an effective process for disputes involving state interests: a panel discussion of concerns raised in Nigeria v. P&IDL [2023] EWHC 2638

    Richard Kiddell


  • Injunctions against potential protesters - Estates Gazette Q&A

    Samuel Lear


  • Michael Powner, Isobel Goodman and Hauwa Ottun write for Law 360 on the Tips Act

    Michael Powner

    In the Press

Back to top