"Subject to contract" in communications when settling a dispute
The Court of Appeal has applied existing law and held that parties' solicitors' written communications did not establish a binding contract for settlement of a dispute.
Where negotiations were stated as "subject to contract", there was a binding agreement only when a formal contract was entered into by the parties.
The case involved disagreement over a loan and charge over property. The parties compromised existing legal proceedings by agreeing that the property could be sold and an order made for distribution of proceeds. The issue then arose whether they had reached a further binding agreement about how a ring-fenced sum should be shared. Their solicitors' correspondence negotiating this had been conducted "subject to contract".
The court found that there was no evidence of an express agreement that the "subject to contract" qualification should be overridden, and that it could not be implied either. It was obvious in the circumstances that a consent order would be required to record the agreement.
Negotiations to settle litigation, which were expressly "subject to contract", were to manifest themselves in the form of a consent order, which is the equivalent of the formal contract.