Exchange of Correspondence Amounted to Binding Agreement

In Newbury v Sun Microsystems [2013] EWHC 2180, the High Court considered whether the omission of the words "subject to contract" (in the context of a settlement offer) meant that the offer could be accepted on its current terms and without any formal settlement agreement.

On 3 June 2013, shortly before a trial to determine contractual claims between the parties was due to begin, Sun Microsystems (Sun) sent a letter to Mr Newbury containing terms of a settlement offer, including the amount of the offer and a deadline for acceptance.  The letter stated that the settlement was "to be recorded in a suitably worded agreement".  Mr Newbury responded in a letter that he accepted the terms of the offer and would be sending a draft settlement agreement.  The parties then failed to agree on the terms of that agreement.  The Court declared that the exchange of correspondence on 3 June itself constituted a legally binding settlement agreement.  In coming to its decision, the Court considered a number of factors, including that Sun's offer letter had not been marked "subject to contract".  The Court said that this indicated that the offer letter had been capable of acceptance as it stood, and was not subject to further discussion or agreement on other terms.

This case highlights the importance of marking settlement correspondence "subject to contract" where it is intended that the settlement should not be binding until other matters (such as a full settlement agreement) have been agreed.