The recent decision in the case of University of Plymouth v European Language Centre Ltd illustrates the potential dangers of simply relying on informal telephone and email exchanges to establish a binding contract. Although the case was decided on its own facts, it still provides an important reminder of the importance under English contract law of the presence of offer, acceptance and intention to create legal relations where the parties seek to form a legally binding contract.
The European Language Centre (ELC) provides summer holiday language courses across Europe. The University of Plymouth had accommodation and teaching facilities, which it hired out during the summer vacation. For a number of years prior to 2006, ELC and the University entered into formal written contracts for the University to provide the services.
In May 2005, the University sent an email to inform ELC that the number of available places for 2006 would be reduced to 200 beds. No one from ELC responded to this or the subsequent email from the University. On 29 September 2005, the University notified ELC that it had reduced its number of places to 100 beds for the summer of 2006. ELC now replied, stating that the reduction in beds was unacceptable and did not accord with the parties' previous dealings.
ELC sued for what it said was the University's breach of contract in failing to provide the required 200 places for the 2006 season. It was ELC's case that the email of May 2005 constituted an offer to make 200 places available to ELC for the summer of 2006, which it had accepted. At first instance ELC succeeded in arguing that a contract existed.
However, the University appealed against this decision that it had entered into contractual relations with ELC. The Court of Appeal, allowing the appeal, held that to determine whether the parties had intended to create legal relations for the 2006 season it was necessary to consider the background relationship between the parties. Previous conduct by the parties suggested that both parties envisaged that a binding contract would only come into existence on the conclusion of a detailed written contract. Lord Justice Moore-Bick said that, "viewed in that context, the email of 24 May 2005 does not look like a binding offer on the part of the University to make facilities available in 2006".
It was held that detail was lacking in the email exchanges and that ELC could not purport to have accepted an offer as no offer was made. Additionally, if the email did amount to an offer, ELC had not actually done anything that amounted to acceptance of an offer, either expressly or by unequivocal conduct.
Whilst it has always been possible to create a contract verbally, by phone or other informal means such as by email, under English law four essential elements of a binding contract need to be present. These are (i) an unconditional offer; (ii) an unconditional acceptance, (iii) consideration; and (iv) an intention by both parties to create a legally binding relationship.
When relying on phone calls or informal emails it can be difficult to identify in such correspondence the elements required. It is therefore advisable for a party to confirm telephone conversations in writing or by a sufficiently detailed email (to which the other party indicates its acceptance) if it wants to rely upon them. Ideally, contractual terms for long standing arrangements should always be recorded in a document signed by authorised representatives or officers of both parties, even if the parties have a long history of doing business together. Conversely, if a party wants to avoid being bound by informal exchanges, it is useful to make it clear that emails are not intended to create legal relations.