Emails might be seen as informal, but they are just as capable of creating binding agreements as good old-fashioned pen and paper. The Business and Property Court recently reminded us of this in Athena Brands v Superdrug.
In a series of emails, a buyer for Superdrug Stores PLC and a brand manager for Athena Brands Ltd discussed terms for the supply of a new range of cosmetic products. A key part of the negotiation was determining the unit price per product, and Athena ultimately agreed a lower price per unit on the basis of increased order volumes. The volumes used to calculate the prices were referred to as “forecasts”.
In a critical email exchange, Athena's brand manager wrote:
“Just to confirm, you are placing orders and committing to the yearly quantity” and … “you will call off stock…within a 12 month period…”.
Superdrug's buyer replied:
“Please go ahead with the below, happy on Nature's Alchemist …”.
Was there a binding contract?
Superdrug disagreed that it was bound by the emails. It said:
- it had not committed to purchase the alleged minimum volume
- there was no intention to enter into a binding contract through the email exchange
- the Superdrug buyer did not have authority to commit to this kind of contract, and because it was standard market practice not to give volume commitments, any term of this kind would have to signed off at senior level.
These arguments failed.
From Athena's perspective, the Superdrug buyer was negotiating on Superdrug's behalf. The supplier pack that Athena had received did not include anything about referring particular terms to anyone else within Superdrug for approval. The buyer's apparent authority, together with his email confirmation, were enough to commit Superdrug to the specified volumes.
Take away points
This is yet another example of fairly casual email correspondence committing businesses to a legally binding contract. In a similar situation, the customer could have taken the following steps to reduce the risk:
- Standard terms and information provided in “supplier packs” should detail limits on the authority of negotiators to bind the company.
- Employees involved in negotiations should receive contract training, and be warned about the risk of inadvertently entering into binding contracts.
- Consider automatically including statements about any limits on negotiating authority or express “subject to contract” wording in emails.
- Think about the contracting process. Does your supplier information set out the way contracts are to be agreed? Does your organisation follow that practice?
Lino Di Lorenzo and Simon Cummins