“Subject to Contract”: think about it and mention it!!

A recent High Court case shows the importance of including the words “subject to contract” on written settlement communications between parties (Newbury v Sun Microsystems [2013] EWHC 2180 (QB).

A letter from an employer’s solicitors to an employee’s solicitors setting out the terms of a proposed settlement sum stipulated that the settlement was to be “recorded in a suitably worded agreement” but was crucially not marked “subject to contract”. After receipt of a letter of acceptance from the employee’s solicitors, the employer’s solicitor sought to make further amendments to the terms.

On considering the wording used by the employer’s solicitors in the settlement proposal the Court concluded that such wording was not a reference to terms that were yet to be negotiated and agreed, but simply an indication that any settlement reached would subsequently be “committed to writing as an authentic record” i.e. recorded in a signed document. Once the employee had accepted the terms in the letter, the employer was therefore not in a position to negotiate further terms as to confidentiality or the tax position.

The letter should have included the words “subject to contract” if the employer intended further negotiations to follow before a binding settlement was reached.