Scribd Logo
Upload

Welcome to Scribd!

  • 44 views

    09 A Done Deal

    Uploaded by

    David Lai
    The document discusses whether informal agreements without signed contracts can still be considered binding. It notes that contracts do not require formalities in most cases. However, phrases like "subject to contract" are meant to indicate that negotiations are ongoing rather than a final deal. The courts examine factors like the parties' intentions and conduct as well as the complexity of the transaction to determine if informal agreements were meant to be binding. Parties are advised to clearly state in writing if negotiations are strictly subject to further approvals to avoid implied binding contracts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    09 A Done Deal

    Uploaded by

    David Lai
    44 views3 pages
    The document discusses whether informal agreements without signed contracts can still be considered binding. It notes that contracts do not require formalities in most cases. However, phrases like "subject to contract" are meant to indicate that negotiations are ongoing rather than a final deal. The courts examine factors like the parties' intentions and conduct as well as the complexity of the transaction to determine if informal agreements were meant to be binding. Parties are advised to clearly state in writing if negotiations are strictly subject to further approvals to avoid implied binding contracts.

    Original Title

    09-A-Done-Deal_

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses whether informal agreements without signed contracts can still be considered binding. It notes that contracts do not require formalities in most cases. However, phrases like "subject to contract" are meant to indicate that negotiations are ongoing rather than a final deal. The courts examine factors like the parties' intentions and conduct as well as the complexity of the transaction to determine if informal agreements were meant to be binding. Parties are advised to clearly state in writing if negotiations are strictly subject to further approvals to avoid implied binding contracts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    44 views3 pages

    09 A Done Deal

    Uploaded by

    David Lai
    The document discusses whether informal agreements without signed contracts can still be considered binding. It notes that contracts do not require formalities in most cases. However, phrases like "subject to contract" are meant to indicate that negotiations are ongoing rather than a final deal. The courts examine factors like the parties' intentions and conduct as well as the complexity of the transaction to determine if informal agreements were meant to be binding. Parties are advised to clearly state in writing if negotiations are strictly subject to further approvals to avoid implied binding contracts.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 3

    A “Done” Deal?

    by SM Shanmugam and Hooi Chung Wai

    Businessmen oftentimes record their agreement in writing but there are


    instances where one party is under the impression that a deal is “done” or
    “concluded” despite the absence of a contract signed by both parties. The
    burning question is whether one is bound by such an informal contract.

    It is trite that except in circumstances where it is required by law, the formality


    of an executed contract is the exception rather than the rule.1 Simply put, as a
    SM Shanmugam
    Partner general rule, contracts can be made informally.2 Complications arise when one
    Corporate & Commercial Disputes party considers a deal is concluded but the other party takes the opposite
    E: ssm@lh-ag.com
    position.

    Subject to contract

    In order to safeguard themselves, many a time, parties will expressly state that
    any pre-contractual negotiation is “subject to contract” or that there shall be
    locus poenitentiae3 until and unless the agreed terms are reduced into a formal
    contract.

    By and large, the “subject to contract” phrase can be divided into three distinct
    Hooi Chung Wai
    Associate
    categories, where in each of the first two categories there is a binding contract:4
    Corporate & Commercial Disputes
    E: hcw@lh-ag.com
    (i) Where parties have reached an agreement on the terms and intend to
    be immediately bound by those terms, but at the same time propose to
    have the terms restated in a formal contract no difference in effect.

    (ii) Where parties have reached an agreement on the terms but


    nevertheless have made performance conditional upon execution of a
    formal contract.

    (iii) Intention of the parties is not to enter into a concluded contract at all,
    until and unless a formal contract is executed.

    1
    Deutsche Bank (M) Bhd v MBf Holdings Bhd & Anor [2015] 6 MLJ 310 (FC)
    2
    Treitel on The Law of Contract (13th Ed) at para 5-003
    3
    The right to withdraw from a contract before it is deemed concluded
    4
    Masters v Cameron [1954] 91 CLR 353
    Although the expression “subject to contract” would work to negate the intention
    of a party to be bound by an informal contract and be construed to suggest that
    parties are in the midst of negotiation, it may still be held as a “done” deal. The
    instances below are illustrative:

    (a) Mere expression on execution of an agreed transaction:5

    The vendor wrote “I confirm, subject to contract, that the lowest price I
    am willing to sell the said property is …”. The purchaser accepted the
    vendor’s offer, but in return the vendor refused to complete the
    agreement. In allowing specific performance of the agreement sought
    by the purchaser, the court held that the phrase “subject to contract” was
    nothing more than a mere expression as to the manner in which the
    transaction already agreed upon by the parties will be effected.

    (b) Open contract:6

    The vendor’s offer for purchase of a property was accepted “subject to


    the sale and purchase agreement”. The vendor contended there was no
    concluded contract as parties were still negotiating on terms which had
    yet to be agreed upon. The court, in holding otherwise, emphasised that
    the essential terms namely the parties, property and price, had been
    sufficiently identified, and it was accordingly deemed as an “open
    contract”. Upon evaluation of the correspondences, the court found that
    there was an intention for parties to merely formalise the agreement
    concluded.

    (c) Reasonable expectation of the parties:7

    The developer accepted the vendor’s offer in purchasing several plots


    of land “subject to your approval in signing the agreement”. The
    developer proceeded to pay a deposit but later refused to execute a
    formal agreement. During trial, the vendor conceded that they would
    readily accept the balance purchase price without a formal agreement.
    The court, having applied the yardstick of the reasonable expectation of
    a sensible businessman, reasoned that both contracting parties deemed
    the execution of a formal agreement as unimportant and accordingly
    held that there was a concluded contract.

    5
    Lim Keng Siong & Anor v Yeo Ah Tee [1983] 2 MLJ 39 (FC)
    6
    Charles Grenier Sdn Bhd v Lau Wing Hong [1996] 3 MLJ 327 (FC)
    7
    Cipta Cermat Sdn Bhd v Perbandaran Kemajuan Negeri Kedah [2007] 2 MLJ 746 (CA)
    More recently, the courts appear to place considerable significance on the
    complexity of the transaction8 as well as the commercial prowess of the parties
    involved,9 in concluding that parties in those instances would not likely consider
    themselves bound until a formal contract is effected. This was underscored by
    the apex court10 which remarked as follows:

    “The court should give effect to that intention and not foist an informal
    contract, which is not the practice of financial institutions and is highly
    unlikely in complex and intricate bargains … In the case of a complex
    bargain, it will be more challenging to find the consensus ad idem on the
    terms.”

    Authors’ comments

    It has long been said that the law leans in favour of upholding bargains rather
    than striking them down willy-nilly. In spite of that, exclusionary expression such
    as “subject to contract” cannot be used by parties as a “be-all and end-all”
    phrase.

    The courts have repeatedly cautioned against relying on such expression as a


    litmus test, but rather will ascertain objectively the intention of the parties from
    the expression employed,11 based on a complete account of the exchanges
    between parties.12

    Thus, in order to avoid pre-contractual negotiation from being construed as a


    “done” deal, it is best advised that parties, both by their conduct13 and in writing,
    make it unequivocally clear that all negotiations and exchanges are strictly
    “subject to contract”.

    Editor: Koay Sook Kuan

    If you have any queries, please contact associate, Hooi Chung Wai (hcw@lh-
    ag.com) or his team partner, SM Shanmugam (ssm@lh-ag.com).

    Published by the Corporate & Commercial Disputes Practice

    © Lee Hishammuddin Allen & Gledhill. All rights reserved.

    8
    Cheverny Consulting Ltd v Whitehead Mann Ltd [2007] 1 All ER (Comm) 124
    9
    Rim Alliance Inc Sdn Bhd v Haniffa Properties Sdn Bhd [2015] 1 MLJ 149 (CA)
    10
    Deutsche Bank (M) Bhd v MBf Holdings Bhd & Anor [2015] 6 MLJ 310 (FC)
    11
    Daiman Development Sdn Bhd v Matthew Lui Chin Teck & Anor Appeal [1981] 1 MLJ 56 (PC)
    12
    Lau Sieng Nguong v Hap Shing Co Ltd [1969] 1 MLJ 190 (FC)
    13
    Simplicity Network Sdn Bhd v Penang Port Sdn Bhd [2018] 1 LNS 2145 (HC)

    You might also like