Why you should never say 'that's a deal' on Zoom
Your webcam word could be your bond
In these odd, non-tactile times, where virtual pow-wows have usurped real business meetings, the likes of Microsoft Teams, Zoom, Google Meet, Skype and other suppliers of video conferencing have turned the home into the office, meeting-room and online conference centre all rolled into one.
But for all the joys of conducting one's business remotely, video conferencing technology has highlighted an issue many people might not be aware of in the English legal system. The greater use of such technology has led to an increased risk of parties entering into business contracts prematurely and accidentally - due to the fact that English law allows a person's simple spoken word to be their legally binding bond, so what you say could mean a formal contract has arisen without you realising or intending it.
This risk of an oral contract arising is exacerbated by the fact that so many video calls are now being recorded, providing clear evidence of what was said by each of the parties in relation to the specific terms agreed.
Under English law a binding contract arises whenever there is a clear offer, a clear acceptance, an intention to create legal relations (presumed in business dealings) and a mutual benefit provided by the contract ("consideration").
In addition, English law is more "informal" than other laws in that there is generally no requirement for the contract to be in writing, so there's nothing to stop parties entering into a contract which is purely oral, or a mixture of written documents and oral discussions. Added to this, English courts have even decided that an agreement can be inferred from the mere conduct of the parties, which only adds to the increased risk of entering into an unwanted or premature contract.
Be wary, therefore, of letting your warm enthusiasm getting the unintended better of you on Zoom, Teams et al, because in the event of a court having to decide if a contract was formed, their test is coldly objective: would a reasonable bystander conclude that an agreement was reached on the basis of all the words and conduct of the parties? The subjective intent of the parties is not relevant at all.
So how best to avoid accidental oral contracts arising during video conference calls? A good start (literally at the start of the call) would be to utter three little but hugely important words: "subject to contract", which means in legal terms that the parties are still negotiating and have not yet reached an agreement; and/or no legally binding agreement will arise until a formal document has been signed.
Recently, the courts have confirmed time and again that the phrase "subject to contract" provides a strong presumption against a binding contract arising. In negotiations by video conference, you need to state at the beginning of the call that discussions are subject to contract when the call is recorded. And when the call is not being recorded, some prior communication, for example by email, stating "subject to contract" is required. Do note, however, that this might not provide a 100 per cent guarantee - the parties could later waive the subject-to-contract condition by their words or actions, so care is needed - but it is the best way of avoiding unwanted contracts.
Another safeguard is for a party also to specify that some condition needs satisfying before a binding contract can arise. A certain person or body might, for example, have to approve the draft contract or physically sign it. Some contracts may also contain terms amounting to pre-conditions: for example, a counterparty clause - which states that a binding contract cannot arise until each party has signed a copy of the agreement - has been seen as averting a binding contract. However, be aware that if all pre-conditions have objectively been satisfied, it could be argued that the contract has been concluded.
Parties can also guard against a contract arising prematurely by the use of non-binding letters of intent or ‘heads of terms', which aim to summarise the main points of a draft deal but make it clear that there is no binding agreement until the substantive agreement is executed.
So if this was a Zoom or Teams meeting, action points might be: always state "subject to contract" in writing or orally at the start of any negotiations (and the sooner the better where the negotiations are mainly oral); always set out any other necessary pre-conditions/approvals before a binding agreement can arise; refer clearly to the need to draw up an agreement and/or the use of lawyers, as courts see this as implying discussions are subject to contract; and finally, remember that even the magic words "subject to contract" won't guarantee you'll avoid one.
John Warchus is a partner and specialist in commercial & technology contracts at Moore Barlow LLP