Is a text message sufficient to reach an agreement?
In short: yes.
In a case delivered earlier this month by the Supreme Court of Western Australia, the text messages between the directors of two companies in dispute with each other was central to whether an agreement had been reached between them.
Avopiling (WA) Pty Ltd (Avopiling) carried on the business of piling, foundation and other construction work. Central Systems Pty Ltd (Central) carried on the business of civil construction. Central had engaged Avopiling to carry out works associated with the Roy Hill Iron Ore Project. A dispute ensued between them and Avopiling issued a Writ of Summons.
On 24 September 2014, the respective directors of Avopiling and Central communicated to each other via text message in relation to resolving the dispute. These text messages are replicated below in Exhibit A. On 25 September 2014 (the following day), the lawyers for Avopiling and Central communicated with each other by email confirming that the matter had settled. These emails are replicated below in Exhibit B.
Avopiling subsequently brought a legal proceeding seeking to enforce the agreement which had been purportedly reached by text message.
The question before the Court was whether Avopiling and Central had entered into a legally binding settlement agreement. This question was to be determined objectively – a reasonable person test – by drawing inferences from what their representatives said and did in the course of their dealings. The Court found that a settlement agreement had been reached because:
- Whilst the medium they had used, text message, was informal, the words used regarding the agreement included reference to both accepting an offer and reaching a settlement. In particular, the Court placed emphasis on the phrase “full and final settlement” which had been used in the text messages and would cause a reasonable person in the position of the parties to understand they were intending to fully and finally settle;
- Each of the parties had instructed their solicitors by the following day that a settlement had been reached (by virtue of their emails to each other repeated below); and
- The manner in which the parties intended to later embody their agreement in a formal contract did not deny the existence of an agreement with an intention to be immediately bound.
A link to the full decision can be found here.
Commercial parties should be very cautious in seeking to conclude agreements by informal mediums like text message. One of the problems that arises is identifying the intention to which the parties intended to be bound by the agreement and the certainty of its terms. The better course of action is to engage a lawyer who can protect the parties’ interests by creating a properly worded settlement agreement (for example, an agreement that includes confidentiality and without admission of liability provisions). The cost of pursing or defending a legal proceeding will always outweigh the cost of drafting a properly worded agreement.
Exhibit A: Text Messages[Director of Central]: … I can agree on $520k, I’m very sorry but can’t increase anymore [Director of Avopiling]: Ok you win. [Director of Central]: Please can you confirm that you accept my offer of $520k as full and final settlement. [Director of Avopiling]: That is we get our bank guarantees back. No back charges from your side. You pay $520k + GST [Director of Central]: I don’t know what you are talking about, nobody has told me about any back charges. Do you know something I don’t know? From my understanding, my offer is to $520k and we hand back your bank guarantees. If you think there is anything other than this, then let me know and I will find out and come back to you. This is a new subject that you are talking about. [Director of Avopiling]: No there is noting [sic] that I know. I am just confirming it. Back charges I mean delays and LD. [Director of Central]: I will advise my lawyer that we have reached a settlement and ask him to talk with your lawyer tomorrow morning. Thank you for working with me on this. [Director of Avopiling]: Okay $520k + GST thanks.
Exhibit B: Emails[Solicitor for Central]: I am instructed by my client that the parties reached a settlement agreement last night. Can you please call me as soon as possible to arrange for a deed of settlement to be prepared and executed this morning. [Solicitor for Avopiling]: We also have been instructed that the matter has settled a $520k + GST [sic] in full and final settlement and handing back of bank guarantees. I will check whether the defects liability period survives. In the meantime I would appreciate it if you would do a draft deed.
We agree that tomorrow’s hearing can be adjourned, costs reserved.
Avopiling (WA) Pty Ltd v Central Systems Pty Ltd  WASC 82.
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