Meaning and effect of the expression “subject to contract”

Astra Asset Management v The Co-op Bank 2019 EWHC 897, BLM June 2019. Commercial Court

Facts

Astra and The Co-op Bank entered into negotiations upon an express “subject to contract” reservation of their respective positions.  Negotiations went forward on their property transaction, but all the exchanges and communications were expressly marked “subject to contract”.  Subsequently Astra brought contractual claims for payment.

Held

The Co-op Bank was given summary judgment to strike out a major element of the claim against it on the basis that whatever had been said in their negotiations and whatever had occurred, the parties had both expressly agreed that their relationship was “subject to contract”, which negated contractual intention.

Comment

1. Sometimes the conduct of parties who had used the “subject to contract” device might nevertheless be consistent only with the formation of a binding contract between the parties. However, in this case the Judge found that the facts were only consistent with “the existence of an agreement in principle with a view to an envisaged contract”, in other words an agreement to agree.
2. It was also important that the actions of the parties were different to the obligations which they would have had under the intended contract.
3. “Subject to Contract” is a is a powerful legal tool, which should be used with care. It doesn't always guarantee that no contract will be formed. NW, in the Midas case, if Anchor had used this expression, they would have ended up with liability for a far larger amount than the actual contract price.

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