Key takeaways
Subject to contract qualification
While the qualification remains in place, there is no binding agreement.
Waiver of subject to contract reservation
The reservation can be waived either expressly or by implication.
Binding agreement v. subject to contract
Whether the parties have concluded a binding agreement or not will depend on the circumstances of the case.
GMC Utilities Group Ltd -v- Sumitomo Electric Industries Ltd [2026] EWHC 885 (TCC)
In Baltimore Wharf SLP -v- Ballymore Properties Ltd [2026] EWHC 312 (TCC), the Court found that the parties to negotiations had not waived or removed the “subject to contract” qualification and, therefore, there was no binding settlement agreement between them: Subject to contract: deal or no deal? | Hill Dickinson.
By contrast, in this case, the Court found that the parties’ negotiations that had initially been labelled “subject to contract” had concluded without that condition being in place and there was, therefore, a binding agreement between them. In the Court’s view, the “subject to contract” qualification had been waived either expressly or by implication.
As can be seen from the cases, whether the parties have agreed to enter into a binding contract and to disapply the initial “subject to contract” reservation will depend on the circumstances of the case.
This decision is also useful for the Court’s approach to different dispute resolution provisions in related contracts and the “one-stop shop” presumption. The Court decided that matters raised by the claimant in court proceedings came within the scope of the arbitration provision in the parties’ substantive contract and there should, therefore, be a mandatory stay of those court proceedings.
The background facts
The contract
In August 2022, Sumitomo Electric Industries (SEI) sub-contracted certain works relating to the construction of an undersea electricity interconnector between Wales and Ireland to GMC Utilities Group Ltd (GMC). The sub-contract provided for the parties to refer any dispute to adjudication and, without prejudice to that provision, also provided for any dispute to be referred to and finally resolved in LCIA arbitration.
The dispute
SEI subsequently contended that GMC had not fulfilled certain of its obligations under the sub-contract, such that delay damages applied. SEI initially made a demand under the performance bond issued by a third party pursuant to the sub-contract but the parties then entered into negotiations aimed at reaching agreement for GMC to pay the sum demanded by SEI into an escrow account pending resolution of the dispute between the parties.
The negotiations
The parties’ solicitors exchanged correspondence on the matter, with the key exchanges taking place on 7 and 8 November 2024.
The first email from Michelmores, on behalf of GMC, on 7 November was headed “without prejudice save as to costs and subject to contract.” It attached a letter containing a counteroffer and that letter was also headed “without prejudice save as to costs and subject to contract.”
In their reply on 8 November, Watson Farley & Williams, on behalf of SEI, marked their email “without prejudice save as to costs” and accepted the counteroffer. Michelmores replied, also heading their email “without prejudice save as to costs," proposing a change to the time period. Watson Farley replied, now in open correspondence, accepting the time change. The correspondence that day concluded with an open letter from Michelmores with no conditionality that confirmed the terms of the parties’ agreement regarding payment of the agreed escrow sum into the escrow account in consideration of SEI withdrawing its claim for payment under the performance bond. The letter confirmed that the escrow sum would only be released by the parties’ agreement or pursuant to the decision of an adjudicator or arbitral tribunal or a competent court.
An escrow agreement was subsequently agreed between the parties on 19 December 2024. The escrow agreement provided for English law and exclusive English court jurisdiction. It also included an entire agreement clause.
The claims for declaratory relief
The parties subsequently disagreed on whether SEI was entitled to payment of the sums held in escrow. GMC contended among other things that the parties had not reached any binding agreement on 8 November 2024 because all the correspondence that day came under the “subject to contract” umbrella. It sought Part 8 declaratory relief to this effect. It also commenced separate Part 7 court proceedings, seeking declarations in relation to its alleged entitlements under the sub-contract, or alternatively damages.
The Court decision
Binding agreement
On the authorities, it was clear that negotiations started "subject to contract" could conclude without that condition whether by express agreement or by implication that the condition was no longer applicable or had been waived. However, the Court would not readily find that such a waiver existed, or such an implication could be made.
The Court rejected GMC's argument that no agreement was reached between the parties until the conclusion of the Escrow Agreement on 19 December 2024. It was clear from the terms of Michelmores’ letter on 8 November 2024, which expressly confirmed SEI’s acceptance of GMC's offer, that GMC considered a concluded agreement had been reached in the correspondence and was no longer proceeding "subject to contract".
In the Court’s view, whether expressly or by implication, the wording of that letter removed any prior "subject to contract" condition. Consistent with such a conclusion, the letter contained no such heading. In fact, the “subject to contract” heading did not appear on any of the correspondence passing between the parties after SEI purported to accept the 7 November counteroffer in its first e-mail on 8 November 2024. Further the letter of 8 November 2024 no longer contained the reservation of rights which was stated at the conclusion of the letter of 7 November 2024. This was also consistent with the parties having reached agreement as to how they would regulate their relationship with regard to the monies demanded under the performance bond.
The Court stressed that the mere omission of a “subject to contract” heading in subsequent correspondence which had initially been labelled “subject to contract” was not of itself determinative of the issue. However, in the circumstances of this case, it was clear that SEI’s acceptance of the counteroffer once the position on the solicitors’ undertaking had been clarified later on 8 November was made without reservation and was not “subject to contract.”
The background context was also relevant. There was urgency in seeking to avoid any payment by the issuer of the performance bond and the parties were, therefore, looking to reach a compromise so that SEI would immediately notify the issuer to confirm that payment need not be made until further instruction.
It was also noteworthy that in none of the exchanges after 8 November 2024 was it suggested that the conclusion of the escrow agreement was a pre-condition to a binding agreement on the terms of the letter of 8 November 2024. The correspondence concerning the escrow account was a separate chain of negotiations.
This was not, therefore, merely an agreement to agree.
The Court also dismissed the argument that the escrow agreement superseded the 8 November letter. The escrow agreement expressly contemplated the possibility of “supplemental agreements”. The Court emphasised that the escrow agreement was not itself a settlement of the underlying dispute, but was instead in the nature of a security or administrative arrangement, expressly contemplated by the parties as operating alongside other agreements including the 8 November 2024 agreement.
Mandatory stay
SEI sought a stay of GMC’s Part 7 proceedings on the basis that those claims should be dealt with in arbitration pursuant to the arbitration provision in the sub-contract.
The Court decided that all the declaratory relief sought by GMC in the Part 7 proceedings fell within the arbitration provision. This included the issue of which party was entitled to the funds held in escrow because that was a dispute arising between the parties in connection with the sub-contract. This construction was consistent with the starting assumption that the parties were likely to have intended any dispute arising out of their relationship to be decided by the same tribunal. Furthermore, the exclusive jurisdiction clause in the escrow agreement did not supersede the arbitration provision in the sub-contract.
The Court, therefore, granted a mandatory stay of the court proceedings under s.9 of the Arbitration Act 1996.
Comment
The Court has once again highlighted the importance of carefully considering the wording and labelling of correspondence exchanged during negotiations. “Without prejudice save as to costs” is not the same as “subject to contract.” In this case, the removal of reservation language, coupled with acceptance in open correspondence and the surrounding urgency, resulted in the “subject to contract” qualification falling away.
Furthermore, while repeated use of “subject to contract” headings on every piece of correspondence is not crucial if the initial correspondence bears that qualification, parties should think carefully about whether and when a distinction has been made in the correspondence between what may still be subject to contract and what has in fact been agreed. If parties do not wish to be bound at an earlier stage, they should state expressly that no agreement is intended to be binding until a formal agreement, or an ancillary formal escrow agreement, has been executed.
