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Commercial Law – Corporate Law - Negotiations “Subject to Contract”- Sports Law – Commercial Agency – Solicitor- Breach of Warranty

In the case of Everton Football Club Co Ltd v Sail Group Ltd and another [2011], the first defendant was a South African company which promoted football tournaments and the second defendant was a sports consultancy event management company, engaged by the first defendant to facilitate the organisation of a football tournament between two South African football clubs and a football club from the English Premier League or another major European league, to be played in South Africa.  The commencement of the tournament’s was contingent upon the first defendant securing an agreement with a European team of the agreed calibre to compete against the South African clubs in waiting.  To this end, the first defendant sought the assistance of an agent to act on its behalf.  The second defendant commenced negotiations with the claimant with regards to the claimant taking part in the tournament.

The tournament did not go ahead due to technical reasons and the claimant asserted that a contract had been concluded with the first defendant by virtue of a verbal arrangement between the second defendant and the claimant’s solicitor.  The first defendant refuted this and asserted that the second defendant could not have concluded such arrangements without the authority of the first defendant.

The claimant on the other hand claimed that the second defendant was at all material times the agent of the first defendant.  When no agreement could be reached, the claimant initiated proceedings against the first defendant seeking a declaration from the courts that an agreement existed between the claimant and the first defendant, and against the second defendant for damages for breach of warranty of authority (to conclude a contract on behalf of the first defendant). 

The court had to ascertain whether an agreement existed between the claimant and the first defendant and whether the defendant had breached a warranty of authority (in asserting that it could bind the first defendant).  The first and second defendant resisted the claims and asserted that it was the mutual understanding of the parties that no agreement would be concluded between the parties until a formal agreement was drawn up and signed by all the parties (this never happened nor did the claimant assert that it did).

It was held by the courts that it was prudent to express that the negotiations would be subject to contract.  Where this was the case, a binding agreement would only come into effect when a written agreement was duly executed.  The court however acknowledged that this was not obligatory and was in any case a question of fact, to be considered by the courts.  Where negotiations started ‘subject to contract’, the courts indicated that such negotiations could result in an agreement, by virtue of the conduct of the parties.

Based on the facts, the courts found that no contract had been concluded between the claimant and the first defendant as a result of the negotiations between the second defendant and the claimant and, as such, the claim against the first defendant was dismissed.  The claim against the second defendant was also dismissed on the basis that the claimant failed to show that the second defendant represented itself as having the requisite authority to act on behalf of the first defendant and to bind the first defendant to an agreement with the claimant.

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© RT COOPERS, 2011. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.