Contract Law: Analyzing Acquisition Agreement for Events Management

This report employs the ILAC method to analyze whether a contract exists between Events Management Ltd and Rigby Corporate Function Planners Pty Ltd based on email negotiations and an acquisition agreement. It examines the essential elements of a valid contract under Australian contract law, including offer, acceptance, intention to create legal relations, and consideration. The analysis reveals that while the initial agreement lacks standard acquisition clauses, the email negotiations constitute a Letter of Intent (LOI) with express wording on key terms like purchase price and business transition, potentially binding the parties. The report concludes that a court may find a contract exists due to the presence of general contract formation principles in the negotiation process, despite the absence of a formal acquisition agreement, referencing relevant Australian legal precedents and guidelines.

Contract Law

Hans Smith
Acquisition manager,
Acquisition and development department,
Events management Ltd.
June 4, 2018
Samantha Jones,
Departmental manager,
Events management Ltd.
Dear Ms. Jones,
Hope you are doing well. On reviewing the facts provided on your part regarding the case, for
the purpose of providing with conclusion to the issue, ILAC method would be applicable in this
case.
Issue- the main issue in the case is determining if on the basis of the emails shared between both
the parties it may be stated that a contract exists between them and if not, with the help of the
negotiations, court can conclude a contract was existing.
Law- On the basis of Australian contract law, if the formation of a legal contract is analyzed,
there are certain elements the presence of which during the formation of a contract helps in
establishing its validity. One of the mentionable elements in this context is agreement. It is with
the help of establishment of agreement between the involved parties which includes an offer
made by the offerer and its acceptance on the part of the offeree that helps in determining the
presence of a binding agreement between the involved parties1. In the process of formation of the
1 LAW OF CONTRACT (2016) sydney <https://sydney.edu.au/lec/subjects/contracts/Summer%202016-17/Contract
%20-%20Summer%202016%20-%20Lecture%201.pdf>.
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contract there is also needed to be presence of intension of creating a legal relation on the part of
the involved parties. In other words, it is essential on the part of the involved parties to have an
intention of entering into a legally binding agreement which also helps in establishing the
presence of a contract. The significance of intention for a binding contract can be effectively
established with the help of Administration of PNG V Leahy (1961) 105 CLR 6. In this case
there was an agreement between both the parties. However on failure of doing the specific
undertaking on the part of PNG, Leahy sued2. In this case it was held by the court that as there
was no intention of creating legal relation there was no contract between the parties. In addition
to that consideration is also needed to be present. It refers to the consideration which has been
determined to be paid in exchange of the promise. It is the presence of consideration that can be
considered as binding proof for the presence of a contract. For the purpose of establishing that a
contract is present among the involved parties it is also needed for the involved parties to be
legally capable under the law to enter into a contract3. Under the law, individuals with mental
impairment, individuals under the impact of impact of drugs, bankrupts and minors are not
considered to have the legal capacity of entering in a valid contract. The contract is also needed
to have legality in order to be considered that a contract is existing and valid in nature. Legality
of the contract implies that the contract must not be used for any illegal purpose.
There are certain aspects that are needed to be specified in an acquisition agreement, as per
Australia Negotiated M&A Guide Corporate and M&A Law Committee in order to
determine that a contract is present and valid. There is needed to be clear specification about
definitions and interpretation. The agreement is also needed to mention about agreement for
buying and selling the business, shares and assets. Herein it is worth mentioning that under
Corporations Act 2001 a company is entitled to provide with financial assistance4. The
agreement is also needed to have specification about conditions precedent, price adjustments,
purchase price, and earn outs. In regards to earn outs the specification under Taxation Ruling
TR 2007/D10 is needed to be mentioned here. According to it, a separate asset is needed to be
formulated during sale in regards to earn out arrangement. In context to condition precedent the
2 Australian Contract Law (2010) australiancontractlaw
<https://www.australiancontractlaw.com/cases/leahy.html>.
3 M. P Ellinghaus, Australian Cases On Contract (Code Press, 2009).
4 Australia Negotiated M&A Guide Corporate And M&A Law Committee (2018) Ibanet
<https://www.ibanet.org/Document/Default.aspx?DocumentUid=DA2B0CD4-9B21-4A7D-95D9-760EAFAF98E6>.
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approval from Australian Competition and Consumer Commission is needed to be present5. The
other specification which are needed to be present in an acquisition agreement for considering
that a contract is present are buyer’s deposit in context to the purchase price, pre-closing
obligations, pre-closing access, closing requirements, warranties and indemnities, liability
limitations, transitional obligations, GST, confidentiality, dispute resolution, restraints of trade,
costs and duty provision, announcements associated with transaction and boilerplate provisions.
The concept of Letter of intent under pre-agreement as specified by Australia Negotiated M&A
Guide Corporate and M&A Law Committee is also needed to be discussed. In case of
acquisitions, in certain cases, buyers and sellers are seen to enter into letter of intent (LOI). LOI
primarily provides summary regarding the essential terms of the transaction6. It is mainly entered
on the part of the involved parties in the initial phase of transaction which my help in reducing
the costs and time involved with formulating and negotiating the formal acquisition agreement.
LOIs mainly covers information about the involved parties, whether the transaction is associated
with the business, asset or share sale. It further provides information about confidentiality
obligation, guarantees, conditions precedent, price assumptions, purchase prices, price
adjustments, deposit resolution, exclusivity, governing law, time for execution of formal
agreements and preparation, transfer of employees, break fees etc.
LOIs may be partially bindings, non-binding and binding. It usually gets determined on the basis
of the usual contract formation principles and express working. Usually LOI is drafted that with
the intension only particular aspects gets implemented. It is also effective in avoiding
complications of lengthy negotiations.
Application- On the basis of the above discussed concepts of acquisition agreement, as per
Australia Negotiated M&A Guide Corporate and M&A Law Committee on analyzing the
agreement between Events Management Ltd and Rigby Corporate Function Planners Pty Ltd it
may be observed that various aspects associated with acquisition agreement is missing in this
case7. The underlying reason being, the agreement being shared between both the parties were
5 Fair Trading Laws (2018) business <https://www.business.gov.au/info/run/fair-trading/fair-trading-laws>.
6 Private Mergers And Acquisitions In Australia: Overview (2017) content
<https://content.next.westlaw.com/Document/I7223ac19855a11e698dc8b09b4f043e0/View/FullText.html?
contextData=(sc.Default)&transitionType=Default&firstPage=true&bhcp=1>.
7 Australia Negotiated M&A Guide Corporate And M&A Law Committee (2018) Ibanet
<https://www.ibanet.org/Document/Default.aspx?DocumentUid=DA2B0CD4-9B21-4A7D-95D9-760EAFAF98E6>.
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not having any specification about clauses like pre-closing obligations, dispute resolution, pre-
closing obligations and access, GST, conditions precedent. Thus the absence of these clauses in
the agreement between Events Management Ltd and Rigby Corporate Function Planners Pty Ltd
results in questioning the presence of a contract between the two parties.
However, it is also needed to evaluate the case on the basis of the negotiation which has occurred
between both the parties. The underlying reason being, negotiation in this case plays an integral
role. On the basis of the negotiation that had occurred between both the parties through email
reflects that the parties had negotiation on purchase price that has been agreed to be $750,000
between both the parties. In the negotiation there has been negotiation and agreement on date of
business transition that has been determined to be 1st July 20188. There has also been agreement
on equipment, plant, and transfer of the employees to Events Management. These negotiations
and agreement can be considered as LOI in this case. This act as a contributing factor on the part
of the court in determining if a binding contract has been present between both the parties or not.
In the above made discussion in Laws it has been mentioned that LOIs can be non-binding,
binding and partially binding. It is primarily dependent on express wording in LOI and general
contract formation principle. It is on this basis it can be clearly observed that the LOI between
Events Management Ltd and Rigby Corporate Function Planners Pty Ltd considered of the clear
specification of the purchase price, date of business transition, resources that are supposed to be
transferred to Event Management. On this basis it may be stated that the LOI is characterized
with express wording increasing its scope of getting binding as per the court. Similarly on the
basis of the general contract formation principles as well, it may be observed that offer,
acceptance, agreement, intention of entering a legal relation, capacity, legality, legal capacity and
consideration is present in the agreement which has occurred between both the parties via email.
This would result on the part of the court to determine that a contract was existing between both
the parties the underlying reason would be the presence of principles of general contract
formation in the process of negotiation and agreement between Events Management Ltd and
Rigby Corporate Function Planners Pty Ltd.
8 Private Mergers And Acquisitions In Australia: Overview (2017) content
<https://content.next.westlaw.com/Document/I7223ac19855a11e698dc8b09b4f043e0/View/FullText.html?
contextData=(sc.Default)&transitionType=Default&firstPage=true&bhcp=1>.
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Conclusion- Thus on the basis of the above made discussion it may be concluded that as per
acquisition agreement, as specified by Australia Negotiated M&A Guide Corporate and M&A
Law Committee it may be concluded that a contract was not existing between Events
Management Ltd and Rigby Corporate Function Planners Pty Ltd. The underlying reason being
the absence of clauses which are needed to be present in the acquisition agreement between the
parties for considering that a valid contract is present between them.
However, on the part of the court, if negotiations between Events Management Ltd and Rigby
Corporate Function Planners Pty Ltd would be taken into consideration, it would result in
determining that LOIs is present in this case, that would be considered to be binding in nature.
The reason for considering it to be binding would be the fact that it comprised of express
wording regarding the clauses to which they agreed upon9. Furthermore, on the basis of
Australian Contract Law, under the principles of contract formation if the scenario is analyzed it
can be noticed that offer, acceptance, agreement, intention of entering a legal relation, capacity,
legality, legal capacity and consideration is present in the agreement which has occurred between
both the parties via email. In this agreement there has been clear specification and agreement of
purchase price, business transition and resources that are supposed to be transferred to Event
Management10. On these grounds the court would be concluding that a contract is existing
between, Events Management Ltd and Rigby Corporate Function Planners Pty Ltd.
Kind Regards,
Hans Smith
References
9 Stefan Grundmann, "The Future Of Contract Law" (2011) 7(4) European Review of Contract Law.
10 Olha Cherednychenko, "Fundamental Rights And Contract Law" (2007) 7(5) European Review of Contract Law.
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Australia Negotiated M&A Guide Corporate And M&A Law Committee (2018) Ibanet
<https://www.ibanet.org/Document/Default.aspx?DocumentUid=DA2B0CD4-9B21-4A7D-
95D9-760EAFAF98E6>
Australian Contract Law (2010) australiancontractlaw
<https://www.australiancontractlaw.com/cases/leahy.html>
Charman, Mary, Contract Law (Willan Publishing, 2016)
Cherednychenko, Olha, "Fundamental Rights And Contract Law" (2007) 7(5) European Review
of Contract Law
Cherednychenko, Olha, "Fundamental Rights And Contract Law" (2007) 7(5) European Review
of Contract Law
Ellinghaus, M. P, Australian Cases On Contract (Code Press, 2009)
Fair Trading Laws (2018) business <https://www.business.gov.au/info/run/fair-trading/fair-
trading-laws>
Grundmann, Stefan, "The Future Of Contract Law" (2011) 7(4) European Review of Contract
Law
LAW OF CONTRACT (2016) sydney <https://sydney.edu.au/lec/subjects/contracts/Summer
%202016-17/Contract%20-%20Summer%202016%20-%20Lecture%201.pdf>
Private Mergers And Acquisitions In Australia: Overview (2017) content
<https://content.next.westlaw.com/Document/I7223ac19855a11e698dc8b09b4f043e0/View/
FullText.html?contextData=(sc.Default)&transitionType=Default&firstPage=true&bhcp=1>
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