Jamp Pharma Corp -v- Unichem Laboratories Ltd

In the recent case of Jamp Pharma Corp -v- Unichem Laboratories Ltd, the High Court reiterated the importance of contracting parties comprehend as to when and how they intend for a binding contract to come into existence. Specifically, the court’s decision highlighted the benefit of contractual negotiations being expressly labelled ‘subject to contract’. This will make it clear that the parties do not intend for an agreement to be effective unless and until a written contact is agreed and signed by both parties. 

Without this certainty, the door is left open for ambiguity and potential litigation where the parties disagree as to whether a contract is in place or not. 

Background

The facts in the case can be summarised as follows:

• In 2019 Jamp and Unichem entered into an agreement by which Jamp was authorised to distribute pharmaceutical products in Canada supplied to it by Unichem (the “Agreement”)
• The single product to be supplied initially was a drug called Alfuzosin which was identified in an annex to the Agreement. The Agreement stated that going forward the parties would be able to add other products to the annex which would likewise be supplied by Unichem and distributed by Jamp in accordance with the Agreement
• In March 2019 negotiations began via e-mail for Unichem to potentially supply an additional drug called Tizanidine to Jamp pursuant to the Agreement. In April 2019 Jamp advised Unichem that it was ‘fine with the commercials for the project’ and ‘would like to retain the same structure that we signed as a standard draft and proceed further with only signing of Addendum towards the current agreement for new products’. Unichem replied by: (i) thanking Jamp and confirming that the terms would be the same as previously agreed for the distribution of Alfuzosin, and (ii) asking that Jamp ‘share the addendum accordingly’
• In May 2019 Jamp sent Unichem a draft addendum to the Agreement which dealt with the supply of Tizanidine (the “Draft Addendum”). A few days later Unichem indicated that the Draft Addendum was acceptable, but that it had added two signatories who would sign on behalf of Unichem. Jamp replied and confirmed that the Draft Addendum would be signed
• Meanwhile, arrangements were being made by Jamp in anticipation of the Draft Addendum being signed and a deal regarding Tizanidine concluded. At the same time, and without Jamp’s knowledge, Unichem was in fact negotiating with another Canadian company for the sale of pharmaceutical products in Canada
• In June 2019 Jamp and Unichem held two meetings on consecutive days. In the first meeting Unichem advised Jamp that discussions concerning the proposed addition of Tizanidine to the Agreement were ‘on hold’. At the second meeting, Jamp provided Unichem with a copy of the Draft Addendum it had signed. Unichem responded that the Draft Addendum needed to be signed by Unichem in order for it to become binding. Unichem did not sign the Draft Addendum but took it away from the second meeting
• Subsequently, in July 2019 Unichem entered into a contract with another Canadian company regarding the supply and distribution of Tizanidine. When Jamp learned of this it accused Unichem of going back on what had been mutually agreed and commenced legal proceedings.

Decision

The issue for the court was to determine  whether the e-mail exchanges in April and May of 2019 constituted a binding agreement. In particular, the court had to decide if there was a condition attached to ‘the way acceptance could be made or the intention to create legal relations demonstrated’. In short, was any agreement between Jamp and Unichem regarding Tizanidine ‘subject to contract’?

The judge’s decision was in favour of Unichem and concluded that there was no binding contract in effect between the parties. In doing so, he made the following findings:

• The language in the April e-mail exchanges between Jamp and Unichem indicated that the parties agreed that for a binding agreement to come into existence they had to conclude and sign the Draft Addendum
• It was not the case that the parties had reached an agreement by e-mail and then wished to record it in writing afterwards. Rather, the signing of the Draft Addendum was a condition for any contract to take effect
• The context of the e-mail from Unichem in May 2019 in which it stated that it required two signatories was a reiteration that a binding agreement required the Draft Addendum to be signed by Unichem
• Further, the May e-mail exchanges generally were part of a picture whereby Jamp and Unichem based what they said on the understanding they would both sign the Draft Addendum
• In all the circumstances, “it could not be clearer as a matter of construction that the [Draft] Addendum was to be an amendment to the Agreement and its execution a precondition to achieve this”. It was not a requirement for the phrase ‘subject to contract’ to be used to indicate that a formally signed contract was required to create a binding agreement.

Analysis

The court’s decision was not a particularly controversial one. Previous cases have held that the absence of the ‘subject to contract’ label in negotiations does not displace the parties’ objective intention for a contract to only be formed once a written contract is signed. However, if Unichem had adopted that (or similarly definitive) wording during its negotiations with Jamp, then its position would have been irrefutable. This would likely have avoided a claim being brought against it. 

The court’s decision therefore emphasises the benefit for negotiating parties to make explicitly clear the basis on which they are willing to be contractually bound throughout the entirety of those negotiations. This applies to communications in any contractual negotiations, including those regarding the settlement of existing litigation.

In addition, the decision demonstrates the benefit of parties retaining communications relating to negotiations as their contents may play an important part in revealing the parties’ intentions in the future.