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Enforceability of Unsigned Agreements

Enforceability of Unsigned Agreements

| Published on March 21, 2017

Enforceability of Unsigned Agreements


The High Court recently held that a commitment letter in which one party promised to provide finance to another party was held to be legally binding, despite not having been properly executed.

In the case of Novus Aviation Limited v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm), Alubaf Arab International Bank BSC(c) (“AAIB”) and Novus Aviation Limited (“NAL”) negotiated the terms of a commitment letter, in which AAIB agreed to provide finance to NAL. Once the parties had agreed the terms of the commitment letter, AAIB signed and returned the commitment letter to NAL. The parties subsequently began to progress matters but AAIB later pulled out of the transaction.

NAL brought a claim against AAIB for breach of contract. However, AAIB put forward a defence that the commitment letter was not legally binding for a number of reasons, one reason being that the commitment letter was not countersigned by NAL, despite there being a clear requirement in the commitment letter for a countersignature.

In determining whether the commitment letter was legally binding the High Court considered both its terms and the action taken by the parties after AAIB signed and returned the commitment letter to NAL.

It was recognised that the requirement for a document to be signed in order to become legally binding can be waived by conduct of the parties. The High Court found that the action taken by the parties to progress the matter after AAIB had signed and returned the commitment letter to NAL was consistent with the terms of the commitment letter, and it was held to be legally binding.

Melissa Baker, Solicitor.

For advice on commercial transactions please contact the commercial team at our offices in Poole on 01202 725400 or Dorchester on 01305 251007.

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