Key Points:
A decision of the NSW Court of Appeal reminds parties to
a preliminary agreement to clearly specify whether or not the
agreement is intended to be legally binding.
Preliminary agreements – such as heads of agreement,
letters of intent, letters of comfort and memorandum of
understanding – are commonly entered into in commercial
negotiations.
A preliminary agreement may outline the commercial intent of the
parties, or may set out the commercial framework for a complex deal
or transaction, including by specifying agreed principles and a
process and timetable for entering into formal transaction
documents. Depending on the outcomes sought, the parties may intend
that a preliminary agreement is legally binding, or that it simply
set out agreements in principle without giving rise to legal
obligations.
