When Negotiations Become Binding: The "I" In "LOI"

It is not uncommon for parties in a commercial transaction to get involved in lengthy, complicated negotiations with numerous draft agreements going back and forth. They may even come to terms on many, if not all, of the substantive aspects of the deal. What happens if negotiations break down or terminate before a formal agreement is signed? In the recent decision of Hartslief v Terra Nova Royalty Corporation, the British Columbia Court of Appeal confirmed that the execution of a formal written agreement is not always necessary for parties to be bound.¹ In addition, the court confirmed that, absent a clear understanding to the contrary, solicitors negotiating on behalf of their clients can bind their clients to an agreement.