JSD Corporation Pte Ltd v (1) Al Waha Capital PJSC & Anor

A letter of intent may create a binding lock-in or exclusivity agreement where its terms expressly identify the obligations intended to be legally binding. A general obligation to negotiate in good faith is not implied into such an agreement, particularly where the document expressly makes the relevant provision non-binding. Where a contract provides that deposits are refundable upon seller default and does not define that expression, seller default may include any failure to perform the contractual obligation, however minor or unnoticed. The court may determine that issue summarily where no further evidence or argument is needed. Whether substantial payments described as deposits are penalties, or are recoverable when the contemplated sale does not proceed without buyer default, may require a trial on the surrounding circumstances and industry practice.

JSD paid Waha $4.5 million under a December 2007 letter of intent concerning the proposed purchase of an aircraft. The letter expressly made clauses concerning deposits, costs, confidentiality and the contract legally binding, while other provisions were non-binding. It required Waha to keep the aircraft off the market and provided for refund of deposits in the event of seller default.

The proposed sale agreement was never concluded. Waha terminated the arrangement and refused to repay the money. JSD sought summary judgment, alleging seller default, penalty clauses and absence of consideration. The judgment also concerned continuation and variation of a freezing injunction, but the principal issue was whether summary judgment should be entered for repayment.

1. Binding obligations. The December Letter had contractual effect in respect of the clauses expressly stated to be legally binding. It was a lock-in agreement under which JSD undertook to make payments and observe confidentiality, while Waha undertook confidentiality and agreed not to offer the aircraft for sale or lease. The arrangement was therefore supported by consideration.
2. Termination and good faith. Since the letter contained no express termination mechanism apart from default, it could be terminated after a reasonable time on reasonable notice. At the Part 24 stage it was not possible to determine whether Waha’s March 2008 termination was valid. However, Waha’s asserted implied term requiring the parties to negotiate in good faith was unsustainable. Walford v Miles [1992] 2 AC 128 established that no such duty was known to English law, and the relevant clause was expressly non-binding.
3. Seller default. The continued advertisement of the aircraft on a website, although inadvertent and unnoticed, constituted seller default. The contract did not distinguish between serious and trivial defaults. Giving effect to the wording was particularly appropriate in a negotiated commercial agreement between sophisticated parties, where the exclusivity obligation was important and the payments were substantial.
4. Deposits and penalties. The payments were made under binding contractual obligations and were not unsupported by consideration. Nevertheless, describing them as deposits did not prevent JSD from arguing that they were penalties. The special treatment of land-sale deposits in Howe v Smith [1884] 27 Ch D 89, Workers Trust Bank Ltd v Dojap Ltd [1993] AC 573 and Union Eagle Ltd v Golden Achievement Ltd [1997] 2 WLR 341 did not resolve the issue for this lock-in agreement. Further evidence was required concerning the parties’ surrounding circumstances and customary airline practice.
5. Summary judgment was granted for repayment of the second, third and fourth deposits because seller default was established. The issue concerning the first $1 million remained to be tried. The freezing injunction was continued in amended, post-judgment form.