On January 18, 2022, the British Columbia Court of Appeal in the decision of Concord Pacific Acquisitions Inc. v Oei (2022 BCCA 16) dealt with a letter of intent which was signed by the parties. Afterwards, the parties had disagreements and one party terminated the letter of intent.
This case involved the development of 13 acres of waterfront property in downtown Vancouver known as the Plaza Lands.
Letter of Intent (LOI)
It is very common in the construction industry (and in other business transactions) for owners, developers, contractors, subcontractors and other parties to sign an initial agreement known as a letter of intent (“LOI”). The primary purpose for having a LOI is to have “something” relatively simple and quick put together to document the main business arrangement, get the work underway and then have the formal agreement prepared and signed later. As long as the formal agreement “matches” the parties understanding of the transaction as set out in the LOI, the arrangement/project carries on to a successful conclusion.
But what if the formal agreement does not “match” one party’s understanding of the LOI? Is the LOI enforceable?
The Court of Appeal was confronted with just such a situation. In this case, the Court of Appeal upheld the Supreme Court decision ruling the LOI was not enforceable.
In many instances, our Courts are faced with contracts which are not clear. Our Courts make every effort to give effect to an agreement when the parties have shown an objective and common intention to enter into a binding contract.
In this case, the Court was not able to “save” the LOI because the fundamental problem with the document was that it was missing essential terms. The Court outlined that the test in determining whether or not the parties entered into an enforceable agreement is as follows:
- whether or not the parties, objectively intended to enter into contractual relations?
- whether or not the parties reached an agreement on essential terms that are sufficiently certain to enforce?
The Court found the parties did intend to enter into contractual relations; however, found certain essential terms missing.
What is an “essential” term will vary in a particular situation, the nature of transaction and the context in which the LOI is made.
The implication of this decision is twofold. Firstly, parties need to be careful and specific when negotiating or preparing an LOI, especially if its intended that the LOI be binding. Secondly, if the LOI is silent on an essential term(s) then the Court will not enforce it.