SPOTCHECKLEGAL


party has either already had the advantage of some performance, which reflects the parties’ agreement on a long-term relationship, or has had to make an investment premised on that agreement. For these purposes, an express stipulation for a reasonable or fair measure or price will be a sufficient criterion for the courts to act on. But even in the absence of express language, the courts are prepared to imply an obligation in terms of what is reasonable.


John King, managing director of The PSL Group: My company is in the process of negotiating a contract with the customer but we both have very


What is the legal status of a letter of intent?


LEGAL MATTERS


Paul Bugden, international arbitrator and principal of London based law firm Bugden & Co, answers your legal questions.


Rick Keller, chief executive of U-Freight America: My company has been asked by a customer to sign a letter of intent as to our commitment to


enter into a contract with him; he says he needs it only for his bank finance. We are wondering what the consequences are as to the issue of such a letter and whether it has the same effect as a formal contract? Paul Bugden: Letters of intent and side letters may be encountered; they may give rise to no binding contract at all (either because there was no intention to enter into legal relations or because the agreement amounts to no more than an agreement to agree), while


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others may give rise to a simple contract in themselves and are applicable pending the execution of a formal contract. Yet others are a contract so far as they go, but not subject to the entering into of a formal contract. Where a contract has once come into


existence, the absence of agreement (and indeed even use of the expression “to be agreed”) in relation to future executory obligations is not necessa rily fatal to its continued existence. Particularly in the case of contracts for future performance over a period –where the parties may desire, or even need, to leave matters to be adjusted in the working out of their contract – the courts will assist the parties to do so, so as to preserve rather than destroy bargains on the basis that what can be made certain is itself certain. This is particularly the case where one


differing positions as to the governing law and jurisdiction of the contract. We each want the law of our own country. What are the factors we should take into account when deciding what to agree, and how can we solve the disagreement? Paul Bugden: The law governing the substantive contract may be differentiated from the law governing the arbitration procedure or legal ‘seat’, the law governing the arbitration agreement, the law of the state(s) where the award will be enforced, and the law governing the bonds and other securities provided by the parties. Choice of the law governing the


substantive contract will of course primarily determine the extent to which any particular liability regime is of compulsory application. Likewise, the choice of the law governing the bonds and other securities, where provided by the parties, will be a vital factor in determining the true worth of the same. In the absence of express provision to the


contrary, the law with which an agreement to arbitrate has its closest and most real connection is the law of the seat of the arbitration. In practice, parties often fail to specify the governing law of the arbitration agreement. This can give rise to problems, particularly where the law governing the underlying contract is different from the law of the seat of the arbitration and a dispute arises concerning the validity of the arbitration agreement. The construction of the arbitration clause


should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered, or purported to enter, to be decided by the same tribunal. An exclusive jurisdiction clause does not encroach on the validity of the parties’


January/February 2017 105


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