If any of the provisions in the contract are uncertain, then the agreement is not binding and cannot be enforced as contract. The court refers to such an agreement as a ‘Letter of Intent’.

However, sometimes a letter of intent is prepared intentionally to reflect the intentions of the parties should certain conditions to a transaction be satisfied. These situations may include pre-contractual negotiations in respect of quantity /quality of goods, services, pricing and time deadlines for delivery. The letter will normally state that it is a non-binding agreement until specific conditions are fulfilled.

Benefits of a Letter of Intent:

• The document states the intentions of the parties and makes their position clear as to future obligations. It can also provide protection in case a transaction fails during negotiation process
• It shows clearly what has been agreed and what requires further negotiations so that there is no misunderstanding as to what is undecided
• The letter will give good guidance as to when the transaction should be finalised and the time deadlines for any particular terms to be fulfilled especially where the agreement is spread over a long period of time
• In the event of dispute, a letter of intent can clarify the position of the parties and show that there was an intention to enter into a legally binding agreement

Drawbacks of a Letter of Intent

• Both parties may treat a letter of intent differently. One party may commit himself to fulfil the terms of the letter with intentions to finalising the contract, whilst the other party may simply treat this as merely a pre-negotiation document.
• Once the work is undertaken by both parties, their intention as to completing the contract may change. They may no longer want to be legally binding by any formal agreements, which may cause problem in the future if any of the terms is broken.
• Letters of intent can also put a limitation on negotiations with other professionals which can create further issues

It is still unclear why parties want to create such legally worthless document, if their intention is to form a legally binding contract. Sometimes it is due to the fact that the parties believe the agreement to be valid, only to discover, after costly litigation, that it was just an unenforceable and not legally binding letter of intent.

In essence, the letter of intent was traditionally regarded as a document with a very little legal meaning. However, the courts nowadays distinguish certain circumstances where parties are recognised to have the rights and obligations which makes the letter of intent legally binding. The court will look at:

• The facts of the case, wording and the circumstances at the times the letter was drafted
• Whether the terms in a letter of intent were certain
• Whether the letter was ‘subject to contract’. This term would normally indicate that the letter is not legally binding. However, if the parties undertake work in accordance with the terms of the letter of intent, the court may decide that they formed an implied contract by conduct which of course, will be binding
• The duration of the letter of intent. If the letter states the expiry date, it is presumed that the parties enter into a contact automatically.
• Each case need to be decided on its own merits

Conclusion

Although a letter of intent can be extremely helpful in commercial transactions and negotiations, it should not be considered as a substitution for a legally binding contract.  It is crucial that the letter of intent is carefully drafted stating legal foundations such as terms and intentions of the parties clearly. Ideally, the letter of intent should be prepared by a professional who will ensure that all necessary requirements are met.

If any member feels that what is happening within the company is ‘unfairly prejudicial’ to him, he has a right to petition the court. The complaint may be based on past, present or even anticipated future events, and may be unfairly prejudicial to all of the members or only some or one of them. Whatever what has happened, is happening or will happen amounts to ‘unfair prejudice’ is judged on an objective basis, from the perspective of an impartial outsider.

For the petition to be successful, the member must prove that he has been affected in his capacity as member, although this has been given a very wide interpretation. For example, if it was one of the terms of a takeover that the previous owner of the business would receive shares in the acquiring company and become a director of that company, it may follow that the loss of the directorship constitutes ‘unfair prejudice’ to the member as the two positions are inextricably linked.

In order to establish unfair prejudice, it is not necessary to prove that the value of the member’s shares have been adversely affected, although frequently this will have happened. Examples of potential unfair prejudice are:

• Non-payment of dividends;
• Directors awarding themselves excessive remuneration;
• Directors exercising their powers for an improper purpose; and
• Exclusion from management in a quasi-partnership type of company

 If the court finds that a member has suffered unfair prejudice, it can make any order it thinks appropriate. However, the most common remedy given is an order that the other shareholders or the company itself should purchase the shares of the petitioner at a fair value. An example of this was Gerrard v Koby [2004], where the order was granted as it was impractical for the parties to continue to work together. The House of Lords in O’Neill v Philips [1999], held that the court’s powers were wide under s.994 but did not give an automatic right to withdrawal from a company where trust and confidence had broken down.

 In Re Phoenix Office Supplies Limited [2003], the Court of Appeal confirmed that s.994 is not available to effect an automatic exit route from a company. In this case, the petitioner had voluntarily severed his links with the company and was using a s.994 petition as a way of trying to obtain the highest price possible for the sale of his shares. In Exeter City AFC v Football Conference [2004], it was held that the statutory right of shareholders to petition for relief under s.994 was inalienable and could not be diminished by a contract for arbitration between the parties. The Court of Appeal has reaffirmed that the normal way of dealing with internal company disputes in small private companies where unfairly prejudicial conduct has been proved is an order for a share purchase under s.996; this was seen in the case of Grace v Biagioli [2005].

In Nagi v Nagi [2006], it was held that one director removing another director without notifying him amounted to unfair prejudicial conduct. A buy-out under s.996 was therefore ordered by the court.

If a company is a ‘quasi-partnership’, i.e. a small group of participants who are directors and shareholders, then equitable considerations come into play. This makes it more likely that a court would grant an order under s.996 to buy out a disaffected party.

For more company law advice, contact Darlingtons, a well known firm of solicitors in London.

Many employers will be aware that the test for a fair dismissal is the test of the “range of reasonable responses”. This is also subject to procedural fairness requirements also.

A recent case highlights both that the test is generally a common sense approach and that whilst there are reasons for employers to argue that employment law is not in their favour, to an extent these are issues not directly related to the legal test, which in reality is quite fair to the employer.

In the case in question, a hair stylist was dismissed for deleting bookings for one of her bosses as a malicious response to issues between them. The employee claimed that the deletions were inadvertent not deliberate. However, this explanation was significantly undermined by the fact the booking removals was done under another employee’s computer login, which indicated the employee was seeking to implicate the other employee.

The Tribunal gave the explanation by the employee and her case, short shrift. Whilst this was an isolated matter, it was serious enough to equate to gross misconduct in the sense it was something which destroyed completely the duty of mutual trust and confidence inherent in the employment relationship.