Background
NPS International School Pte Ltd and Raffles Assets (Singapore) Pte Ltd signed a letter of intent concerning NPS’s proposed lease of Raffles’s property at 51 Merchant Road for use as a Foreign Systems School. Although headed “NON-BINDING, AND SUBJECT TO CONTRACT & BOARD APPROVAL,” the LOI required NPS to obtain regulatory approvals within eight weeks, promptly apply for them, use best endeavours to obtain them expeditiously, and provide Raffles with copies of its applications as soon as practicable. NPS paid Raffles an initial deposit of S$500,000.
NPS did not obtain the approvals by the 28 September 2022 deadline or thereafter, and the parties never concluded a tenancy agreement. NPS sued for repayment of the deposit. Raffles counterclaimed for declarations that the LOI was binding, a declaration that NPS had breached it, and damages. The trial was bifurcated between liability and quantum.
The Court’s Holding
The High Court dismissed NPS’s claim and held that the LOI created binding obligations despite its “non-binding” and “subject to contract” heading. The contemplated tenancy agreement would not have governed several pre-tenancy matters addressed by the LOI, including obtaining regulatory approvals and handling the initial deposit. The LOI’s language, the commercial setting, the parties’ negotiations, and their subsequent conduct showed an intention to be bound at least by paragraphs 3, 5, 10, 11, and 23.
The court found that NPS breached paragraph 3 by failing to apply promptly, use best endeavours to obtain approval expeditiously, and provide application materials to Raffles as soon as practicable. NPS submitted a late and incomplete change-of-use application, wasting more than four weeks of the eight-week approval period. The court found that, absent NPS’s delays, approval would have been obtained before the deadline. Because the failure to obtain approval was due to NPS’s default, paragraph 11 did not entitle NPS to recover the S$500,000 deposit. Raffles received a declaration of breach, with damages, interest, and costs reserved for assessment.
Key Takeaways
- A document labeled “non-binding” and “subject to contract” may still impose binding obligations when its language, commercial context, and the parties’ conduct demonstrate that intention.
- Preliminary obligations governing matters that will occur before, and will not appear in, a contemplated final agreement may be enforceable independently of that agreement.
- A party required to act promptly and use best endeavours cannot rely on a contractual refund condition when its own delays and inadequate application caused the condition to fail.
Why It Matters
The decision cautions parties that headings and standard “subject to contract” language do not necessarily make every provision of an LOI unenforceable. Courts will examine the document provision by provision and consider how the parties behaved after signing it.
It also illustrates the practical force of best-endeavours and information-sharing clauses in time-sensitive transactions: delay may constitute both a breach and the “default” that defeats a contractual right to recover a deposit.