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Company wins breach of contract dispute with bank

Posted: 25th October 2016   In: Corporate Commercial

An aviation company has won a breach of contract dispute with a bank over a multi-million pound deal to buy an aircraft.

The court heard that the company had sought equity investment to finance the purchase and so entered into negotiations with senior bank staff. A commitment letter and a management agreement were drafted and the bank's investment committee approved their terms, subject to the documentation being satisfactory.

The bank's representative, its head of treasury and investment, signed the documents on its behalf. However, the bank's board of directors subsequently rejected the transaction and it did not proceed.

The company sought damages but the bank claimed that its representative lacked authority to sign a binding agreement and so no contract had been formed.

The court found in favour of the company. It held that it was plain from the terms of the commitment letter that it was intended to create legal relations and the bank’s representatives had the authority to sign and make it legally binding.

The bank's sole reason for deciding not to proceed with the transaction was that it had considered that it was not in its commercial interests. That was not a ground on which it had reserved the right to withhold funding. The bank had therefore renounced its obligations under the commitment letter and committed a clear breach of contract.

Please contact Simon Porter if you would like more information about the issues raised in this article or any aspect of contract law.