Novus Aviation Ltd v Alubaf Arab International Bank BSC(c)  EWHC 1575 (Comm)
Novus Aviation Ltd ("Novus") claimed damages against Alubaf Arab International Bank (the "Bank") for the breach of an agreement to provide equity funding for the purchase of an aircraft.
It was held that a commitment letter stating that the Bank would provide the funding was in fact intended to be legally binding. The Bank's decision not to proceed was therefore a breach of contract.
The central question was whether or not Novus and the Bank had made a contract under which the Bank agreed to provide equity funding. Novus claimed that a commitment letter and management agreement constituted a binding contract. Novus claimed that this contract was repudiated by the Bank and that, as a consequence, Novus had suffered loss.
The Court held that the terms of the commitment letter showed that it was intended to create legally binding relations. It was not merely a statement of intention between the parties and thus bound the Bank to provide equity funding.
The Bank argued that the individual who signed the commitment letter and management agreement did not have authority to bind the company. However, it was held that whether or not the individual did have actual authority was an academic point, as he did have apparent authority, which was sufficient in law to bind the Bank.
The Bank also argued that, as Novus had not returned a counter-signed copy of the commitment letter or management agreement, the documents were not legally binding. It was held that although Novus did not return a counter-signed copy of the commitment letter, it communicated its acceptance by its conduct and this was sufficient.
On the evidence the Judge considered it was overwhelmingly likely that, had the Bank honoured its obligations, the purchase and lease of the aircraft would have been completed.
Novus was therefore entitled to receive a sum in respect of the fee that would have been payable on closing the transaction. It was also entitled to the 0.6% per annum management fee on the appraised value of the aircraft up to the point where the aircraft could have been re-leased.