Commercial Court finds commitment letter unsigned by one party to be legally binding

The recent decision of the Commercial Court in Novus Aviation Limited v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm), serves as a cautionary tale to any financial institutions that regularly use letters of commitment.

The court found that a letter of commitment, which was expressed to be "conditional upon satisfactory review and completion of documentation", was nevertheless legally binding. Further, although it was intended that the commitment letter would become contractually binding once executed by both parties, this did not prevent it from having legal effect when executed by only one party. There was no term of the commitment letter that stipulated that the only means of acceptance was by countersignature, such that acceptance could be communicated by conduct. For more on the decision, please see our banking litigation e-bulletin.