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Terms sheets, MOUs, LOIs and Heads of Agreement: How enforceable are they?

Parker & Associates - Friday, August 16, 2019

Tower Insurance Limited v Nicon Limited [2019] NZCA 332 raised two fundamental issues relating to a Heads of Agreement (which may also be known as a terms sheet, memorandum of understanding (MOU), letter of intent (LOI), or similar). First, was the Heads of Agreement effective in the absence of a statement it was intended to be legally binding? Secondly, what was the meaning of the Agreement? The Court of Appeal answered “Yes” to the first question and held that the document was drafted in a way that it required Tower/Stream to treat Nicon as an exclusive contractor, not simply one of a panel of approved demolition contractors, in all but limited circumstances. The case shows that there are risks with entering into a Heads of Agreement.

Stuart Dalzell, Partner and Miranda Smith, Law Clerk, discuss.

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