A company leased land in order to build a gas station thereupon and executed a term sheet with a gas stations operator, in which it was written that it will obligate only until an agreement is signed and that the agreement is subject to antitrust commissioner approval, if required. After a year-long negotiation the operator withdraw from the transaction claiming that it was defrauded as to the location of the land and that no antitrust approval was received.
The Court held that the antitrust commissioner approval that was not received was not ground for withdrawal because the operator never approached the commissioner. The fraud argument was also rejected.
The Court held that a term sheet can be obligating if one can see in it an intention to execute a binding agreement and it includes all the material and vital terms of the transactions (specificity test). The intention is learnt not only from the document but also from external circumstances. Here no intent is to execute a binding agreement can be construed. The company indeed relied on the term sheet and made large expenditure but this is a short agreement signed within two weeks and lacks many issues required for a 20-year agreement and was signed by a low level manager of the operator with not signatory rights. The company should have, in such an agreement, ensure signatory rights and could have easily checked it. Additionally, after the term sheet was signed a long negotiations commenced on many issues that were not part of the term sheet.
The operator acted in bad faith withdrawing from the negotiations for unjustified reasons but this is not a case that justifies compensation and the claim was rejected.