Consent can be binding or non-binding depending on the language used, but it is not mandatory. However, certain aspects, such as intellectual property, exclusivity, confidentiality and the prohibition of debauchery, are generally binding, but only if the deadlines are reasonable. If an agreement document is written in such a way that it is mandatory, problems may arise. In the context of a transaction or partnership, a heads of agreement can offer both parties: secondly, an initial commitment to non-binding commitments can, on the whole, lead to smoother negotiations. There is necessarily less friction in negotiating non-binding commitments than in negotiating binding commitments. In the event of tensions between the parties, a first interim agreement can reduce this situation by showing that both parties remain ready to continue. In addition, the use of non-binding commitments gives the parties greater flexibility (and potential levers) in negotiating the final agreement. It is very common for the first formal step in an M&A transaction in Asia to be the signing of a provisional document such as a term sheets, a Memorandum of Understanding (MOU), a Letter of Intent (LOI) or a Head of Agreement (HoA), which sets out certain key terms agreed by the parties as the framework for a transaction. Whether a Memorandum of Understanding is legally binding on the parties depends on the circumstances. The important questions that often arise when it is established whether a Memorandum of Understanding is binding are: it is customary to start trading in a risky investment through the dissemination of a roadmap which is a summary of the conditions that the applicant (the issuer, investor or an intermediary) is willing to accept. The Term Sheet is analogous to a declaration of intent, a non-binding presentation of the main points that the share purchase agreement and related agreements will cover in detail. The intention of the parties, supported by the circumstances and the surrounding actions of the parties, may, depending on the circumstances, be used for the succession of commitments. This may be the case regardless of what is written in the document of intent, especially when the parties act in a manner inconsistent with the provisions of the document.
For example, even if the Memorandum of Understanding is not binding, I do not understand why a court could not find that one party has not fulfilled its trial obligations in a certain way (provided that these obligations are sufficiently secure) and that, as a result, the other party has either missed opportunities to reach an agreement with other parties (this is notably the case, if the provisional document contains exclusivity provisions) or expenses related to the continuation of a negotiation based on legitimate expectations in the conduct of the other party. For example, if the parties have indicated in a Terms Sheet a specific price for the shares and have agreed to negotiate in good faith the definitive agreements, a party would be wronged in good faith if, almost immediately after the term sheet is signed, the buyer indicates to the seller that it is only willing to pay a fraction of the purchase price previously fixed. Similarly, one party would rightly be disappointed if the other party, after agreeing on an exclusivity period, simply refused to negotiate during that period. We`ll cover these separate issues in a future article in Insights. At present, it is sufficient to point out that the parties should consider whether the Memorandum of Understanding should contain certain exclusions of liability that may limit a party`s ability to assert that it relied either on the terms of the statement of intent or on the actions of the other party. . . .