Intention to create legal relationship - Formation of contract - Whether court erring
Barbudev v Eurocom Cable Management Bulgaria EOOD and others: Court of Appeal, Civil Division (Sir Anthony May P, Lord Justices Lloyd Aikens): 27 April 2012
The claimant founded a cable television and internet business, EP, in Bulgaria. the claimant and other owners of EP sought to sell the business. Potential purchasers included an American company (R Ltd) and a private equity consortium (Warburg) to which all three defendants belonged. The claimant made it clear that he wanted to reinvest some or all of the price he obtained for his EP shares in the new merged business and an agreement was reached in principle that the claimant would have a 10% participation in the business. A share purchase agreement (SPA) was drafted.
The claimant contacted the second defendant to ask for a copy of the draft contract for his purchase of shares in the new entity. It was a condition precedent to the SPA that it could not be signed until the claimant had executed the investment agreement. When it became clear that the investment agreement would not be ready in time to sign the SPA, Warburg drafted a side letter which was signed by the claimant and first defendant which waived the condition precedent in respect of the investment agreement. The side letter read to the effect that 'in consideration for you agreeing to enter into the proposed transaction... the purchaser... agrees that, as soon as reasonably practicable after the signing of the agreement... we shall offer you the opportunity to invest in the purchaser on terms to be agreed between us...'.
It subsequently became clear that the claimant would not receive shares in the new entity. He issued proceedings seeking damages for the loss sustained as a result of the defendants' failure to honour the side letter.
The issues for determination included, inter alia, whether the court had been correct to conclude that the side letter constituted an agreement to agree, rather than an enforceable contract. The appeal would be dismissed.
In the circumstances, the side letter was no more than an agreement to agree. It was an agreement to offer the claimant ‘the opportunity to invest in the purchaser on the terms to be agreed between us’. That was not the language of a binding commitment, and the commercial context could not make it so. Moreover, it was clear that the terms of the investment agreement had not been agreed, they were to have been negotiated in good faith. It followed that, as an agreement to agree, it constituted an unenforceable agreement between the parties (see , , - of the judgment). Walford v Miles  1 All ER 453 applied. Decision of Blair J  All ER (D) 127 (Jun) affirmed.
John Wardell QC (instructed by K & L Gates LLP) for the claimant; Conall Patton (instructed by Freshfields Bruckhaus Deringer LLP) for the defendants.
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