Barbudev v Eurocom Cable Management Bulgaria EOOD [2011] EWHC 1560 (Comm); [2011] 2 All ER (Comm) 951
Contract – Intention to Create Legal Relations
Facts
Mr Barbudev, a Bulgarian businessman, had founded a successful cable television and internet company in Bulgaria called Eurocom Plovdiv. He wished to sell his stake in the company. The business was acquired by Eurocom Cable Management Bulgaria, which was already part of the Warburg Pincus group. Two earlier term sheets were governed by English law, but most of their terms were expressly non-binding. A share purchase agreement was later signed. However, the claimant, Mr Barbudev, also alleged that he had reached an agreement with the defendants which would allow him to reinvest in the combined business. This was evidenced by a ‘side letter’ that had been signed by both the parties which contemplated investment of not less than €1.65 million for a combination of shareholder debt and a 10% shareholding, but on “terms to be agreed”. Mr Barbudev claimed this was an additional agreement that was legally binding. The defendants denied this.
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Issues
Was the side letter a legally binding agreement? Did the parties intend to create legal relations, and were the investment terms sufficiently complete and certain to be enforced?
Decision/Outcome
Blair J held that the side letter did not create an enforceable investment agreement. Although its signature and formal legal provisions supported an intention to create legal relations, he linked his conclusion on intention to his findings that it was an agreement to agree and lacked essential terms. When a court is to consider whether or not the parties intended to create legal relations, the objective conduct of the parties as a whole is to be assessed. The court will not consider the parties’ subjective states of mind. In this case, the side letter offered an opportunity to invest on terms to be agreed through further negotiations. Essential provisions governing the continuing relationship between majority and minority shareholders, including exit arrangements, remained unsettled. The claim was dismissed.
Subsequent appeal (2012)
In [2012] EWCA Civ 548, the Court of Appeal disagreed with Blair J on intention: the parties had intended to create legal relations. Nevertheless, it dismissed the appeal because the proposed investment remained an agreement to agree and lacked sufficiently certain essential terms. Intention to create legal relations and an enforceable investment contract were separate questions.
