Barbudev v Eurocom Cable Management Bulgaria Eood – Case Summary

Barbudev v Eurocom Cable Management Bulgaria Eood

House of Lords

Citations: [2011] EWHC 1560 (Comm).

Facts

Barbudev was a Bulgarian businessman who set up Eurocom Plovdiv, a cable and internet company. He was the CEO and majority shareholder. He and the other shareholders decided to share their interests in the company. Barbudev began negotiating with another company, WPG, mostly on ‘subject to contract’ terms.

Barbudev then told WPG that he wanted to reinvest his proceeds of the sale into a new company formed from a merger between Eurocom Plovdiv and WPG. He and WPG agreed Barbudev would have 10% of the new business. This prompted Barbudev to sign a declaration permitting the other shareholders to begin negotiations with WPG. While they did this, Barbudev began negotiating the specifics of his participation in the new company.

In March, WPG sent him a draft contract. This contract contained a clause allowing WPG to potentially prevent Barbudev from investing in the new company until an overall purchase agreement was closed with the other shareholders. Barbudev considered this unacceptable, so negotiations continued.

Barbudev and WPG eventually agreed on and signed a ‘Side Letter’. This letter, drafted by solicitors, offered Barbudev the ‘opportunity to invest’ in the company ‘on terms to be agreed’ in ‘good faith’ negotiations. WPG intended this to reassure Barbudev, and thought it was a non-binding ‘comfort letter’. Barbudev interpreted it as a legally binding contract requiring them to execute an Investment Agreement allowing him to invest money to obtain 10% of the new business. The court was asked to determine whether the Side Letter was a binding contract.

Issue(s)
  1. Did the parties intend to be legally bound by the Side Letter?
  2. Was the Side Letter void for uncertainty?
Decision

The House of Lords decided each point as follows:

  1. The Side Letter was intended to be legally binding. Evidence for this included the fact that the letter was drafted by solicitors, its ‘legalistic’ language and the fact that it contained a confidentiality agreement that the parties must have intended to be binding.
  2. The Side Letter was void for uncertainty. It was merely an agreement to agree on an Investment Agreement, the key terms of which had yet to be decided.
This Case is Authority For…

An agreement to agree, or to negotiate in good faith, is void for uncertainty. All of the key terms must be agreed on before a binding contract comes into existence.

Other

When determining whether the conditions for a binding contract are met, the court is solely concerned with objective appearances. The parties’ subjective beliefs are not relevant.