Barbudev v Eurocom Cable Management Bulgaria [2011] EWHC 1560

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 stake was sold to a consortium of owners, who formed a new company, Eurocom Cable Management Bulgaria. The terms of this agreement were largely contained in the form of two ‘term sheets’ which were stated to be governed by English law. However, the claimant, Mr Barbudev also alleged that he had reached an agreement with the defendants which would give him a 10% share in the newly formed entity. This was evidenced by a ‘side letter’ that had been signed by both the parties which provided that the stake would be 10% but on “terms to be agreed”.  Mr Barbudev claimed this was an additional agreement that was legally binding. The defendants denied this.

Issues

Was the side letter a legally binding agreement? Whether the side letter was capable of proving that the parties intended to create legal relations between each other or not.

Held

The side letter was not a legally binding agreement. It did not show that the parties intended to create legal relations and the fact that the side letter was signed by the parties and initialled on each page did not change this. When a court is to consider whether or not the parties intended to create legal relations, the objective course of conduct of the whole parties is to be assessed. The court will not consider the parties subjective state of mind. In this case, because the side letter suggested that a 10% stake would be given to Mr Barbudev only on ‘terms to be agreed’, the letter was no more than evidence of an agreement to agree.