Barbudev v Eurocom Cable Management Bulgaria EOOD & Ors

An agreement to negotiate an investment and shareholders’ agreement in good faith is unenforceable where the proposed agreement leaves essential terms for future negotiation. Parties may agree binding terms while leaving other matters open, but only where the agreement is sufficiently complete and certain and the outstanding matters are not essential to the proposed relationship. The court determines contractual intention objectively from the written document construed against its factual matrix; negotiations and subjective beliefs are inadmissible where the agreement is wholly written. A written contract does not become partly oral merely because one party gives oral reassurance about its purpose. A settlement agreement concerning one contract will not ordinarily release rights arising under a separate agreement unless its construction clearly produces that result.

The claimant founded a Bulgarian cable television and internet business which was acquired by the first defendant. A side letter signed during the transaction stated that the claimant would be offered an opportunity to invest in the purchaser, on terms to be agreed in an investment agreement, including an investment of at least €1,650,000 for 10 per cent of the registered share capital.

The investment agreement was never concluded. The claimant alleged that the side letter was binding, that the second and third defendants were also parties, and that he was entitled to damages following the later sale of the business. The defendants disputed enforceability, party identity and the effect of a later final settlement protocol.

1. The claim was dismissed. The side letter was a wholly written agreement. Oral assurances that it was intended to protect the claimant’s investment, and discussions concerning a possible share pledge, did not make it partly oral or create a collateral contract.
2. The court applied the objective approach in RTS Flexible Systems Limited v Molkerei Alois Müller GmbH & Co KG [2010] 1 WLR 753. The document had features supporting an intention to create legal relations, including signatures, governing-law and jurisdiction clauses, and reference to the Contracts (Rights of Third Parties) Act 1999. Its description as a comfort letter in a working document was not determinative.
3. Under Walford v Miles [1992] 2 AC 128, as explained by Petromec Inc v Petroleo Brasileiro SA [2005] EWCA Civ 891, an agreement to negotiate in good faith is unenforceable. The side letter required the parties to negotiate an investment and shareholders’ agreement on terms to be agreed. That obligation extended to the price and percentage interest because the wording permitted an investment of more than €1,650,000 and did not settle how the shares and shareholder debt were to be structured.
4. The agreement also lacked sufficient certainty. The proposed relationship required agreement on matters including put and call options, option pricing, dilution protection, transfer restrictions, governance and customary tag-along and drag-along rights. The side letter was not a complete agreement for the transfer of a 10 per cent interest.
5. The second and third defendants were not parties. The written document identified ECMB as the purchaser, and extrinsic evidence could not add parties: Shogun Finance Ltd v Hudson [2004] 1 AC 919. There was no shared assumption capable of founding estoppel by convention under Republic of India v India Steamship Co [1998] AC 878.
6. Although unnecessary to the result, the later Final Protocol did not release the claimant’s personal rights under the side letter. Properly construed, it settled obligations under the sale and purchase agreement and related payment arrangements, not claims arising under the separate investment arrangement.

The claim was determined at first instance in the Commercial Court. The trial was conducted on liability, save for one issue, pursuant to an earlier order. No lower-court decision is stated.