Dhanani v Crasnianski

A signed term sheet may create binding legal relations even though further documents and details remain to be agreed. The question is assessed objectively from the parties’ words and conduct. However, an agreement is unenforceable where its performance requires the parties to agree further essential matters and provides no objective criteria for resolving disagreement. A party cannot obtain certainty by implying a unilateral power to determine those matters unless the contract uses sufficiently clear words. An advance paid under an unenforceable arrangement may remain recoverable in restitution, subject to allowances for work properly performed and expenses incurred.

The claimant, an investment professional, alleged that the defendant had breached a signed letter and term sheet concerning the establishment of a private equity fund. The claimant sought substantial damages for the loss of anticipated carried interest. The defendant denied that the documents created an enforceable agreement and counterclaimed for repayment of an advance.

The central issues were whether the documents evidenced an intention to create legal relations, whether the obligations were sufficiently certain, whether they created a partnership, and what damages or restitutionary relief followed.

1. Intention to create legal relations. The signed letter and term sheet objectively indicated an intention to be legally bound. The documents recorded agreed main terms, contemplated the claimant’s work during a soft-launch period, and were followed by the claimant’s resignation and the defendant’s payment of an advance. The fact that further legal documents and a temporary service agreement were contemplated did not prevent immediate contractual intention.
2. Certainty and enforceability. The agreement required the parties to agree the exact structure, form and location of the fund’s entities, including matters with fiscal consequences, together with further agreements. No objective criteria existed by which those matters could be determined if agreement failed. The arrangement was therefore, in substance, an agreement to agree and was not enforceable.
3. Construction of the soft-launch provision. The provision requiring the claimant to structure the fund and do what was necessary for its launch obliged him to work towards agreement. It did not confer a unilateral power to determine the unresolved structure against the defendant’s wishes. Clear words would have been required for that result.
4. Alternative claims and damages. The partnership claim failed for the same reason. The court’s observations on repudiatory breach and damages were made on the assumption that the agreement was enforceable. On that assumption, the defendant would probably have vetoed investments in his commercial interests, limiting any recoverable loss. Reliance damages could not place the claimant in a better position than performance. The counterclaim succeeded in part: the advance was repayable in restitution, subject to deductions of £50,000 for the soft-launch fee and £18,038 plus VAT for legal expenses.

The claimant’s claim was dismissed and the defendant’s counterclaim succeeded in part.