Ron Hoffman & Anor v Finalto Group Limited & Anor

A term sheet may create immediately binding obligations even though the parties contemplate later definitive documents. The question is one of construction. A reference to being binding subject to a definitive agreement may mean that the later agreement will supersede the term sheet, rather than that no obligations arise until it is signed. An express obligation to negotiate in good faith does not necessarily replace other enforceable obligations. A party exercising a contractual power to terminate with payment in lieu cannot later rely on previously unknown misconduct to avoid the contractual termination payments. Contractual warranties do not, without more, amount to actionable representations, although the surrounding documents and circumstances may establish that statements were also intended as representations.

The claimants, Ron Hoffman and Liron Greenbaum, pursued management-equity and employment claims arising from Gopher Investments’ acquisition of Finalto Group Limited from Playtech. The claims concerned an Equity Term Sheet, the proposed issue of shares in a holding company, employment and consultancy arrangements, termination payments and bonuses. Gopher Investments and Finalto Group Limited brought counterclaims alleging fraudulent misrepresentation, breach of contract and breach of duties. Finalto (IOM) Limited brought a related claim against Mr Hoffman concerning transactions involving a domain name, a loan and interest. The central issues included whether the Equity Term Sheet was binding, whether it had been repudiated, the recoverable loss, the parties’ employment status, and whether the counterclaims and related claim were established.

1. Management equity. The Equity Term Sheet was legally binding on the parties, subject to being superseded by definitive documents. Its terms required Gopher Investments, upon Completion, to establish an appropriate Holdco structure and issue the specified equity to the claimants. Those obligations were conditional on Completion, but not on execution of the definitive documents (paras [60]-[66]).
2. Gopher repudiated those obligations by ceasing negotiations and proceeding to terminate the claimants’ engagements. The repudiation was accepted by the Particulars of Claim (paras [74]-[78]). Mr Scoular had formal authority to agree FSE allocations, but he did not in fact agree the claimants’ proposed allocations. In any event, the performance conditions remained unagreed (paras [80]-[88]).
3. The claimants were to be treated as Good Leavers. Damages were assessed by reference to 11 July 2024, with an adjustment to reflect their absence from the business. The Equity Term Sheet did not require, and the evidence did not establish, that the acquisition loans would have been transferred to Holdco. The valuation therefore could not assume that transfer (paras [93]-[126], [149]).
4. The provision requiring reasonable efforts to obtain the capital-gains route under section 102 of the Israeli Tax Ordinance probably would have been effective for the initial equity, but no uplift was established for unvested Sweet Equity or FSE which would have been accelerated on termination (paras [127]-[148]).
5. Employment claims. Mr Hoffman was entitled to contractual severance, payment in lieu of notice, the 2022 bonus and holiday pay, but not a 2023 bonus. Mr Greenbaum had remained engaged by Clear Consulting under the consultancy arrangement and had not become an employee of FGL (paras [154]-[168]). The defendants could not avoid termination payments by relying on alleged misconduct after choosing contractual termination and payment in lieu, consistently with Cavenagh v William Evans Ltd [2012] EWCA Civ 697 (paras [169]-[173]).
6. The alleged misrepresentations and breaches of duty were not established. The MWD did not bar fraud claims, but the relevant statements were not shown to be fraudulent or materially untrue. The counterclaims and FIL’s claim failed (paras [183]-[256]).