Too Much Left To Be Agreed For Contract To Be Binding

Dhani v Crasnianski [2011] EWHC 926 (Comm)

The parties met on Eurostar and fairly soon afterwards signed a letter and term sheet under which Crasnianski agreed to provide Dhani €50m to be invested in a private equity fund which would be managed by Dhani. The parties fell out and Dhani brought an action for breach of contract on the basis that a binding agreement had been entered into. He argued that a reasonable businessman would have understood that the main terms of the fund had been agreed and the term sheet and that each party was obliged to do his part to bring about the formation of that fund.

The High Court (Teare J) held that there was no binding contract. Assessed objectively, there was an intention to create legal relations in that the reasonable businessman would have understood the signed letter and term sheet as being legally binding.

However, the letter and term sheet were essentially an agreement to agree, notwithstanding that much had been agreed and that a timetable for agreeing the exact structure, form and location had been agreed. The wording of the letter acknowledged that matters such as the domicile of the fund as was the legal form of the advisor, leading the letter to state that the exact structure of the fund remained to be defined and that several legal documents remain to be drafted and...