Agreement to agree did not amount to a binding contract

It is not unusual for people to sign agreements without being fully aware of how legally binding the document actually is and how much protection it gives them.

This can prove costly, as shown in a recent case before the High Court.

It involved two businessmen, Karim Dhanani and Serge Crasnianski, who discussed setting up a private equity fund together. They signed a letter and term sheet under which it was envisaged that Mr Crasnianski would provide money for a fund to be managed by Mr Dhanani.

However, the relationship became strained and Mr Crasnianski decided not to proceed with the project. Mr Dhanani took legal action saying that the letter and term sheet was a binding agreement on both of them to play their part in setting up a fund.

The High Court held that it was clear that the two parties had intended to create legal relations. A “reasonable businessman” would have understood that the main terms of the fund had been agreed in the term sheet and that each party was obliged to do his part to bring about the formation of the fund.

However, there was so much still to be agreed that the letter and term sheet in reality only amounted to an “agreement to agree”.

Such an agreement was not recognised by the law as being legally enforceable. Mr Dhanani’s claim was therefore dismissed.

Please contact Wayne McBean if you would like more information about the issues raised in this article or any aspect of contract law.