Barbudev v Eurocom Cable Management Bulgaria Eood
| Jurisdiction | England & Wales |
| Judge | Lord Justice Aikens,Lord Justice Lloyd,President of the Queen's Bench Division |
| Judgment Date | 27 April 2012 |
| Neutral Citation | [2012] EWCA Civ 548 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2011/1951 |
| Date | 27 April 2012 |
[2012] EWCA Civ 548
President of the Queen's Bench Division
Lord Justice Lloyd
and
Lord Justice Aikens
Case No: A3/2011/1951
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
THE QUEEN'S BENCH DIVISION (Commercial Court)
Mr Justice Blair
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr John Wardell QC (instructed by K&L Gates LLP) for the Appellant
Mr Conall Patton (instructed by Freshfields Bruckhaus Deringer LLP) for the Respondent
Hearing date : 7 th February 2012
Synopsis
The question on this appeal is whether a "Side Letter" dated 12 April 2006, which was signed by the appellant, Mr Georgi Velichkov Barbudev, and on behalf of the first respondent, a Bulgarian corporation, is legally enforceable by Mr Barbudev. In order to explain how the question has arisen, it is necessary to set out some of the background, although it is not necessary to repeat many of the detailed findings of fact made by Blair J in his full and careful judgment 1 which was handed down on 17 June 2011 after a 7 day trial in May 2011.
Mr Barbudev is a Bulgarian businessman who built up a successful cable television and internet business in the Plovdiv area of south central Bulgaria in the years 1995–2004. The company was called Eurocom Plovdiv EOOD ("EP"). Mr Barbudev was the CEO and major shareholder. By 2004 EP had become the second largest cable company in Bulgaria and Mr Barbudev and the other shareholders decided to sell their interests in it. Several potential purchasers were interested, including the American company Rumford Alliance Ltd ("Rumford") and the Warburg Pincus Group, ("WPG") a private equity consortium, which included all three respondents.
By late 2005 there were competing offers to buy EP from Rumford and WPG. In November 2005 Mr Barbudev signed two "Term Sheets" with WPG, both of which were expressed to be governed by English law. The Term Sheet dated 27 October 2005 stated that EP would be sold to the third respondent, FN Cable Holdings BV. With some exceptions the terms of the sheets were stated not to be legally binding. One important exception, however, was that the EP shareholders were legally committed to deal only with WPG for an exclusivity period which would expire on 15 April 2006.
The judge found that from late 2005 Mr Barbudev made it clear to WPG that he wanted to reinvest some or all of the price he obtained for his EP shares in the new, WPG entity/EP merged business. That was an important issue for him. 2
It was Mr Barbudev's case at the trial that on 12 December 2005 an agreement was reached in principle between him and Mr Robert Feuer, then an Associate of the second respondent, that Mr Barbudev would have a 10% participation in the proposed new combined business of Eurocom Cable Management Bulgaria EOOD, the first respondents ("ECMB"). Mr Barbudev said that this led him to sign a Declaration on 14 December 2005 that there were no other deals in prospect preventing those wishing to sell EP from selling to WPG or its nominated entity. This entity was always going to be ECMB, which had already bought another Sofia based operation called Eurocom Cable EAD.
From December 2005 there were negotiations on the terms of a Share Purchase Agreement ("SPA") between the shareholders of EP and WPG. There were also
discussions on how Mr Barbudev's proposed stake in the new combined business was to be valued and how much he was to pay for it. By early March 2006 negotiations on the form and content of the draft SPA were well advanced. On 5 March 2006 Mr Barbudev emailed Mr Feuer asking for a draft of the contract for his purchasing 10% of the shares in the new entity. Mr Feuer replied on 7 March 2006 that an Investment and Shareholders Agreement ("ISA") would be prepared once the SPA had been agreed and signed.Clause 6 of the draft SPA contained the conditions that had to be fulfilled before there could be a "Closing" of the SPA. Clause 6.1 provided:
"Closing shall be conditional on the following Conditions having been fulfilled or waived in accordance with this Agreement….(e) the Purchaser, [Mr Barbudev] (and if applicable any entity nominated by [Mr Barbudev] which is acceptable to the Purchaser) having legally, duly and validly executed the Investment Agreement conditional only upon closing".
In the draft SPA the term "Investment Agreement" was defined as "the investment and shareholder's agreement to be entered into between the Purchaser and [Mr Barbudev] in relation to the Investment". The term "Investment" was defined as "the €1,650,000 investment by George Barbudev in consideration for a combination of shareholder debt and registered share capital of the Purchaser which shall represent ten (10) per cent of the registered share capital of the Purchaser as at the date of the Investment Agreement". It was accepted at the trial that, at some point, Mr Barbudev and WPG had agreed the figure of €1,650,000 as the price of Mr Barbudev's investment and 10% of the registered share capital as the extent of his investment.
However, clause 6.5 of the draft SPA provided that the condition precedent to the Closing that was set out in clause 6.1(e) could be waived by written notice from either the Seller or the Purchaser. From Mr Barbudev's point of view, the unconditional right of the Purchaser (ie. WPG) to waive the condition in clause 6.1(e) made that term valueless to him. If WPG could waive that condition, it would mean that the SPA would become effective, but Mr Barbudev would not have obtained an Investment Agreement by which he would invest €1.65 million in return for a 10% stake in the new business, which he was anxious to do. The judge found, at [33], that the existence of the "waiver" condition in clause 6.5 was unacceptable to him.
The question of whether the Purchasers should maintain the right to waive the condition in clause 6.1(e) was debated between the parties and their lawyers in the period until early April 2006. At [40] of his judgment, Blair J found that around 5 April 2006, when it was clear that an ISA would not be ready for signing at the same time as the proposed signing of the SPA, the idea of a Side Letter emerged in discussions between Mr Barbudev, Mr Feuer and Mr Yordan Naydenov, WPG's Bulgarian lawyer.
The Side Letter was drafted by Mr Paul Doris, a senior associate of Freshfields Bruckhaus Deringer LLP ("Freshfields"), who had been instructed to advise WPG on English and Dutch law aspects of WPG's acquisition of EP. Mr Doris was instructed by Mr Feuer to draft the Side Letter on 10 April 2006. Once Mr Feuer had approved the draft Side Letter, it was circulated, with other documents, on 12 April 2006. The Side Letter was signed that day by Mr Barbudev, Mr Feuer, on behalf of ECMB and Mr Lorand Horvath, also on behalf of ECMB. All three men initialled each page of the document. However, the judge found that "contrary to the submissions that have been made by the parties, there is no firm evidence that any of these individuals gave any particular thought to the legal effect of the proposed document". 3
At the trial there was an important dispute about what Mr Barbudev was told by Mr Feuer and (on Mr Barbudev's case) by Mr Horvath (who was the chief financial officer of the third respondent) in the course of a meeting which took place on the afternoon of 12 April 2006 in Zurich. It was alleged by Mr Barbudev that Mr Feuer gave him an oral assurance that the Side Letter was an additional agreement or contract between him and WPG giving him legal rights to invest in the purchaser company. Mr Barbudev further maintained that the Side Letter was presented as the solution to Mr Barbudev's concerns about the ability of WPG to waive signing of the ISA as a condition precedent to the closing of the SPA, which, as explained above, would enable WPG to prevent Mr Barbudev from obtaining his 10% investment in the new entity. Mr Feuer denied he gave any such assurance and Mr Horvath said that he had no recollection of Mr Feuer saying that the Side Letter was intended to protect Mr Barbudev's reinvestment.
At [49] of his judgment, Blair J found that neither Mr Feuer nor Mr Horvath gave Mr Barbudev any assurance that the Side Letter was like a separate contract, the purpose of which was to protect Mr Barbudev's right to invest in the combined business. But the judge also found that Mr Barbudev was not told that the Side Letter was not legally binding. He said:
"I am not satisfied that anything was said to him one way or the other as to [the Side Letter's] binding nature. I find that Mr Feuer used the Side Letter to reassure [Mr Barbudev] that the intention was that his investment would go ahead, and in the light of that Mr Barbudev signed the SPA, even though [WPG] retained the unilateral right to waive the requirement that the execution of the ISA was a precondition of the closing".
The terms of the Side Letter are obviously central to the case and to this appeal. I have set the letter out in full in the Appendix to this judgment. Mr Barbudev's case at the trial was that the Side Letter constituted a contractual obligation on the part of all three respondents to execute an Investment Agreement, viz. the ISA, by which Mr Barbudev would invest €1,650,000 for 10% of the share capital of the reformed ECMB. However, the judge found that the second and third respondents were not parties to the Side Letter 4 and that conclusion is not appealed.
At the trial, it was argued for Mr Barbudev...
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