The High Court considered the contractual status of a document
described as a "term sheet" and found that it was a
In contrast to the decision in JAS Financial Products (above),
this High Court decision held that a term sheet (or heads of terms
or similar) was binding on the parties.
Although a statement that a document is subject to contract is
generally helpful to show that the parties do not intend to enter a
binding contract before signing the relevant agreement, this case
illustrates that whether a binding contract has in fact arisen
before the parties sign will be judged objectively and depends on
whether the parties intended the agreement to bind them at an
Two individuals, Mr Ivan Kuznetsov and Mr Vladimir Gusinski,
entered a document described as a "term sheet" which
related to a Latvian company, SIA Energokom, a joint venture
company in which they were investors. The term sheet was a
short document setting out "principal terms and conditions of
the Company share management and control." Most of it
concerned Mr Gusinski's right to serve notice of share
redemption on Mr Kuznetsov requiring him to buy Mr Gusinki's
shares at the stipulated price. The parties signed the term
sheet in 2010. In 2012 Mr Gusinski served notice on Mr Kuznetsov to
buy the shares, but Mr Kuznetsov failed to do so. He
contended that the term sheet was not legally enforceable because
it was never intended to be legally binding or, alternatively, that
there was no consideration.
The Court of Appeal rejected both these arguments. On the
issue of intention to create legal relations, the Court noted that
while the phrase "term sheet" may often describe a
framework document, there is no absolute rule that "term
sheets" are framework documents and cannot be
contractual. Each case depends on its own particular wording
and what the parties intended, viewed objectively. The court
gave weight to the fact that the two men, both experienced
businessmen, had asked their lawyers to draft the term sheet.
The Court also found that the language in the term sheet was
consistent with a legally binding agreement and not merely a
document that was aspirational. It set out the rights and
obligations in unqualified terms. The term sheet included detailed
wording on the service of the notice of redemption and an express
law and jurisdiction clause. In context, the reference in the
preamble to the term sheet as "describing principal terms and
conditions", i.e. suggesting the possibility of further
agreement on other matters, did not mean that it was not
contractual. An objective appraisal of the words and conduct
of the two experienced men led to the conclusion that they did not
intend agreement of any other terms to be a precondition to a
legally binding agreement.
As to whether or not the parties' agreement was supported by
consideration, the fact that the term sheet did not provide for Mr
Kuznetsov to receive anything in return for granting Mr Gusinski
his rights was not decisive. This was because the surrounding
facts pointed to the term sheet being Mr Gusinski's reward for
agreeing to arrange further funding for Energokom, and his
agreement not to investigate Energokom's management.
In the recent decision in Joyce Whitfield v Revenue & Customs Commissioners  UKFTT 685 (TC) the Tribunal considered that inflexible and disproportionate behaviour by a party's legal representative...
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