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Assurances in negotiations and the importance of making sure, that all agreed terms, are included in a written agreement
It is quite common that when parties to a written agreement fall out, one party seeks to argue that certain terms which were agreed, but not included in the written agreement, are nevertheless intended to be binding on the other.
The purpose of a formal written agreement is to avoid the disputes that commonly arise when the parties’ bargain is not completely recorded in writing. So when the parties contemplate that their agreement will be recorded in a written contract, there is a ‘strong presumption’ (even in the absence of an entire agreement clause) that the parties do not intend to be bound by anything not recorded in writing. A recent judgment is a good illustration of the principle that a party wishing to rely on the terms outside the written agreement has a significant hurdle to overcome.
The claimant company was a telecommunications provider. It was a subsidiary of a larger company, Batelco. The first defendant was a successful Indian entrepreneur and was the ultimate beneficial owner of the second defendant, which was part of a group of industrial companies.
In 2009 the claimant entered into negotiations to acquire an Indian telecommunications company, S Tel. The parties entered into an option agreement which provided that the claimant could require the defendants to purchase its shareholding in S Tel. Subsequently, allegations of corrupt practices were made by the Indian authorities and a dispute arose. The parties were able to negotiate and three agreements were made in November 2011. Those included a settlement agreement and two share purchase agreements (SPAs), one of which related to S Tel (the S Tel SPA). The claimant claimed that the defendants had breached the settlement agreement.
The claimant contended that under the settlement agreement the sum of US $ 184,793,000, plus additional sums incurred daily, was due. The defendants submitted that they were not liable by reason of certain assurances had been given to it by the claimant at a meeting in October 2011.
The court disagreed. On the evidence, there had been nothing in the discussion that had meant that the claimant, or Batelco's, legal obligations would be other than those contained in the written agreements that were to be signed. The court concluded that what the first defendant had received had been no more than a comfort that the Batelco side would comply with the obligations that it was to undertake. The claimant was entitled to the sum it was seeking.
If you intend to enter into a written agreement, it is essential to ensure that the agreement contains all the terms that have been agreed to avoid any dispute. If not, it will be very difficult to establish that the parties are bound by any other terms.