Jurisdiction(s):
United Kingdom

Implied term ends term sheet where producer seeks fundamental changes; no duty to negotiate in good faith: Emagine Films v Mister Smith [2019] EWHC 2085 (Ch), English High Court

Published on: 27 September 2019

Published by a LexisNexis Commercial expert

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Article summary

Emagine Films Ltd v Mister Smith Entertainment Ltd and another company [2019] EWHC 2085 (Ch) (30 July 2019)

What are the practical implications of this case?

This decision underlines how difficult it is to legislate for every eventuality in preliminary papers for complex deals, and how implied terms can be used to address unforeseen gaps. An unanticipated issue arose after the term sheet was signed: the producer declined to accept terms consistent with those originally contemplated. The problem did not lie in the term sheet anticipating further formal documentation; that feature did not, by itself, render the arrangement uncertain or ineffective. Rather, the difficulty stemmed from the producer’s refusal to agree to fundamental matters that both Mister Smith and Emagine had assumed would be accepted.

In those circumstances, the court was willing to imply a term that brought the term sheet contract to an end. The outcome illustrates that, where expectations central to a term sheet are not met, an implied term may operate to terminate the arrangement, not because of a lack of further paperwork, but because the essential shared assumptions have fallen away. However, the court was not prepared to recognise any duty to persist with negotiations in good faith...

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