Shares - Agreement for sale - First claimant seeking summary judgment

R.G.I International Ltd and another company v Synergy Classic Ltd: Queen's Bench Division, Commercial Court (Mr Justice Hamblen): 19 December 2011

The first claimant company was a property development and management company. The second claimant company was its largest shareholder. A share and option agreement (the SOA) was created between the first claimant and the defendant company, S Ltd, to enable S Ltd to buy shares in the first claimant. The SOA envisaged that S Ltd would acquire shares in two tranches: the 'first shares' and the 'option shares'.

Clause 5 of the SOA concerned the purchase of the option shares. In October 2010, S Ltd purported to exercise the first put option. A number of disputes arose between the parties: in particular, the claimants contended that S Ltd had issued press announcements that had damaged the first claimant, that it had wrongly published confidential information and impeded the first claimant's admission to the main market of the London Stock Exchange. They further challenged the exercise of the first put option. The first claimant applied for summary judgment.

The first claimant sought summary judgment on the main issue, namely whether it was entitled to a declaration that the first claimant had not breached clause 5.2(b) of the SOA and that S Ltd had no right to exercise the first shares put option. In deciding that issue, consideration was given to the meaning of the word 'investor' in clause 5.2(b) of the SOA. Clause 5.2(b) provided that: 'Within 5 (five) business days following the option payment date... the company shall: (a) apply for admission of the option shares to trading on the alternative investment market; (b) allot and issue the option shares to the investor; and upon which: (c) issue a share certificate for the option shares to the investor (unless the investor has given notice to the company no fewer than 5 (five) business days prior to the date of allotment of the option shares that the investor wishes the option shares to be credited to a Central Securities Depository (CREST) Account, and supplying details of such account)...'

The essential issue raised by S Ltd's defence was whether as a matter of construction the 'investor' in clause 5.2(b) meant and could only mean S Ltd as legal and beneficial owner, or whether it also embraced S as beneficial owner of shares held by a nominee. The claim would be allowed.

First, construing clause 5.2(b) as only applying to S Ltd as legal and beneficial owner would run contrary to the contractual scheme whereby shares were to be held through the CREST system. Secondly, when properly construed, the word 'investor' was capable of embracing S Ltd as beneficial owner of shares held by a nominee. The meaning of 'investor' would not change according to the form of notice that was to be given: either it would be wide enough to cover a notified nominee or not. On S Ltd's own case it would be wide enough.

Thirdly, it would be remarkable if clause 5.2(b) could not be met in circumstances where option shares were held through a nominee at S Ltd's request. The ability to hold shares through a nominee was a matter for the convenience and benefit of S Ltd. The form in which confirmation that the shares be credited to the CREST account was given did not affect the reality that the claimant had done exactly what S Ltd had requested, with a result clearly contemplated by clause 5.2.

Fourthly, if 'investor' was to be construed in the narrow and limited way suggested, other provisions of the SOA would be rendered unworkable or insensible. Fifthly, S Ltd's construction of clause 5.2 was contrary to business common sense. If 5.2 was to be construed in that way, S Ltd would be entitled to exercise the put option notwithstanding that it had and would maintain beneficial ownership of all the put option shares. Further, the fact that there might be other legal means by which the apparent consequences of their construction might be avoided, would not bear on what the parties' intentions would reasonably have been understood to be at the time that the contract had been made and was not a good reason for accepting a construction that flouted business common sense (see [40]-[49] of the judgment).

Clause 5.2(b) did not fall to be construed in the manner put forward by the S Ltd (see [39] of the judgment).

David Foxton QC (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) for the claimant; Anthony Boswood QC and Nigel Dougherty QC (instructed by Wragge & Co) for the defendant.