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Cite as: [2003] EWHC 1433 (Comm)

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Neutral Citation Number: [2003] EWHC 1433 (Comm)
Case No: 2002 Folio 422


Royal Courts of Justice
Strand, London, WC2A 2LL
25th June 2003

B e f o r e :


- and -

FORTIS BANK (formerly known as


John Wardell QC (instructed by Messrs Withers LLP) for the Claimants
Jonathan Nash (instructed by Messrs White and Case) for the Defendants
Hearing dates : 30 April, 1 and 6 May 2003.



Crown Copyright ©

    Mr Justice Tomlinson:

  1. This is an application by the Claimants under Part 24 for summary judgment on the entirety of their claim against the First and Second Defendants.
  2. The Claimants, to whom I will refer as "Finsoft," represent the interests of the Marcucci family. Immediately prior to May 1991 Finsoft owned all one hundred of the ordinary shares in Shoelanco 912 Limited, to which I will refer as "Shoelanco." Shoelanco owned the majority of the issued shares in Super Channel Limited, to which I will refer as "Super Channel." At all relevant times Super Channel operated a pan-European satellite television station.
  3. Rowil Interim Management BV, to which I will refer hereafter as "Rowil," is and was at all material times a wholly owned subsidiary of the Second Defendant Bank, to which I will refer as "CLBN."
  4. On 31 May 1991 Rowil, Finsoft, Shoelanco and Super Channel entered into a Subscription Agreement. Pursuant thereto Rowil agreed to subscribe for forty ordinary shares in Shoelanco, amounting to 40% of Shoelanco's share capital. Rowil was given a put option, "the first put option," whereby it had a right subsequently to insist that Finsoft repurchase half of the shares it owned in Shoelanco. Under a second put option Rowil also had a right to insist that Finsoft acquire the rest of its shareholding in Shoelanco. This was part of a wider financing deal involving CLBN, the Marcuccis and Super Channel.
  5. By 1993 the Marcuccis did not wish to contribute any further funds to Super Channel. Coincidentally therewith National Broadcasting Company Inc, hereinafter "NBC," emerged as a potential purchaser of Super Channel. Following meetings in Paris and Milan in June 1993 an agreement, referred to at the hearing as the "Letter Agreement" was entered into on 15 July 1993 by, so far as relevant, three members of the Marcucci family, Finsoft, CLBN and Rowil. On the same day NBC, Shoelanco, Super Channel, CLBN, Rowil and Finsoft entered into a separate agreement, referred to at the hearing as the NBC Agreement. It is convenient to consider the terms of the NBC agreement first.
  6. The NBC Agreement
  7. Under the NBC Agreement, the following principal terms were agreed:

    1. Prior to closing (being the date on which the definitive share purchase agreement and other related agreements were to be executed and which the parties envisaged would take place on 30th September 1993), Credit Lyonnais (being CLBN and Rowil jointly) would procure that (subject to a few defined exceptions) any outstanding liabilities of Shoelanco and Super Channel to Credit Lyonnais, the Marcuccis and Finsoft be converted into equity so that immediately prior to Closing Shoelanco would own 75% of the issued share capital of Super Channel (clause 1);

    2. At Closing, Credit Lyonnais would cause Finsoft to sell to NBC or an NBC affiliate 75% of the issued share capital in Shoelanco for US$22,950,000 and would itself provide an equity contribution to Shoelanco of US$7,650,000 which would be used by Shoelanco to subscribe to new shares in Super Channel (clause 2(a) and (b));

    3. After Closing, NBC and Credit Lyonnais would provide additional funds to Shoelanco as the needs of Super Channel's business required (clause 3). NBC was to provide 75% of the additional funds and Credit Lyonnais the balance of 25%.

    4. In addition, the NBC Agreement contained (in clause 4) put and call options exercisable during the period commencing on the ninth anniversary of the NBC Agreement and ending one year later under which:

    5. Credit Lyonnais had the right to require NBC to purchase the remaining shares in Shoelanco at fair market value less 10%;

    6. NBC had the right to require Credit Lyonnais to sell to it or to an NBC affiliate the remaining shares in Shoelanco at fair market value (with no percentage reduction).

    7. By clause 6 the Marcuccis and Finsoft gave various representations, warranties and indemnities concerning the financial statements prepared for Shoelanco and Super Channel subject to the proviso that they would not be liable to make any contribution or payment more than two years after Closing.

    8. Finally, it should be noted that by virtue of clause 22, the NBC Agreement was a binding legal agreement which would govern the parties' rights and obligations in the event of the definitive agreements not being agreed by 30th September 1993.

  8. It will be recalled that, as a result of the 1991 Subscription Agreement, Finsoft held only 60% of the shares in Shoelanco. It could not therefore sell 75% of the issued share capital in Shoelanco without reacquiring from Rowil some or all of the 40% then held by Rowil. The Letter Agreement provided the machinery whereby this could take place.
  9. The July Letter Agreement
  10. The principal terms of the July Agreement were as follows:

    1. Finsoft and the Marcuccis (who for the purposes of this agreement include Guelfo Marcucci) consented to the execution of the NBC Agreement and undertook to execute all such documents that might be required to enable CLBN to perform its obligations under the NBC Agreement (clause1);

    2. Finsoft and the Marcuccis undertook to procure that the companies controlled by them would transfer all the shareholders loans and other advances to Super Channel in the aggregate amount of £18 million to Shoelanco for a consideration of £1 (clause 2);

    3. Finsoft and the Marcuccis undertook to procure that Shoelanco would convert those loans into share capital of Super Channel (clause 4);

    4. Rowil would at the date of Closing exercise its first put option under the Subscription Agreement (clause 5(a)); this would leave Finsoft with 80% of the share capital of Shoelanco and Rowil with 20% thereof.

    5. Finsoft would then sell 75% of the share capital of Shoelanco to NBC for a price of US$22.95 million which would be paid by NBC to CLBN and then applied by CLBN in the discharge of the various debts identified in clause 5(e) of the July Letter Agreement (which included the monies due to Rowil on the exercise of the put option and all debts owed by Guelfo Marcucci under the Credit Agreement): clauses 5(c) and (e).

    6. I should set out clause 6 in its entirety:-

    " Taking into consideration the terms of the settlement as defined in this letter and, in particular, the converting of the Loans and the Advances into capital of Shoelanco, Finsoft shall sell the remaining 5% of the share capital of Shoelanco to Rowil for a purchase price as determined hereafter and, subject to section 8 hereof, such purchase price shall be payable in the manner set out below:
    (i) USD 2.5 million, which shall be paid by Rowil on the Closing;
    (ii) USD 5 million upon the expiry of the two year warranty period set forth in section 6 of the NBC Agreement; and
    (iii) the greater of USD 2.5 million and 25% of the net profits realised by Rowil upon the sale by Rowil of all of its 25% interest in the share capital of Shoelanco pursuant to the terms and conditions of the NBC proposal. The calculation of the net profits shall take into account the future investments to be made in Shoelanco or Super Channel by CLBN (or Rowil) subject to the maximum amount of USD 17 million (but excluding commercial loans made by CLBN to Shoelanco or Super Channel) and the accrued interest incurred by CLBN with respect to its investment in Shoelanco or Super Channel (at a rate of LIBOR plus 0.5per annum compounded annually on the capital so invested). Such payment shall be made on the earlier of (x) nine (9) years from the date of the Closing and (y) the date on which Rowil sells all of its shareholding in Shoelanco to an outside investor but in any event not earlier than the expiry of the warranty period as set forth in section 6 of the NBC Agreement."
    7. By clause 7 CLBN guaranteed the payment of the purchase price by Rowil to Finsoft.
    8. By clause 8.2 the Marcuccis and Finsoft agreed that for a period of two years from the Closing they would indemnify CLBN and hold it harmless from and against any liabilities arising under the NBC Agreement.
    9. Clause 8.3 provided:-
    " The Marcucci family and Finsoft shall provide to CLBN as security for their obligations under section 8.2 (a) a charge over the right to receive the payments referred to in sections 6(ii) and (iii) above; (b) a first demand guarantee issued jointly by each member of the Marcucci family in favour of CLBN for an amount equal to USD2.5 million in excess of the payments referred to in sections (ii) and (iii) and (c) an assignment as security of the amounts to be received by CLBN under section 6(ii) and 6(iii) above provided that the aggregate liability under this clause 8.3 shall not exceed $10 million. If for any reason whatsoever the security interest set forth in section 8.3 (a) and 8.3 (c) is considered unenforceable or null and void then the guarantee set forth in this section 8.3(b) shall be increased to US$10 million."

    10. Finally I must set out clause 11: -

    " Upon the expiry of the two years guarantee or warranty period as set forth in section 6 of the NBC Agreement, and subject to section 8 hereof CLBN is willing to discount the amount of USD 2.5 million to be received by Finsoft pursuant to section 6 (iii) above at the applicable market discount rate for dollars."

  11. It will be noted that this agreement, if executed as envisaged, would have resulted in Rowil holding 25% of the shares in Shoelanco. Under clause 6 Finsoft had an absolute right to receive US$10 million. Finsoft has in fact received the first two tranches totalling US$7.5 million. However neither Rowil nor CLBN as guarantor has paid the final tranche of US$2.5 million and it is that which Finsoft claims in this action. Rowil and CLBN say that it has not become due. Under clause 6 of the Letter Agreement there is a long stop date pursuant to which payment is due at the latest on 30 September 2002, nine years from the anticipated Closing. Closing did indeed occur on 30 September 1993. However the Closing agreement included an agreed variation to the Letter Agreement, which variation was enshrined in a letter from Rowil to Finsoft dated 30 September 1993. It was agreed that Paragraph 6 of the Letter Agreement should be modified as follows: -
  12. " (i) the number of Shoelanco shares to be sold by Finsoft to NBC shall be the number provided in the Share Purchase Agreement, which shall be sold as provided therein;

    (ii) Rowil will purchase from Finsoft 950,045 ordinary shares of £1 each in the capital of Shoelanco (the "Shoelanco Shares"), constituting all of Finsoft's remaining holding of Shoelanco Shares;

    (iii) the first put option set forth in the Subscription Agreement (as defined in the Letter) shall be cancelled; and

    (iv) Rowil shall pay Finsoft the following sums:

    (a) US$2.5 million on Closing of the Share Purchase Agreement;
    (b) US$5 million on the day following that on which the Marcucci Parties' liabilities under the Share Purchase Agreement lapse pursuant to Section 11(e) thereof (other than by reason of clause (i) of that Section) provided that if at the end of the Survival Period any Claim is pending or any Tax return or filing of the type referred to in section 11(a) of the Share Purchase Agreement has not been agreed with all appropriate taxing authorities and NBC has irrevocably agreed, to the satisfaction of CLBN, the maximum liability of the Marcucci Parties in respect of all of such claims and/or the Taxes payable in respect of the periods covered by the said returns or filings, the balance of such US$5 million in excess of such maximum shall be released to Finsoft;
    (c) the amount referred to in paragraph 6(iii) of the Letter shall be payable on the day following the earlier of completion of the Put Option or the Call Option (as defined in the Shareholders' Agreement referred to in the Share Purchase Agreement), as the case may be, and the date on which Rowil sells all of its shareholding in Shoelanco; "

  13. It would seem that the number 950,045 in paragraph (ii) of the variation is an error, and that the reference should have been to 750,346 shares. In order to explain why this is so, and how the shareholding of Shoelanco, hitherto one hundred £1 shares had become so enhanced, I must summarise some of the other agreements executed on Closing which achieved the required capitalisation in a manner different from that envisaged in July. This rendered unnecessary transfer of twenty shares in Shoelanco from Rowil to Finsoft, hence the cancellation of the first put option. However before doing so I must point out that neither of the events provided for in clause (iv) (c) as the trigger for the payment of the final US$2.5 million has occurred, and it is common ground that it is unlikely that either will ever occur. Those new triggers have replaced the long stop contained in the July Letter Agreement. In fact neither the put option nor the call option as defined in the Shareholders' Agreement is any longer exercisable, because pursuant to clause 30 thereof they fall away at such time as Rowil owns less than 10% of the Shoelanco shares. As a result of Shoelanco issuing new shares Rowil's holding has become less than 10%. Further, Shoelanco has divested itself of its shareholding in Super Channel, which was its only asset, so that Shoelanco is now a worthless shell company. Thus it is impossible for the Put option or the Call option to be exercised, and highly unlikely that Rowil will sell all of its worthless remaining shareholding in Shoelanco. Hence the present dispute.
  14. The different approach to the capitalisation of Shoelanco, designed to ensure that as at Closing Shoelanco owned at least 75% of the issued shares in Super Channel, was as follows: -
  15. 1. Immediately before the Closing Finsoft held 60 shares in Shoelanco and Rowil 40 shares.

    2. The various amounts owed by Super Channel to Finsoft, the Marcuccis and related parties were then assigned to Shoelanco for their face value in consideration of which Shoelanco issued fully paid up shares of £1 each in Shoelanco. The total value of the loans and interest assigned was £18,175,000 and the total number of new shares issued to Finsoft was 18,175,000 (inclusive of one non-voting share).

    3. Finsoft then held 18,175,000 shares and Rowil 40.

    4. Finsoft tranferred 17,424,714 shares (including one non-voting share) to NBC under the Share Purchase Agreement. This left Finsoft with 750,346 shares (i.e. 18,175,060 less 17,424,714).

    5. At the same time as the transfer to NBC, Finsoft transferred the balance of 750,346 shares to Rowil pursuant to the July Letter Agreement as varied by the Variation Letter. (It is from this that it is deduced that the number 950,045 in the Variation Letter is an error).

    6. Immediately after that transfer, NBC held 17,424,714 shares and Rowil 750,080 shares (i.e. 750,036 plus the original 40).

    7. In addition to receiving shares in Shoelanco from Finsoft, Rowil had also made an equity contribution of US$ 7,650,000 in return for which it received 5,057,852 shares bringing its total shareholding in Shoelanco to 5,808,238.

    8. At that stage, the total share capital of Shoelanco was 23,232,952 (i.e. NBC's 17,424,714 plus Rowil's 5,808,238). NBC held 75% of the total share capital and Rowil 25%.

    9. As a result, NBC invested US$22,950,000 into Shoelanco and Rowil US$7,650,000 making a total investment of US$30,600,000. These investments were made in the same proportions as their shareholdings namely 75:25.

  16. Subject to the question whether these agreements overall deprived Finsoft of its absolute entitlement to receive the final tranche of US$2.5 million, it is common ground that the adoption of this revised approach was, so far as concerns Finsoft, entirely financially neutral. From the perspective of Finsoft the deal had not changed. Furthermore it is confirmed by evidence tendered on Finsoft's behalf that the capitalisation route eventually adopted did not confer upon Finsoft any tax advantage as compared with the original scheme envisaged in the July Letter agreement. It is accepted by Mr Nash for the Defendants that from Finsoft's perspective the changes were formal rather than substantive. On either approach Finsoft was to be divested of the entirety of its shareholding in Shoelanco. Furthermore, as I find, the fundamental shape and purpose of the deal as between Finsoft and CLBN, whose creature Rowil is, did not change between July and September 1993. I also find that no essential change in the deal as between NBC and Rowil occurred between those dates. It was always the intention that after NBC had come in Rowil would end up with 25% of the shares in Shoelanco as a result of an equity contribution of US$ 7,650,000. That is precisely what occurred, albeit by a different route from that originally envisaged.
  17. Before discussing the issues which arise I should briefly explain the circumstances in which Rowil's interest in Shoelanco has become diluted. Clause 5(g) of the Shareholder's Agreement obliged NBC to use its reasonable best efforts to cause Shoelanco directly to own at least 75% of the issued share capital of Super Channel, unless (i) NBC and Rowil otherwise agreed or (ii) Rowil shall own less than 10% of the Shoelanco shares. In about 1998 NBC appears to have wished to pursue an opportunity to sell Super Channel. One way of achieving such a sale was to dilute Rowil's interest in Shoelanco below 10% thereby releasing NBC of the obligation to use its best efforts to cause Shoelanco to own 75% of Super Channel. By resolution dated 22 April 1998 the creation of 100 billion 0.1 pence shares was authorised by Shoelanco. IGE (USA) Holdings acquired convertible loan notes of Shoelanco which it then converted into new issued shares of Shoelanco. As a result of this transaction, Rowil still held more than 10% of the shares by value but only just over one tenth of 1% by number. On 29 June 1998 Shoelanco sold to IGE (USA) Holdings Ltd its shareholding in Super Channel, which was its only asset. The consideration was £334,864. There is no evidence from the Defendants' side to explain the thinking behind the structuring of the sale of Super Channel in this way. Mr Nash invites me to approach the matter upon the basis that in order to sell Super Channel it was necessary for NBC, with Rowil's agreement, to dilute Rowil's shareholding in Shoelanco, although he accepts that the sale could have been differently structured, for example as an asset sale. I also observe that the obligation of NBC expressed in clause 5(g) of the Shareholders' Agreement was to endure only to the extent that NBC and Rowil did not otherwise agree. I do not on this summary application draw any inference as to any motive which may have informed the choice of one route as opposed to another. The upshot is however that neither CLBN nor Rowil has any remaining interest in Super Channel. If it is right to infer that the parties assumed that Shoelanco would remain the vehicle through which shares in Super Channel were owned and that it would be by way of sale of Shoelanco shares that Rowil would divest itself of its interest in Super Channel, then that assumption has not been borne out. Rowil has divested itself of all interest in Super Channel but retained shares in Shoelanco which have in the event become worthless. However one of the questions which I have to decide is whether it is right to draw that inference from the terms of the agreements reached. In fact, the question which really I have to decide is whether the parties contracted on the assumption that the trigger for payment of the last tranche was bound to occur or whether Finsoft took the risk that it might not.
  18. Underpinning the Claimants' case is the notion that the two triggers in clause (iv) (c) of the Variation Letter are looking at the same event, the disposal by Rowil of the entirety of its shareholding in Shoelanco being also the event pursuant to which Rowil, and CLBN, would finally divest itself of any interest in Super Channel. The principal thrust of the objection to that notion from Mr Nash is a suggestion that in fact the Put and Call options in the Shareholders' Agreement do not embrace all of Rowil's shares in Shoelanco, but only the 5,057,852 acquired upon subscription of US$7.65 million. If that were right, it would be less easy to impute to the parties a consistent clarity of intention emerging from the documents which they executed. Furthermore, if the relevant Put and Call options do not embrace all of Rowil's shares in Shoelanco, it is the easier to accept that it might or could always have been envisaged that Rowil might have no interest in divesting itself of all of its shares in Shoelanco and that this is simply a case in which Finsoft has made a bad bargain. Such an approach is the more plausible bearing in mind that the initiative for a departure from the proposed mechanics of the deal as at July 1993 seems to have come in part from the solicitor acting for the Marcucci interests, that his proposal would actually have involved no shares at all passing from Finsoft to Rowil and moreover that the departure suggested by him was not that finally adopted.
  19. I am however persuaded that it makes no sense to regard as falling outside the purview of the Put and Call options in the Shareholders' Agreement what would be approximately 13% of Rowil's shareholding in Shoelanco, comprising the 750,346 shares sold to it by Finsoft pursuant to the Variation Letter and the 40 shares acquired in 1991. Mr Nash did not, I think, suggest any reason why anyone should have wished to make such a distinction. He suggested rather that it followed necessarily from the wording of clause 9 of the Shareholders' Agreement. Clause 9 (a) thereof provides: -
  20. " 9 (a) General. Rowil and the CLBN Transferees shall have the right (the "Put"), during the period commencing at 17:00 hours London time on July 15, 2002 and ending at 17:00 hours London time on July 16, 2003 (the "Call Period") to require NBC or the NBC Transferees, as provided in section 11 below, to purchase all, but not less than all, of the Securities held by Rowil, CLBN or any CLBN Controlled Entity which were originally acquired pursuant to Sections 3 or 5 of this Agreement or any Securities originally issued on or with respect to such Securities, whether or not the Entity holding the Put and Call Securities at the time of the Put and Call originally acquired them (collectively, the Put and Call Securities")."

    Clause 10(a) which deals with NBC's Call Right likewise refers to the "Put and Call Securities." The argument is that only 5,057,852 shares can be regarded as originally acquired pursuant to Sections 3 or 5 of the Agreement.

    Section 3 provides: -

    " 3(a) Rowil Investment. In reliance on the representations, warranties and covenants contained herein and subject to the terms and conditions hereof, on the Closing Date, Rowil shall contribute or cause to be contributed to Shoelanco as an equity contribution U.S. $7,650,000 (the "Rowil Investment).
    3(b) Payment. The Rowil Investment shall be paid by Rowil to Shoelanco by a direct bank transfer to Shoelanco to such account with CLBN as Shoelanco shall notify Rowil at least 24 hours prior to the Closing.
    Section 5 deals with the further funding obligation in the ratio NBC 75%/Rowil 25% to which I have already referred.
    Finsoft is not a party to the Shareholders' Agreement and did not participate in its drafting and negotiation. No reference to it is made in the preamble to the Variation Letter. It would therefore be surprising if a provision in the Shareholders' Agreement had an impact upon Finsoft's substantive rights, notwithstanding one of the triggers provided in clause (iv) (c) of the Variation Letter can only be understood by reference to it. On the face of it, that is a clause dealing with a timing mechanism for performance of an obligation rather than with the essential nature of the obligation itself. It is clear to me that, when considering Finsoft's position, clauses 3,5 and 9 of the Shareholders' Agreement cannot be looked at in isolation. The corresponding Put and Call provisions in the NBC Agreement of 15 July 1993, at clause 4, embrace all of the Credit Lyonnais shares as there defined, which amounts to the 25% expected to remain in Rowil after sale by Finsoft to NBC of 75%. It is not easy to discern any reason why the different capitalisation route in the event adopted should lead to an alteration in this obligation, bearing in mind that the ultimate goal as between NBC and CLBN was divestment by CLBN of its interest in Shoelanco, and thus in Super Channel.
    Clause 3(d) of the Share Purchase Agreement, to which Finsoft is party, provides as follows: -
    " 3(d) No Other Agreements. Neither the Marcucci Parties, Shoelanco nor Super Channel has any legal obligation, absolute or contingent, to any person or firm to (i) sell any shares or any capital stock of Shoelanco or Super Channel, (ii) sell any assets of Shoelanco or Super Channel (other then sales in the ordinary course of business) or (iii) effect any merger, consolidation or other reorganisation of Shoelanco or Super Channel, or to enter into any agreement with respect to the foregoing."

    This is superficially surprising, because Finsoft had an obligation pursuant to the Variation Letter to sell 950,045 (but in fact 750,346) shares to Rowil. Reverting to the Shareholders' Agreement, it is plain from Recitals (a) and (g) thereto that it proceeds upon two assumptions. The first assumption is that on completion all of the outstanding share capital of Shoelanco will be held by NBC and Rowil. The second assumption is that there is no transaction beyond the Share Purchase Agreement required to bring about the result that Rowil holds 5,808,237 (in fact 5,808,238) shares in Shoelanco. However this result was in fact brought about by the requirement generated by the Variation Letter that Rowil purchase 750,346 shares from Finsoft. It is I think plain that this agreement proceeds upon the assumption that NBC and Rowil will between them have acquired all of the shares in Shoelanco, in the relative proportions 75/25, by reason of their respective investments in the same proportion, US$22,950,000 and US$7,650,000. It was however a matter of indifference as between NBC and Rowil how Rowil came to own its 25% share. Thus clause 9(a) of the Shareholders' Agreement simply refers, compendiously, to the shares acquired by Rowil by reason of its equity contribution of 25%. It would be most surprising if the shares acquired by reason of such contribution were properly to be regarded as less than 25% by value, since that would involve that Rowil and NBC were acquiring their shares at a differential price. Clause 3(d) of the Share Purchase Agreement ought strictly to have referred to the obligation of Finsoft to sell 750, 346 shares to Rowil. That it did not is consistent only with an assumption or understanding that that sale took place as part and parcel of completion, in other words that the securities acquired by Rowil by reason of its equity investment include those acquired from Finsoft. I think that it is clear that the parties' assumption when the Shareholders' Agreement was executed was that either the Put or the Call option would be exercised – hence the Sealed Bid procedure in clause 11 does not deal with the possibility that neither would be exercised. This it was envisaged would be the mechanism whereby CLBN/Rowil finally divested itself of its interest in Super Channel. Against that background and for the reasons I have already given it simply makes no sense to regard part of Rowil's shareholding as not subject to the Put and Call procedures, when those shares were an integral part of what Rowil had acquired by reason of its equity investment.

  21. At paragraph 22 of his skeleton argument on behalf of the Defendants Mr Nash says this: -
  22. " It is not in issue that the price agreed for Finsoft's shares was a minimum of US$10 million; the statement of Finsoft's witnesses to this effect are not controversial. However, this has nothing to do with the question of when and in what circumstances Finsoft was entitled to receive the whole of this sum."

    In essence, the thrust of the Defendants' case is that the variation agreed in September achieved the result that the Defendants could unilaterally bring about a situation in which the Claimants would only receive US$7.5 million for their shares. It is to my mind inconceivable that the parties intended to achieve this result. I should stress that I derive that conclusion simply from the terms of the documents themselves and from the inherent probabilities. It is I think a contradiction in terms to speak of an agreed minimum price which may never be payable. On the Defendants' case the agreed minimum price was US$7.5 million not US$10 million. It is clear that the agreement in July was for a minimum of US$10 million, since it was an agreement for payment of, respectively, US$2.5 million, US$ 5 million and US$2.5 million on definite and ascertainable dates. There is no hint in the documents of any intention to reduce the agreed price, and I can think of no reason why Finsoft should have agreed a reduction, bearing in mind that there is no suggestion that it was ever asked to accept a reduction or that closing of the deal was contingent upon its accepting a reduction. The witness evidence, if admissible on the question of construction or whether a term should be implied, is all one way. All of Finsoft's witnesses are clear and adamant that a variation to the minimum payment was never discussed and that the deal never changed. I regard it as highly significant that the Defendants have put in no evidence whatever dealing with the parties' intention as at July and September 1993. I derive the clear impression that the Defendants and those currently dealing with the matter on their behalf either know or suspect that were they to contact those who dealt with the matter at the time they would obtain confirmation of what the Claimants have asserted. Hence the limp assertion in the Witness Statement of Mr Yardley that all those persons have either moved jobs or retired. It is not suggested that their whereabouts are unknown, nor is it suggested that any attempt has been made to contact any of them. The reality is that the Defendant bank is attempting to cling on to a windfall as the result of the falling out of events in a manner which was not within the parties' reasonable contemplation at the time, viz, that the bank has not in the event divested itself of all of its shares in Shoelanco as part and parcel of divesting itself of its interest in Super Channel. I find frank and compelling the following passage in the evidence of Mr Mills, the Claimant's then solicitor: -

    " Although my memory is not as clear as I would have liked, I believe that the substitution of the date certain in the July Letter Agreement with a date ascertainable only when the option was actually exercised (within the option period) made perfect sense to me at the time since everyone was proceeding on the basis that Rowil would definitely divest itself of its shares in Shoelanco at the latest during the option period. I understand that the final documents can be interpreted as having the effect that the tranche will, in the event of the Put and Call options either ceasing to be exercisable or not being exercised, never become payable. I have to say that I missed the point, but I do not believe I was the only one of the lawyers who did so; I believe the anomaly crept in by an error which none of us noticed, and that none of the other parties involved turned their minds to it. Had I not missed it, or had there been any overt suggestion made to me or my clients that in contrast to the clear provision in the July Letter agreement they were being required to take a risk that the trigger for the payment of the last tranche might never occur, I would straightaway have rejected such a suggestion and made sure that the uncertainty was removed."

  23. I conclude therefore that the Defendants have no real prospect of establishing at trial that the parties intended that Finsoft should take the risk that the trigger for payment of the last tranche might never occur. That being so, the only remaining question is whether the Defendants have a real prospect of establishing at trial that the armoury of the law is bereft of weapons capable of giving effect to the parties' intentions. Mr Wardell QC for the Claimants suggests that any one of construction, implied term, estoppel by convention, rectification or substitution of machinery on the model of Sudbrook v Eggleton 1983 AC 444 will suffice. Despite the sustained, careful and analytical submissions of Mr Nash, delivered with great skill, I am satisfied that the Defendants have no real prospect of succeeding in their Defence. In my judgment the Claimants are entitled to succeed as a matter of the proper construction of the Variation Agreement. In my judgment the words "completion of the Put Option or the Call Option" should be understood as including or embracing the expiry of the period in which the options could have been exercised, since neither party contemplated the possibility that one or other would not be exercised if at the expiry of the relevant period Rowil had not already sold all of its shareholding in Shoelanco. No doubt the word "completion" was used as opposed to "exercise" so as to take into account the Sealed Bid procedure provided by clause 11 of the Shareholders' Agreement, but I not regard it as involving any distortion or modification of language to understand the word as, in the circumstances, embracing expiry of the relevant period as well. If it is a modification of the ordinary sense of the word or words used, it is permissible in order to avoid absurdity – see Chitty on Contracts, Vol. 1 para. 12 – 073. Thus in the circumstances the relevant date for payment is 1 July 1998 since it was apparently on that day that the options fell away pursuant to clause 30 of the Shareholders' Agreement.
  24. If I am wrong about construction, then I have little doubt that this is a case in which the court would be prepared to imply a term to the effect that the right to payment of the final tranche would crystallise upon expiry of the period in which the options could have been exercised. I regard such an implication as, on this hypothesis, necessary to give effect to the obvious intention of the parties. Mr Nash helpfully referred me to the following illuminating passage from the judgment of the Court of Appeal, delivered by Sir Thomas Bingham MR in Philips Electronique Grand Public SA and Another v. British Sky Broadcasting Limited 1995 ELMR 472 at 481 – 2: -
  25. " The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power.

    There are of course contracts into which terms are routinely and unquestioningly implied. If a surgeon undertakes to operate on a patient a term will be implied into a contract that he exercise reasonable care and skill in doing so. It is inconceivable that any patient would in any imaginable circumstance commit his bodily well-being to the ministrations of a surgeon who did not undertake that obligation, or that a surgeon could hope to remain in practice without professing to discharge it. Again, quite apart from statute, the courts would not ordinarily hesitate to imply into a contract for the sale of unseen goods that they should be of merchantable quality and answer to their description and conform with sample. It is hard to imagine trade conducted, in the absence of express agreement, on any other terms.

    But the difficulties increase the further one moves away from these paradigm examples. In the first case, it is probably unlikely that any terms will have been expressly agreed, except perhaps the nature of the operation, the fee, and the time and the place of operation. In the second case, the need for implication usually arises where the contract terms have not been spelled out in detail or by reference to written conditions. It is much more difficult to infer with confidence what the parties must have intended when they have entered into a lengthy and carefully-drafted contract but have omitted to make provision for the matter in issue. Given the rules which restrict evidence of the parties' intention when negotiating a contract, it may well be doubtful whether the omission was the result of the parties' oversight or of their deliberate decision; if the parties' appreciate that they are unlikely to agree on what is to happen in a certain not impossible eventuality, they may well choose to leave the matter uncovered in their contract in the hope that the eventuality will not occur.

    The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong. For, as Scrutton LJ said in Reigate v. Union Manufacturing Co (Ramsbottom) Limited [1918] 1 KB 592 at 605,

    A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said to the parties, 'What will happen in such a case,' they would both have replied, 'Of course, so and so will happen; we did not trouble to say that; it is too clear.' Unless the Court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed…

    In the familiar cases already mentioned there could be little room for doubt what the parties' joint answer would have been had the question been raised at the outset. There would, almost literally, have been only one possible answer. But this may not be so where a contract is novel, known to involve more than ordinary risk and known to be more than ordinarily uncertain in its outcome. And it is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred: Trollope & Colls Limited v. North West Metropolitan Regional Hospital Board [1973] 2 All ER 260, [1973] 1 WLR 601 at 609-10,613-14."

  26. The contract, or bundle of contracts, made by the parties here is or are superficially complex. Stripped to its bare essentials however the transaction is not novel and it was neither known to involve nor intended to involve more than ordinary risk or to be uncertain in its outcome. It is to my mind wholly clear that had the parties foreseen the eventuality which in fact occurred there was only one contractual solution thereto, viz, to ensure that the contractual machinery included a long stop date on which the final tranche became due so as to ensure that the full agreed price became payable in the event that the anticipated procedure became frustrated by unilateral action of the Defendants. The obvious date would be at the expiry of the period during which the options could be exercised. I can see that there is scope for the adoption of a different date. That however does not detract from the fact that there was only one solution, which was to ensure that there was in place a machinery whereby payment of the final tranche became payable. The problem, to which only one solution was possible, was the possibility that the existing contractual machinery described to bring about that result could in an unanticipated eventuality fail to bring about that result. The only solution which would have been acceptable, and axiomatic, was that the payment must in some way be triggered. The precise date upon which it might be triggered seems to me detail rather than substance although I venture to suggest that the date which I have put forward would have been the obvious choice. It can be asserted with great certainty that this is not a situation in which the parties appreciated that they would be unlikely to agree upon an appropriate solution in a certain not impossible eventuality, and so deliberately left the matter uncovered in their contract in the hope that the eventuality would not occur. None of these parties nor their respective advisers could possibly have regarded that approach as acceptable – in any event it was clearly and firmly agreed that the total amount to which Finsoft was entitled pursuant to this deal was a minimum of US$10 million. No one anticipated that there would be any circumstances in which Finsoft's entitlement would be any less. I do not regard anything said in Trollope & Colls Limited v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 as militating against this conclusion. As Mr Wardell pointed out, that was a case in which the House of Lords was far from sure that the relevant point had in fact been overlooked. It was also not a case, like the present, where the parties had clearly reached agreement on the essential structure of the deal, as between Finsoft and the CLBN interests, and where the suggestion which the implication is designed to defeat is that by a subsequent variation the parties have unwittingly agreed a 25% reduction in the contract price.
  27. In view of my conclusions thus far it is unnecessary to express a view on the other possible routes home explored by Mr Wardell. I would merely observe that it is to my mind no objection to the estoppel by convention approach that this would result in the final tranche becoming due on 30 September 2002 as opposed to the date upon which I have found it in fact became due, 1 July 1998. The essence of the parties' common assumption or convention was that the final tranche would definitely be payable by the CLBN interests to Finsoft so achieving payment of the full agreed price. That that was the assumption of CLBN and Rowil is apparent not just from the terms of the agreements themselves but from letters written by CLBN and Rowil to Finsoft on 15 June 1994, 17 March 1995 and 15 June 1995. Furthermore it is accepted that no distinction should be drawn between CLBN and its wholly owned subsidiary Rowil in relation to letters written by CLBN to Finsoft on 31 March and 7 April 1995. In the context of discounting by CLBN these letters both refer to US$2.5 million as being due to Finsoft on 30 September 2002. Finally, a letter from CLBN's solicitors Messrs White & Case to the Claimants' solicitors dated 17 July 1996 implicitly assumes that, once the warranty period had expired, Finsoft would have the right to receive the discounted third tranche and, that, therefore, the right to the third tranche was an absolute right and not a conditional right dependent upon the percentage of shares held by Rowil. I should add, although it is perhaps only a forensic point, that Rowil's Annual Report as at 31 December 1991,1992,1993 and 1994, prepared by Messrs Coopers and Lybrand and issued by Rowil's Management Board on 7 December 1995 likewise records that Rowil has an obligation to pay the final tranche of US$2.5 million on 30 September 2002 at the latest. Interestingly the transaction is summarised in this way :
  28. " On September 30, 1993 the company purchased 5% of the outstanding share capital of Shoelanco 912 Ltd. for a total consideration of US$10,000,000 payable as follows:
    Leaving aside the obvious error as to inclusion of 25% of net profits, from this it is apparent that neither Rowil nor Coopers & Lybrand perceived the variation as affecting the essential terms of the deal as between Rowil and Finsoft since they summarised it in its unamended form.

  29. For all these reasons I give summary judgment to the Claimants against both Defendants, the First Defendant as primary obligor, the Second Defendant as guarantor, for the sum of US$2.5 million on the basis that payment has been due since 1 July 1998. I will hear Counsel on the precise form of Order necessary to give effect to my judgment, including the question whether leave is required to make the various amendments to the statements of case which were introduced either before or during the hearing.
  30. I am extremely grateful to both Counsel for their very great assistance.

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