Meaning Of 'Diligently', 'Actively' And 'Consent Not To Be Unreasonably Withheld'

(1) Porton Capital Technology Funds (2) Porton Capital Inc (3) Ploughshare Innovations Ltd v (1) 3M Holdings Ltd (2) 3M Company [2011] EWHC 2895

This case involved Acolyte Biomedica Limited which had developed a diagnostic assay used to detect MRSA. At the relevant time, the product had been fully approved for sale throughout the EU, but not the US or Canada.

In February 2007, 3M acquired the entire share capital of Acolyte pursuant to a share purchase agreement (SPA). The claimants were some of the vendors under the SPA, whose shareholdings represented 60.4%.

The consideration for the shares was an initial sum of £10.4million in cash, with an additional earn out payment based on net sales for the calendar year 2009. As is customary with earn out arrangements, the SPA contained certain express contractual obligations on the part of 3M intended to protect the Vendors' position. These included an obligation to diligently seek regulatory approval for the product in the US and Canada and an obligation to actively market the product.

The Acolyte's business was not successful however, and 3M decided to shut it down in late 2008, meaning there were no net sales in 2009. In accordance with the SPA, 3M sought the Vendors' consent to the cessation of the business and offered them a compensation payment of US$1.07 million in lieu of the loss of earn out.

The Vendors refused to give their consent unless they received the maximum potential earn out sum (which they estimated to be around £32 million). They also claimed that 3M was in breach of its contractual obligations under the SPA.

3M contended that it had always acted in good faith and in accordance with the SPA; that it was entitled to terminate the business in circumstances where it had requested consent and offered compensation and the Vendors had acted unreasonably in withholding their consent; and in any event, sales of the product in 2009 would only ever have been at a very low level.

The principal matters the court had to decide were, inter alia:

whether 3M was in breach of its contractual obligation diligently to seek regulatory approval for the product in the US and Canada; whether 3M was in breach of its contractual obligation actively to market the product; whether the Vendors had acted unreasonably in withholding their consent from 3M to terminate the business in late 2008; how much the net sales of the product would have been in 2009 had 3M performed its obligations under the SPA and...

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