'If Requested By The Purchaser' In Share Purchase Agreement Did Not Require Selling Directors To Resign If Requested By Purchaser

Bonham-Carter v Situ Ventures Limited [2012] EWHC 230 [Ch]

This case involves the interpretation of certain provisions of a share sale and purchase agreement (SPA) and is one of a number of related proceedings in connection with issues arising under the SPA.

Background

The SPA covered the sale of shares in Harbour Estates Limited (HEL), an estate agent specialising in properties in Chelsea Harbour. HEL was owned by the vendors (who were the vendors under the SPA and also Directors of HEL). The vendors sold their shares in HEL to the purchaser (Situ Ventures) a company set up by a Mr Hammond (H) for the acquisition. The parties of the SPA were the vendors (as vendors), the purchaser Company and H. The purchase price was £800,000 which was payable by instalments over five years. The relevant clauses which fell to be considered by the Court were:

clause 4.2: "Until all of the Purchase Price has been paid to the Vendors, the Director Vendors shall remain as Directors of [HEL] in a non executive capacity unless otherwise agreed and/or requested by the Purchaser." And clause 6 which provided for the payment of the purchase price by instalments, with later sub clauses providing protection for the vendors in the event that the purchase price was not paid in full or the instalments were not met on date due – creation of a charge over the shares and relinquishing 50% of the shares to the vendors until full payment was made. The full purchase price was not paid. In due course, the purchaser served notice under cl 4.2 requesting the resignation of the vendors as vendor directors. Amongst other issues, the Court had to consider whether cl 4.2 required the vendors to resign as directors.

The High Court (Richard Sheldon QC) held that the vendors were not obliged to resign as directors.

The interpretation of clause 4.2 principally turned determining whose benefit it was for. The vendors contended that the clause entitled them to remain on the board of HEL as non-executive directors until the entire purchase price had been paid (i.e. it was for their benefit and protection until the purchase price had been paid in full); whereas the purchaser contended that the clause placed the vendors under an obligation, prior to payment of the entire purchase price, to remain as non-executive directors for as long as the purchaser wished and entitled the purchaser to require that the vendors ceased to be directors.

The Court said that "unless otherwise agreed" shed...