Gloyne v Richardson & Anor

An option agreement granting a fixed percentage of shares may confer a numerical entitlement, rather than an entitlement recalculated by reference to shares held from time to time. An early-exercise provision triggered by a proposed sale does not reduce the later option merely because the early right was not exercised, unless the contract clearly provides for that consequence. An accord and satisfaction requires a concluded agreement made without a fundamental common mistake. Estoppel by convention also requires it to be unjust or unconscionable for a party to resile from the convention.

The appeal arose from declarations made by Hart J in proceedings concerning the construction and enforcement of option agreements made in 1988 and varied in 1992. The options concerned shares in a company later known as Axent Technologies Inc. The original option-holder’s widow disputed the conclusions that the option had not been exercised in 1996, that the parties had entered into an accord and satisfaction, and that the option entitlement had been reduced following an earlier sale of shares in 1993.

The appeal also concerned an estoppel by convention, an application to adduce further evidence, and the proper construction of the interaction between the general exercise provision and the early-exercise clause.

1. New evidence. The application to adduce the Share Exchange Agreement and expert evidence was refused. The material was irrelevant to construction of the option agreement and, in any event, the principles in Ladd v Marshall [1954] 1 WLR 1489 remained powerful persuasive authority. The Civil Procedure Rules had produced, at most, a very modest relaxation of those principles.
2. Exercise of the option. The correspondence in April 1996 did not constitute written exercise under the agreement. It concerned only part of the shares, assumed that exercise had already occurred, and contemplated a future exercise of the remaining shares. The defective notice concerning the flotation did not remove the contractual requirement to exercise the option as near as possible to the last business day before flotation.
3. Accord and satisfaction. The letter agreement did not discharge the parties’ rights. It was concluded on the common mistaken assumption that the option had already been exercised. It was therefore liable to be avoided for common mistake, or had been repudiated and accepted as terminated.
4. Estoppel by convention. The conditions identified in The ‘Vistafjord’ [1988] 2 Ll LR 343 were accepted. Although the parties had acted on a common conventional basis, it was not unconscionable for either to resile after the widow claimed an entitlement to 38,085 shares.
5. Construction. By a majority, Aldous LJ and Blackburne J held that non-exercise of the early-exercise right, followed by the sale of the relevant shares, reduced the remaining option entitlement pro tanto. Laws LJ dissented on this issue, holding that the agreement granted a numerical entitlement and contained no provision causing abatement. The appeal was consequently allowed in part.

• Court of Appeal (Civil Division): appeal from orders made by Hart J in the Chancery Division following his judgment of 11 November 1999. The Court of Appeal allowed the appeal in part.