European Micro Plc v Van Der Voort

A contractual procedure for selling shares issued in satisfaction of a purchase-price instalment is not ordinarily a condition which extinguishes the underlying debt if the procedure is not followed. The agreement must be construed purposively and commercially. Any breach may affect the calculation of a cash shortfall, but it does not remove the obligation to pay. An injunction restraining presentation of a winding-up petition is unjustified where the alleged debt is not genuinely disputed on substantial grounds. A dispute based on a construction producing the absurd result that non-compliance obliterates the debt does not meet that threshold.

The appellant sold shares in Sunbelt (UK) Ltd to the respondent. Part of the purchase price could be satisfied by allotting shares in the respondent, subject to provisions requiring their sale over 40 trading days and payment of any resulting shortfall.

The appellant sold the allotted shares and claimed the balance. The respondent disputed liability, arguing that the cash obligation arose only if the prescribed selling procedure had been strictly followed. His Honour Judge Kershaw QC restrained presentation of a winding-up petition on the basis that this constituted a genuine dispute on substantial grounds. The appeal concerned whether that construction was reasonably arguable and whether the petition should remain restrained.

Lord Justice Aldous gave the judgment of the court. Lord Justice Laws and Lord Justice Jonathan Parker agreed.

1. Appeal allowed. The order restraining presentation of the winding-up petition was unjustified. The contractual construction relied on by the respondent was not reasonably arguable.
2. The agreement was a carefully drafted commercial document and had to be construed purposively to give effect to the parties’ intention. Clause 2.5.2.1 prescribed the method by which the allotted shares were to be sold. It was not a condition in the technical sense which, if unsatisfied, extinguished the debt owed for the purchase price.
3. A breach of the selling provisions could provide grounds for challenging the amount claimed under clause 2.5.2.2. It could affect the amount of any cash shortfall, but it could not obliterate the underlying obligation to pay. The contrary construction would produce a bizarre and absurd result which the parties could not have intended.
4. There was no evidence that any failure to comply with the prescribed selling method had caused a loss of value or reduced the debt claimed. Accordingly, there was no genuine dispute on substantial grounds capable of justifying restraint of the petition.
5. The appeal was allowed with costs below and in the Court of Appeal. The £3,000 paid into court was ordered to be paid to the appellant’s solicitors with accrued interest.

1. High Court of Justice, Chancery Division: His Honour Judge Kershaw QC made an order on 19 April 2002 restraining presentation of a winding-up petition based on the statutory demand.
2. Court of Appeal (Civil Division): The appeal was allowed, with costs here and below, and the restraint was discharged.