Fin Soft Holding SA v Rowil Interim Management BV & Ors

Where contractual machinery for payment depends on an anticipated event which becomes impossible through circumstances not contemplated by the parties, the court may construe the machinery so that the agreed payment remains effective. A construction which would reduce an expressly agreed minimum price to a lesser sum may be rejected where it produces an absurd or commercially incoherent result. Alternatively, a term may be implied where it is necessary to give business efficacy to the agreement and the parties would have regarded the solution as axiomatic. On an application under Part 24, summary judgment is appropriate where the opposing party has no real prospect of establishing a contrary construction or defence.

Fin Soft owned shares in Shoelanco, which in turn held shares in Super Channel. Under agreements made in 1993, Rowil acquired an interest in Shoelanco and agreed to pay Fin Soft US$10 million in three tranches. The final US$2.5 million was made payable following completion of specified put or call options, or upon Rowil’s sale of all its Shoelanco shares.

Subsequent dilution reduced Rowil’s holding below the threshold at which the options remained exercisable. Shoelanco also disposed of its interest in Super Channel, leaving Rowil with a worthless shareholding and no realistic prospect of triggering either contractual event. Fin Soft applied for summary judgment for the unpaid tranche. The central issue was whether the variation agreement made payment conditional upon an event which might never occur, or whether the contractual machinery should be construed or supplemented to preserve the agreed minimum price.

Summary judgment granted. The defendants had no real prospect of establishing that Fin Soft had agreed to bear the risk that the final tranche might never become payable.

1. The agreements, read together, established an agreed minimum price of US$10 million. The September variation altered the machinery and timing of payment but did not reduce the substantive price or transfer to Fin Soft an unexpressed risk that the payment trigger might fail.
2. The put and call options were to be understood as applying to Rowil’s entire relevant shareholding, including the shares transferred by Fin Soft. The contractual arrangements proceeded on the assumption that Rowil would ultimately divest itself of its interest in Shoelanco and Super Channel.
3. On the proper construction of the variation agreement, the words referring to completion of the put or call option included expiry of the period during which the options could have been exercised. This avoided an absurd result and gave effect to the parties’ evident intention. The final tranche therefore became payable on 1 July 1998, when the options fell away.
4. Alternatively, a term would be implied requiring payment to crystallise on expiry of the option period. Applying the approach explained in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd, the implication was necessary to give business efficacy to the transaction, and there was only one contractual solution to the unforeseen failure of the machinery.
5. Summary judgment was entered for Fin Soft against Rowil as primary obligor and Fortis Bank as guarantor for US$2.5 million, payable from 1 July 1998. The precise form of order, including any amendments to the statements of case, was reserved.

First-instance decision in the High Court (Commercial Court). No prior appellate decision is stated in the judgment.