Granville Baird Capital Partners Ltd. v Blackden & Ors

A contractual cost-sharing provision must be construed by identifying the meaning conveyed to a reasonable person with the parties’ relevant background knowledge, excluding prior negotiations and subjective intentions. A distinction may arise between a claimant’s withdrawal and a transaction failing for a technical reason. Where an offer is made by a company whose board must act independently and in the company’s interests, the board’s decision not to extend the offer is not necessarily a withdrawal by the funder. Failure to obtain the contractually required level of shareholder acceptances may constitute a technical failure, even if a different offer might hypothetically have succeeded.

The claimant fund managers financed a proposed management buy-out of Professional Staff Plc through First Saddle Limited. The defendants, members of the management team, had agreed to contribute 35 per cent of the claimant’s residual costs if the acquisition was unsuccessful because of a technical failure, but not if the claimants withdrew without cause.

The offer failed after acceptances reached about 83 per cent, below the required 90 per cent. The claimant-appointed and independent directors voted not to extend the offer. The central issues were whether the failure fell within the contractual meaning of “Technical Failure”, whether the claimants had withdrawn without cause, and whether a possible higher offer defeated the claim.

1. Judgment for the claimants on liability. The Agreement was construed according to the meaning it would convey to a reasonable person possessing the relevant background knowledge, excluding previous negotiations and declarations of subjective intention, following ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912–913.

2. The contractual examples indicated that “GBCP withdraw—without cause” principally concerned a withdrawal by the claimants before the offer was issued. A forceful opinion expressed by an employee after the offer had been made did not itself amount to the contractual withdrawal.

3. “Technical Failure” described a failure arising after the offer was made, including regulatory intervention or inability to obtain 90 per cent, or another acceptable percentage, of acceptances. The relevant inability was that of First Saddle, not a withdrawal by the claimants.

4. The decision not to extend the offer was made by the board of First Saddle. The independent directors exercised their independent judgment, and the claimants had not withdrawn in the contractual sense. The offer therefore failed because the required 90 per cent acceptance level was not reached.

5. The Agreement applied to the offer made, and possibly to a higher offer actually agreed by First Saddle. It did not allow the defendants to defeat the claim by showing that some different and unspecified offer might hypothetically have succeeded.

First-instance trial of liability in the High Court. No prior appellate decision was stated in the judgment.