Gaetano Ltd v Obertor Ltd

A contractual exit mechanism providing that either shareholder may initiate the procedure “at any time” should be given its ordinary meaning unless the agreement clearly imposes a restriction. A notice is valid where it communicates the intention to implement the procedure and supplies the contractual information required, including the specified price. An alternative solution prevents the mechanism taking effect only where the parties have reached an agreement inconsistent with its operation. A shareholder cannot recover reflective loss representing loss suffered by the company. Specific performance is generally appropriate for the transfer of shares in an unquoted company where damages are inadequate.

Gaetano Ltd v Obertor Ltd concerned a dispute between equal shareholders in a Portuguese property joint venture. The claimant invoked the exit and deadlock provisions in a shareholders’ agreement and sought specific performance requiring the defendant to purchase its shares for €3.95 million.

The defendant argued that the notice was invalid, that the parties had agreed an alternative solution, and that the claimant’s counterclaim was maintainable in respect of alleged misconduct by its nominated directors. The claimant sought summary judgment on its claim and on the counterclaim, alternatively strike-out. The issues were whether the contractual procedure had been validly invoked, whether an alternative agreement prevented it taking effect, whether the counterclaim disclosed viable claims and loss, and whether specific performance was appropriate.

1. Summary judgment. The court applied the established principles that the claim must have a realistic, rather than fanciful, prospect of success; the court must avoid a mini-trial; and it must consider evidence reasonably expected to be available at trial. The court may nevertheless reject factual assertions lacking substance, particularly where contradicted by contemporaneous documents. A fuller investigation is required where it could affect the outcome.
2. Validity of the exit notice. Clause 21.1 permitted either shareholder to serve notice of an intention to implement the procedure “at any time”. The agreement contained no definition of deadlock, and “deadlock” was not a term of art. Restricting the clause to deadlock or material breach would deprive “at any time” of its ordinary meaning and create commercial uncertainty. The notice therefore did not require a specified complaint or pre-existing deadlock. The reasoning was consistent with the approach to contractual construction in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 and the commercial common-sense principle considered in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 3 WLR 267.
3. The letter validly incorporated the option notice. It stated a single price, which was the contractual requirement. A reference to clause 21.1 instead of clause 21.2 was an obvious slip causing no misunderstanding.
4. Alternative solution. The discussions between the parties did not establish an agreement that the contractual procedure was unnecessary or suspended. At most, they involved an attempt to find a third-party purchaser, with no purchaser identified and no guarantee that one would be found. The irrevocable nature of the option notice prevented unilateral revocation, but did not prevent the parties from mutually agreeing to set it aside. No such agreement was reached.
5. Counterclaim and remedy. Clauses concerning PDA’s obligations and the directors’ machinery did not impose the alleged obligations on Gaetano. The shareholders’ obligations during the shareholding were governed by clause 9, not the post-transfer restrictions in clause 15. Alleged breaches by Gaetano’s nominated directors could not, without more, constitute breaches by Gaetano. The counterclaim was also barred by the rule against reflective loss stated in Johnson v Gore Wood & Co [2002] 2 AC 1, which applies equally to alleged fiduciary duties: Gardner v Parker [2004] EWCA Civ 781, [2004] 2 BCLC 554.
6. Specific performance was appropriate. Shares in an unquoted company had no ready market, and damages would not adequately compensate the claimant for being left as an unwilling shareholder in the joint venture. The court ordered specific performance of the obligation to purchase Gaetano’s shares for €3.95 million, subject to appropriate undertakings concerning the practical completion steps.

First-instance judgment. No prior appellate decision is stated in the judgment.