Sattar v Sattar & Anor

A settlement agreement governing the sale of a company must be construed objectively and as a coherent scheme. Where one party is given responsibility for running the sale process, authority to engage the appointed advisers on reasonable terms may be implied, even though that party is not a director. The parties’ subsequent conduct generally cannot establish the meaning of the agreement, particularly where it is a one-off settlement agreement outside any specialised market. A court may direct compliance with the agreement where necessary to implement a Tomlin order, including correction of accounting entries which do not reflect the agreement’s natural meaning.

The judgment concerned cross-applications arising from the implementation of a Tomlin order and settlement agreement resolving a dispute between two brothers concerning their jointly owned company. The agreement provided for either the purchase of one brother’s shares or, alternatively, the sale of the company through a process involving corporate advisers. The issues were whether Naeem had authority to engage the advisers on behalf of the company, whether Bashir had to procure the provision of company information, and how two payments and the company loan account were to be treated under the agreement.

1. Authority to engage advisers. Clause 5 formed a comprehensive code for implementing the sale process. Naeem was responsible for initiating and running that process, instructing the corporate advisers and communicating with Bashir. The clause contained no reservation of a power for Bashir to withhold consent or authority. Naeem therefore had authority on behalf of the company to engage the advisers on reasonable terms, including remuneration.
2. The word “instruct” in clause 5(b), objectively construed in context, included the initial engagement of the advisers as well as subsequent instructions concerning their work. The fact that the agreement used “engaged” for Naeem did not justify a narrower construction. The same interpretation applied whether clause 5 operated following Bashir’s failure to pay or following his election not to purchase the shares.
3. Under the general rule, subsequent conduct could not be used to establish the objective meaning of the agreement: James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 572. The discussion in HLB Kidsons v Lloyd’s Underwriters subscribing to Lloyd’s policy No. 621/PK1D00101 [2008] EWCA Civ 1206 did not establish any wider exception. Any possible relevance of conduct by experienced professionals in a specialised market did not extend to this one-off settlement agreement.
4. Information. Since the advisers had been properly engaged, Bashir was required to procure that the company supplied the information requested. Independently, clause 5(c) gave Naeem a right to management information necessary for him to instruct the advisers, and that right did not depend on prior engagement of the advisers.
5. Loan account and payments. Clause 11 required simple cancellation of the debt recorded on Naeem’s loan account as at 6 February 2008. Replacing that cancellation with a dividend and set-off did not comply because it created at least significant tax uncertainty. The £250,000 payment under clause 7 was to be treated as a payment made personally by Bashir, not as a loan by the company to Naeem. Clause 7 operated for Bashir’s benefit and required Naeem ultimately to account to Bashir, not to the company.
6. Each matter fell within the permission to apply under the Tomlin order and was necessary for proper implementation of the settlement agreement. Judgment was given for Naeem on all issues.