Jeffries v Archer

Under a contractual refinancing clause, an unconditional offer of finance provides conclusive proof of ability to repay only if the contract’s requirements are strictly satisfied. An offer remains conditional while the lender can refuse to lend because material preconditions, including adequate security and evidence of its value, remain outstanding. “Ability to repay” ordinarily requires access to funds that are immediately available, rather than merely potential finance or an illiquid asset held by a subsidiary. A contractual notice requiring a shareholder to transfer shares need not fail merely because the purchaser’s identity was omitted from an earlier notice, where a later notice identifies the purchaser and does not improperly alter the contractual timetable.

The claimant and defendant were the sole shareholders and directors of Harbridge Holdings Limited. Their shareholders’ agreement contained a get-out clause under which the claimant could require the defendant to transfer her shares to a third-party purchaser found for the claimant’s shares. The right ceased upon “Company Refinancing”, defined to include the company being able to repay the claimant’s loan, conclusively proved by an unconditional commercial loan offer on reasonable terms.

The defendant contended that negotiations and loan documentation from Lloyds TSB constituted Company Refinancing. She also argued that the claimant’s notice under the get-out clause was invalid because it did not initially identify the purchaser. The trial concerned liability only and required determination of whether there had been Company Refinancing and whether the claimant’s notices were valid.

1. Claim succeeded on liability. The court ordered accordingly.
2. “The Company” in clause 3(g) meant Holdings, not its subsidiary, Engineering. The agreement concerned Holdings’ shares and rights, and its language identified Holdings as the company. A loan offer to a subsidiary was therefore insufficient by itself to provide the stipulated conclusive proof. It might nevertheless be evidence of ability to repay by another route.
3. The contractual words required strict compliance with the specified method of conclusive proof. Company Refinancing was a once-and-for-all event when a qualifying offer was made. An offer in principle was insufficient. The loan document did not amount to an unconditional offer because material conditions remained outstanding.
4. The security requirements were substantive conditions, not mere administrative matters or reasonable commercial terms of an otherwise unconditional offer. The bank retained the ability to require evidence of the value and effectiveness of security and to limit lending by reference to that valuation. Those requirements had not been met before the drawdown date, and it was not inevitable that they would be met.
5. In the absence of conclusive proof under clause 3(g), “ability to repay” required sufficient funds to be actually and immediately available. Potential finance, or an illiquid asset held by a subsidiary, was insufficient. Holdings never had the necessary access to immediate funds.
6. The claimant’s notice under clause 9 was valid despite not identifying the purchaser in the initial notice. The later notice identified the purchaser and did not amend the contractual timetable. The defendant could not rely on her own lack of co-operation to contend that the claimant had failed to make the necessary contractual arrangements.

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