Leedon Limited v Mr Ghanshyam Hurry & Others

A contractual right of first offer must be construed in the context of the agreement as a whole and the commercial venture it regulates. A right directed to a proposed sale during a continuing joint venture does not necessarily extend to a sale by liquidators after compulsory liquidation. Detailed notice, timing and completion provisions may show that the parties did not intend the right to operate in liquidation where those provisions would impede the rapid and flexible realisation of assets. Once the right is found unavailable in liquidation, questions about proprietary status, binding effect and any impermissible fetter on liquidators’ powers do not arise.

Leedon Limited v Mr Ghanshyam Hurry & Others concerned the liquidation of MPL (I) Ltd following an unsuccessful joint venture. Leedon relied on clause 12 of a shareholders’ agreement, which conferred a right of first offer over an Assets Sale, and objected to the liquidators’ proposed sale of MPL’s shares in its subsidiary. The Bankruptcy Judge authorised the sale. The Supreme Court of Mauritius dismissed Leedon’s appeal on 30 September 2008. The central issue before the Privy Council was whether clause 12 remained exercisable once MPL entered compulsory liquidation. Further issues would have arisen concerning proprietary status, binding effect and insolvency law if Leedon had succeeded on construction.

Appeal dismissed with costs. Lord Walker delivered the judgment of the Board.

1. Clause 12 had to be construed in the context of the shareholders’ agreement as a whole. The agreement regulated the parties’ respective responsibilities towards the operation and management of the group. Its provisions on exit indicated that an Assets Sale was contemplated as one form of exit from the joint venture.
2. The definition of Assets Sale was wide enough to include a sale of shares in a subsidiary or a sale of business assets. However, the reference to a proposed Assets Sale raised the question of who would make the proposal. The commercially plausible context was a proposal by JPMP to withdraw from the joint venture and realise its investment while JPMP and Leedon remained interested in the group. The Supreme Court was therefore not wholly mistaken in viewing clauses 11 and 12 as directed to similar goals, although its reasoning was open to criticism.
3. The Board accepted the cumulative force of the points against applying clause 12 in a liquidation. Its detailed and prescriptive machinery included a 30-day notice period, inflexible requirements as to the terms of sale, director-signed confirmations and restrictions which created uncertainty about piecemeal sales. Those provisions would impede the rapid and flexible marketing exercise required for an effective liquidation. They showed that clause 12 was directed to the continuing joint venture and not to the possibility of liquidation.
4. Clause 12 was therefore not intended to apply once MPL entered compulsory liquidation. The Board did not decide whether the right was proprietary, whether it could bind MPL in liquidation, or whether insolvency law would treat it as an impermissible fetter on the liquidators’ powers.

• Privy Council: By [2010] UKPC 27, the appeal was dismissed with costs on the construction issue.
• Supreme Court of Mauritius: On 30 September 2008, dismissed Leedon’s appeal from the Bankruptcy Judge’s order.
• Bankruptcy Court of Mauritius: Authorised the liquidators to sell MPL’s shares in its subsidiary by private treaty or tender, with consequential directions.