Pathfinder Minerals Plc v Veloso & Ors

Contractual meaning is determined objectively, by reference to the words used and the relevant background known or reasonably available to the parties. A poorly drafted agreement may require implied terms, but the court cannot substitute a different bargain.

Estoppel by convention may arise where parties share, or one makes and the other acquiesces in, an assumption about the meaning or effect of an agreement, and both conduct their affairs on that basis. The party relying on the estoppel must show communicated reliance and that it would be unjust or unconscionable to permit departure from the shared assumption.

The court may grant declarations where there is a sound legal basis, a real utility in granting them and justice requires it. An injunction may restrain threatened interference with legal rights or unconscionable conduct, including conduct abroad by a defendant amenable to the English jurisdiction.

The claimants sought declarations concerning the validity, governing law and effect of agreements relating to shares in Companhia Mineira de Naburi SARL, together with a permanent injunction and, alternatively, damages.

The defendants’ defence and counterclaim had been struck out for serious non-compliance with court orders. They did not appear at the final hearing. The court nevertheless considered the pleaded case and available evidence, and required the claimants to prove their claims in fact and law.

The principal issues were whether the Share Option Agreement transferred shares or merely created an option, whether subsequent agreements varied and novated it, whether the defendants were estopped from denying the parties’ shared understanding, and whether declaratory and injunctive relief should be granted.

1. Construction. The Share Option Agreement, on its true construction, granted an option. Title was to pass only when the option was exercised by payment of the balance of the consideration. The absence of an express time limit or exercise machinery could be addressed by implying reasonable terms. The London Agreement and Share Exchange Agreement provided for transfers of shares in exchange for shares in IMM. The Novation Agreement regularised the 2008 substitution of IMM for IMG and the reduction from 80% to 70%; it did not revoke or supersede the other agreements.
2. Estoppel by convention. The parties had proceeded on shared assumptions that the Share Option Agreement operated as a sale and purchase agreement, that IMM had replaced IMG, that IMM acquired 70% on payment of the option purchase price, and that the Novation Agreement confirmed those variations. The extensive dealings, including the Genbique transaction, due diligence, company meetings, warranties, accounts and continued ownership of Pathfinder shares, established communication, reliance and acquiescence. It would be unconscionable to allow the defendants to resile from those assumptions. The defendants were therefore estopped from denying them.
3. Relief. The court considered it appropriate to grant the declarations because they had real utility and justice required them. Under section 37 of the Senior Courts Act 1981, a permanent injunction was just and convenient to restrain threatened interference with IMM’s share ownership. The court had power to control the defendants’ conduct abroad because they were amenable to the English jurisdiction and the agreements were governed by English law.
4. The claims succeeded except insofar as they sought the true construction of the Share Option Agreement as a sale and purchase agreement. The alternative estoppel-by-convention claim succeeded. A revised draft order was directed.