UTB LLC v Sheffield United Ltd & Ors

A detailed shareholders’ agreement governing a joint venture did not create a quasi-partnership or imply a general duty of good faith. A good-faith term is implied only where it is obvious or necessary for business efficacy, having regard to the express agreement and the parties’ potentially adverse interests. The agreement did imply a term preventing a shareholder from wilfully obstructing the property-option mechanism triggered by acquiring control. A counternotice created a separate sale contract, and the buyer acquired the shares for that mechanism only on completion. Termination of the shareholders’ agreement did not terminate the sale contract. Specific performance was ordered because damages were inadequate. No actionable conspiracy or unfairly prejudicial conduct was established.

UTB LLC and Sheffield United Ltd each held 50% of Blades Leisure Ltd under an investment and shareholders’ agreement. Sheffield United served a call option notice offering to buy UTB’s shares for £5 million, alternatively offering to sell its own shares to UTB at that price. UTB served a counternotice and then attempted to avoid the agreement’s obligation to exercise property call options when it acquired 75% or more of Blades.

Sheffield United sought declarations, termination of the relevant contracts, relief for mistake, damages for breach of contract and conspiracy, and relief under Companies Act 2006, section 994. UTB sought specific performance of the share sale contract. The principal issues concerned implied duties of good faith, the meaning of acquisition under the property-option clause, mistake, repudiatory breach, unfair prejudice and the appropriate remedy.

1. Quasi-partnership and good faith. Blades was not a quasi-partnership. The parties were corporate shareholders with detailed, professionally drafted articles and investment agreement, distinct rights and interests, and express deadlock and exit machinery. The reasoning in Ebrahimi v Westbourne Galleries Ltd [1973] A.C. 360 and In Re Coroin Ltd (No.2) [2013] 2 BCLC 583 did not justify superimposing equitable obligations on those arrangements.
2. The conventional test for implying a term applied. Following Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), Sheikh Tahnoon bin Saeed bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) and Marks and Spencer plc v BNP Paribas Securities Trust Company (Jersey) Ltd [2015] UKSC 72, a good-faith term was implied only if obvious or necessary for business efficacy. The detailed agreement, its express good-faith machinery and the parties’ adverse interests when exercising exit rights made a general term neither obvious nor necessary. Any limited collaborative obligation would not govern the exercise of clauses 10 or 11.
3. A term was implied that a shareholder must not wilfully obstruct or hinder the operation of clause 9.1.12 when acquiring the other shareholder’s shares under clauses 10 or 11. However, the attempted transfer to UTB 2018 did not transfer the beneficial interest, and a buyer directing transfers to nominees or sub-purchasers still acquired the shares on completion.
4. The counternotice created a separate contract of sale and purchase. Consistently with Sherwood v Tucker [1924] 2 Ch 440 and Francis v Vista del Mar Development Ltd [2019] UKPC 14, exercise of the option produced a new contract. Termination of the investment agreement did not terminate that contract.
5. Sheffield United’s mistake concerned UTB’s likely conduct and the operation of another contract, not a term of the share sale contract. Under Statoil ASA v Louis Dreyfus Energy Services LP [2008] 2 Lloyd’s Rep 685, the contract could not be avoided for that type of unilateral mistake.
6. UTB’s refusal to cause the property call options to be exercised on completion was an anticipatory and repudiatory breach of the investment agreement. Sheffield United validly terminated that agreement, but the breach did not terminate the separate share sale contract. No claimed loss resulted because the property options were later exercised.
7. The petition under Companies Act 2006, section 994, failed. The conduct was either not management of Blades’ affairs, caused no material prejudice, or was justified by the agreed arrangements. The court could not grant relief on an unpleaded new bribery case under section 996(1).
8. Specific performance was ordered. Damages were inadequate for the loss of control of the football-club business, the increase in share value was a risk Sheffield United had accepted, and UTB’s breach of the investment agreement did not infect formation or enforcement of the separate sale contract. Sheffield United was required to complete the sale for £5 million. Its additional damages and conspiracy claims were dismissed.