Carlos Ortiz-Patino v MGI Golf and Leisure Opportunities Fund Limited

Contractual rights to contingent profit-sharing payments depend on the objective construction of the agreement. Clear language directed to the sale of underlying assets is not extended to an indirect sale of shares merely because that construction would better reflect the commercial outcome or prevent a perceived anomaly.

An obligation to use reasonable endeavours to identify buyers does not, without more, impose an obligation to sell or to pursue every potential offer. Its scope depends on the contractual language and the commercial context.

A term requiring an owner to preserve asset values and service related debts will not be implied where the contract remains commercially coherent without it. The court will not improve an unwise bargain.

The claimant inherited rights under a profit-sharing agreement made when his father sold shares in companies holding Spanish real estate and trade marks to the defendant. The defendant later sold shares in the holding companies to Zagaleta.

The claimant sought 9 per cent of the alleged net profit from that transaction, damages for breach of an obligation to identify buyers at the best saleable price, and damages for breach of an alleged implied term requiring the defendant to preserve asset values and service related loans. The defendant disputed liability and advanced potential deductions and set-off claims.

The central issues were whether the profit-sharing provisions applied to an indirect sale of assets through a sale of shares, the scope of the reasonable-endeavours obligation, and whether the proposed implied term was necessary.

The claim was dismissed.

1. Applying the principles stated in Arnold v Britton, the court construed the agreement objectively, focusing on the natural and ordinary meaning of the words in their documentary, factual and commercial context. Clause 3.2.2 concerned the sale of underlying real estate assets owned by Valsa or Vesa. It did not apply to a sale of shares in Soto, Valsa or Vesa. The wording of the net-profit formula, the payment mechanism, the separate treatment of share sales in clause 5 and the commercial background all supported that conclusion.

2. The equivalent provision concerning trade marks, clause 4.1.2.2, likewise applied to a sale of the trade marks themselves and not to a sale of shares in the holding companies. The anti-avoidance wording in clause 3.7 dealt with intra-group reorganisations and did not widen the primary payment obligation.

3. Because the sale to Zagaleta was a sale of shares, no payment arose under clauses 3.2.2 or 4.1.2.2. The claims for damages based on an alleged higher value also failed because they depended on those provisions applying to the share sale.

4. On the assumed construction that clause 3.1 could extend to identifying buyers for shares indirectly holding the assets, the obligation required reasonable endeavours to identify buyers as soon as possible and at the best saleable price. It did not require MGI to sell the assets or to pursue every identified offer. In any event, MGI had taken active steps to identify potential purchasers and was not in breach.

5. No term should be implied requiring MGI to service and maintain loans or preserve the maximum value of the assets and shares. The stringent requirements for implication of terms were not satisfied. The agreement was commercially coherent without the proposed term, and the court would not recast the bargain as a quasi-partnership or mortgagee-in-possession arrangement.

6. The court made further observations on deductions and set-off in case of an appeal, but those issues did not affect the dispositive construction of the profit-sharing provisions.