Bailey Ahmad Holdings Limited v Bells Holdings Limited

A contractual compulsory-transfer mechanism operates on the occurrence of the specified trigger event, not merely on one shareholder’s honest belief that the event has occurred. Where the contract requires a material or persistent breach, the breach and any relevant failure to remedy it must in fact exist before the contractual consequences arise. A dispute about whether the trigger occurred remains for the court, while an expert determination clause concerned only with valuation does not resolve that dispute. A Part 8 claim based on an unarguable construction may be summarily dismissed, leaving any factual dispute to be pursued, if necessary, under Part 7.

The claimant held 40% of Omer & Company Accountants Ltd and the defendant held 60%. Their Articles and Shareholders’ Agreement created a compulsory-transfer regime for specified events, including a material or persistent breach which was not remedied.

The claimant sought a declaration under CPR Part 8 that it could invoke the regime on the basis of its honest belief in such a breach, without prior determination that a breach had actually occurred. The defendant contended that the proposed construction was unarguable and that any substantive dispute would require Part 7 proceedings.

1. The claim was summarily dismissed. The proposed construction had no real prospect of success and there was no real prospect of granting the declaration sought.
2. Articles 14.1 and 14.2 operated by reference to the occurrence of one of the specified Compulsory Transfer Events. Under article 14.1.1, the relevant shareholder must actually have committed a material or persistent breach of a shareholders’ agreement and, where relevant, failed to remedy it within 14 business days of notice. The other shareholder’s belief was not part of the contractual trigger.
3. The contractual regime was a familiar arrangement in which specified events trigger specified consequences. There was no arguable basis for reading words concerning the other shareholder’s belief into article 14.1.1. The fact that the regime allowed a forced sale at a fair value determined by an independent expert did not alter that construction.
4. The expert determination mechanism concerned the fair value of shares once the contractual conditions for a compulsory transfer were satisfied. Disputes about whether a Defaulting Shareholder existed, or whether a Default Transfer Notice had legal effect, fell within the courts’ exclusive jurisdiction under clause 24.2 of the Agreement.
5. A mistaken belief might be relevant to a separate claim that the purported notice breached an express or implied contractual duty, including a duty of good faith. It did not itself create a Defaulting Shareholder.
6. The court accepted that the Part 8 claim could be summarily disposed of under its case-management powers because the proposed construction was not arguable. If the parties’ factual disputes required litigation, appropriate Part 7 proceedings could be brought. The judge considered that any future litigation should be commenced in the County Court rather than the Commercial Court, having regard to the nature and value of the dispute, and urged mediation or other negotiated resolution.