Davinder Bal v Parveen Attri

An option agreement is construed as a whole and in its commercial and structural context. A provision requiring the parties to enter into a shareholders’ agreement and new articles before exercise does not create a condition precedent unless that construction is necessary to give the contract business efficacy or is so obvious that it goes without saying. Where the option clause provides a complete code for exercise by written notice, and the protective provision itself gives the minority shareholder the relevant contractual protection, the additional machinery is not ordinarily a pre-condition. A professionally drafted agreement’s structure and the absence of imperative or conditional language are relevant.

The appellant had agreed an option to acquire 80% of the respondent’s company. The agreement required the parties to enter into a shareholders’ agreement and new articles before the option was exercised. The appellant later served notice exercising the option without those documents having been agreed.

At trial, the County Court held that compliance with that provision was a condition precedent and dismissed the claim. Permission to appeal was granted on the question whether, on the true construction of the agreement, failure to agree the documents before exercise invalidated the option exercise.

1. Appeal allowed. The agreement’s option was created by clause 2. Clause 2.3 provided that exercise occurred by written notice, and clauses 2 to 4 otherwise formed a complete code for exercise and completion.
2. Clause 7.5 stated that the parties agreed to enter into a shareholders’ agreement and new articles before exercise, but it did not state that the option was incapable of exercise unless those steps occurred. It contained no express conditional or imperative wording.
3. The court considered whether such a condition should be implied as necessary to give business efficacy or because it was obvious. Neither basis was established. Treating clause 7.5 as a pre-condition would undermine the apparent purpose of clauses 2 to 4 by making exercise dependent on further agreement by the respondent.
4. The contractual protection against dilution arose from clause 7.5 itself. The further documents were machinery for giving effect to that protection and added no necessary protection. The respondent could enforce the primary obligation through the courts, including potentially by proceedings under section 994 of the Companies Act 2006.
5. The respondent already held undertakings controlling the voting of the option shares before completion. Completion therefore did not create the commercial imperative relied upon by the trial judge. The agreement was an unconditional deed which took effect on signing, not upon later compliance with clause 7.5.
6. The case was remitted for trial of the remaining issues. The harassment counterclaim was not reinstated. The appellant’s appeal costs were ordered to be costs in the case below.

• High Court, Chancery Appeals: The appeal from the County Court was allowed. The matter was remitted for trial of the remaining issues.
• County Court at Birmingham: HHJ Williams held that the option had not been validly exercised because clause 7.5 had not been complied with and dismissed the claim by order dated 25 January 2023.