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

Contractual interpretation begins with the language chosen by the parties. Commercial common sense and the surrounding circumstances inform that exercise, but ordinarily cannot displace natural meaning or rescue a party from an imprudent bargain. Where a professionally drafted agreement distinguishes sales of underlying assets from sales of shares, an asset-sale trigger should not be extended to a share sale without appropriate wording addressing valuation, apportionment and other assets or liabilities. A provision extending “transfers” to share transfers for a specific intra-group reorganisation remains confined to that provision. A commercially disadvantageous result is not necessarily absurd, and a subsequent-event approach cannot rewrite a contract where its internal context shows that the parties had addressed the relevant distinction.

The appellant succeeded to rights under a profit-sharing agreement entered into when his father sold shares in companies owning or controlling Spanish real estate and trade marks. The respondent later sold shares in a holding company to a third party. The appellant claimed a 9% share of the resulting profit, contending that the sale of shares triggered the agreement’s provisions concerning sales of real estate assets and trade marks.

The High Court, in [2023] EWHC 1203 (Ch), dismissed the claim, while making alternative findings on quantum. The appeal challenged the construction of the agreement and, conditionally, two deductions. The respondent served a notice concerning further deductions and set-off. The central issue was whether the agreement was triggered by the sale of the holding-company shares or only by sales of the underlying assets.

The Court of Appeal unanimously dismissed the appeal. The High Court’s construction was upheld, and the respondent’s notice did not arise for decision.

1. Language and commercial context. The court must identify the objective meaning of the agreement from the language selected by the parties. Commercial common sense is relevant, but it cannot be placed at the forefront so as to rewrite clear wording or relieve a party from the consequences of an imprudent bargain. The approach in Arnold v Britton [2015] AC 1619 supported that conclusion.
2. Construction of clause 3. “Real Estate Asset” meant real property owned by Valsa or Vesa. The wording of clauses 3.2 and 3.3 was directed to the sale of underlying assets, including the price paid for the relevant asset and deductions attributable to it. It was not apt to include a sale of shares in Valsa, Vesa or their holding company, Soto. Clause 5 demonstrated that the drafter knew how to make a share sale an express triggering event and the agreement contained no necessary provisions for apportioning consideration or accounting for other assets and liabilities in a share sale.
3. Clause 3.7. The cross-referencing error in clause 3.7 was corrected by reference to the agreement’s structure and comparable clauses. Its extension of “transfers” to include share transfers applied only within clause 3.7. It created a limited exception for an intra-group reorganisation followed by an external transfer and did not expand the separate sale trigger in clause 3.2.
4. Commercial consequences and unforeseen events. The possibility of an unattractive bargain, or of the respondent realising value through a share sale, did not make the construction absurd. The father’s financial difficulties were part of the objective factual matrix, not an impermissible inquiry into subjective intention. The subsequent-event principle discussed in Arnold v Britton was inapplicable because the agreement, read with the contemporaneous sale agreement, showed that the parties had addressed the distinction between asset and share sales and had treated Campo share sales expressly but not Soto share sales.

The court therefore upheld the dismissal of the claim. It did not need to decide whether an implied term might prevent artificial manipulation of a transaction to avoid a profit share.

• Court of Appeal (Civil Division): In [2024] EWCA Civ 862, the appeal was dismissed unanimously and the High Court’s construction of the profit-sharing agreement was upheld.
• High Court of Justice, Business and Property Courts, Business List: In [2023] EWHC 1203 (Ch), the appellant’s claim for a profit share arising from the sale of holding-company shares was dismissed. Alternative findings on quantum were made in case the construction conclusion was overturned.