JP Morgan International Finance Limited v WEREALIZE.COM Limited

The proper construction of a sophisticated valuation agreement requires the court to balance contractual language, context and commercial consequences. A valuation clause requiring an arm’s-length open-market valuation may require valuers to consider reasonably expected future capabilities, including capabilities not presently available because of shareholder-specific regulatory restrictions. Express valuation instructions prevail over an existing business plan where the contract does not incorporate that plan. A shareholder may not withhold approval of projections merely because they reflect activities restricted by Regulation K, Regulation Y or the Bank Holding Company Act. Conditions precedent to appointing a third valuer must be satisfied, but an unresolved allegation of manifest error does not itself prevent appointment. A party may exercise a single contractual call option during successive specified exercise periods where the contract so provides.

J.P. Morgan International Finance Limited and WEREALIZE.COM Limited were shareholders in Viva Wallet and parties to a shareholders’ agreement containing reciprocal call options and a valuation mechanism. The parties disputed the proper basis for valuing Viva, the effect of US regulatory restrictions, approval of fresh financial projections, appointment of a third valuation expert, and whether JPM could exercise its call option only once or during successive option periods.

The expedited trial determined issues arising under the shareholders’ agreement, including applications for declaratory relief and questions of US law concerning Regulation K.

1. Valuation basis. The Call Option Fair Market Value was to be determined by reference to Viva’s actual historical financial performance and projected performance based on financial projections prepared under paragraph 3.7(b)(vi) of Schedule 1, not by reference to the current approved Business Plan. The valuation was to disregard value attributable to any particular purchaser and financial effects arising from JPM’s acquisition or majority ownership.
2. The valuers were required to disregard obligations, restrictions and limitations under Regulation K, Regulation Y and the Bank Holding Company Act insofar as they resulted from JPM’s shareholding. Fresh projections were therefore permitted and potentially required.
3. JPM was precluded from withholding approval of projections solely because they reflected activities restricted by those regulatory provisions. A declaration as to the content of JPM’s general duty to act reasonably was refused because no particular dispute required determination. Unapproved projections could not be taken into account by the valuers.
4. Viva was a subsidiary of JPM for the purposes of Regulation K because the equity limb of the subsidiary definition was satisfied. It was unnecessary to decide whether the regulation applied directly to Viva, since the relevant contractual obligation was accepted and the issue would serve no useful purpose.
5. A third valuation expert could be appointed only if the two valuations differed by more than 15% and neither determination contained manifest error. An unresolved allegation of manifest error was not itself a condition precedent. No implied term extended an option period or allowed JPM to proceed solely on its own expert’s valuation.
6. The JPM Call Option could be exercised by notice during any and all of the four specified exercise periods. Exercise meant exercise of the substantive contractual right, not merely service of a notice which was rejected by WRL. The court declined declarations on issues that were premature, abstract or would serve no useful purpose.

First-instance expedited trial in the Commercial Court. No appeal history was stated.