Colombia Pictures Corporation Limited v Wanda Kids Cultural Development Co Limited

A contractual obligation to pay cash for shares is not conditional on regulatory approval where the agreement expressly makes regulatory permission relevant only to an alternative issue of shares. The court must construe the agreement objectively, reading related provisions together and respecting the parties’ express allocation of risk. An implied term cannot be introduced where it contradicts that allocation of risk, even if performance may be difficult or impossible without approval. A defence based on construction or implication may be suitable for summary judgment where it raises a short point of law and has no realistic prospect of success.

Columbia Pictures Corporation Limited claimed the US$49 million purchase price allegedly due under a put option agreement requiring Wanda Kids Cultural Development Co Limited to purchase shares in an entertainment company. Wanda defended the claim on the basis that its obligation to complete and pay was conditional on regulatory approval from authorities in the People’s Republic of China.

The dispute concerned the construction of clauses dealing with the cash or shares election and regulatory applications. Wanda alternatively contended that a term should be implied making payment conditional on regulatory approval. Columbia Pictures applied for summary judgment on the claim.

1. Summary judgment. A defence must have a realistic prospect of success, meaning more than a merely arguable case and carrying some degree of conviction. The application was suitable for determination because the issues were short points of contractual construction and implication.
2. Construction. Clause 2.2 gave the seller an election to receive cash, shares, or a mixture. The words making the shares election subject to law and regulation applied only to the issue and allotment of quotation shares. Clause 2.7 concerned applications relating to shares allotted following that election. Read together, those provisions did not make payment of the cash price conditional on regulatory approval.
3. The words “any shares allotted” could not naturally include the transfer of the option shares pursuant to their sale. The agreement used “transfer” when referring to that transaction. The factual matrix, even if Wanda’s evidence were assumed to be correct, could not give the words the meaning advanced by Wanda. The express allocation of risk meant that the seller bore the risk concerning payment in cash, while bearing the regulatory risk concerning the issue of quotation shares.
4. Implied term. The suggested term was neither necessary to give the agreement business efficacy nor so obvious as to go without saying. It would contradict the detailed contractual allocation of risk in clause 2.2 and therefore could not be implied.
5. Wanda had no realistic prospect of succeeding on either defence. Summary judgment was granted to Columbia Pictures. The parties were directed to agree an order giving effect to the judgment.